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Entrepreneurship management.

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Concept of Entrepreneur, Entrepreneurship and Enterprise

( Define the concept- Entrepreneur and entrepreneurship)

Entrepreneur - The word is derived from a French word meaning between

taker or go between. The word typically describes the role of traders such as

Marco Polo, who would transfer the goods produced from producers to the

actual buyers. In the given process the merchants were the risk bearers and

profit sharing was 75:25 between producers and merchants.

In 17 th century persons who entered into a contract to perform stipulated

product at a predetermined price were referred as entrepreneurs. Richard

Cotillion, an economist is considered as the founder of the term. All risk

bearers such as farmers, merchants are taken as entrepreneurs as they buy at

a certain price but sell under uncertain conditions. From 18 th century onwards

entrepreneurs are differentiated from capital providers. In 19 th and 20 th century

entrepreneurs were those who organize and operate for personal gains.

The term entrepreneur is defined in a variety of ways. In fact the meaning of

the term has changed from country to country and time to time. The term

entrepreneur was applied to business by a French economists Cantillion to

describe a dealer who purchase means of production to convert them into

marketable products. Another French economist J.B.Say further refined the

idea by describing entrepreneurs as the one who shifts economic resources

out of an area of lower and into an area of higher productivity and greater

yield.

Dr. Joseph Schumpeter defined Entrepreneurs as those who lead enterprises

and role of an innovator entrepreneur is to set in dynamic disequilibrium,

which is the norm of healthy economy and is the central reality of economic

theory.

Peter Drucker while describing entrepreneurs state that usually entrepreneurs

do not bring about any change themselves, they always search for change,

respond to it and exploit it as an opportunity.

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Entrepreneur can be defined in terms of three distinguishing tasks that

they perform

1. Initiative

2. Organization of resources

3. Risk bearing

Entrepreneurs are self starters and are quick to identify the needs and have

strong desire for achievement.

Concept of Entrepreneurship is comparatively new and is used in a broad

domain. Entrepreneurship can be defined as doing new things or doing the

things in a new way

Definition evolved from work done at Harvard Business school

Entrepreneurship is the process of creating or seizing opportunity and pursuing

it regardless of the resources currently controlled.

Importance of entrepreneurship (Benefits to the nation)

Entrepreneurship has power to bring a radical change in the economic, social

and political status of a family, state or nation.

Economic history indicates a strong correlation between economic

development and entrepreneurship development. The countries with morenumber of entrepreneurs have developed at a faster rate than others. Peter

Druker has explained American development in 1960 - 1980s as a

development due to increasing number of startups that registered in the given

time span.

Three centuries prior to World War most of the jobs were created by high

technology industries. Economic expansion after World War II was fuelled by

Automobiles, steel, rubber and petroleum industries. According to Peter

Drucker they perfectly fit into Kondratieff cycle. Kondratieff Russian

economist was executed in mid 1930s because his econometric model

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predicted that Collectivization of farming would lead to sharp fall in agricultural

production. Kondratieff cycle of fifty years was based on dynamics of

technology. The cycle has first 20 years of expansion and last 20 years of

stagnation, where neither industries nor government can do anything for the

correction. Kondratieff theory fails to provide explanation for the 40 million jobs created in the American economy, at the time of so called long term

stagnation .

Entrepreneur economy helped America to support increasing number of job

seekers and kept economy on a fast moving track. The need to develop

entrepreneurship in India can discussed on the same line.

1. Entrepreneurships generate value and enhance personal, social,

national and global wealth.

2. Entrepreneurship generates employment opportunities. India with more

than 1000 million populations needs to generate the job opportunities as

the top priority.

3. Entrepreneurship promotes innovation- Innovations are either cost saving

or demand rising. Innovations promote economic development of thefamily, business and the nation.

4. Entrepreneurship encourages social change, transforming society into self

reliant and confident one.

5. Entrepreneurship enhances export possibilities.

Growth of entrepreneurship is unevenly distributed. Some nations have

prospered more than others only because of difference in entrepreneurshipdevelopment. Even within a given nation, the difference in the growth of

entrepreneurship has led to regional disparities.

Factor affecting growth of entrepreneurship

(Social, cultural, political, economic factors affecting entrepreneurship)

Development of entrepreneurship requires strong personal desire, encouraging

environment, appropriate social cultural system and proper support fromconcerned institutions. These are the major factors that encourage the growth

of entrepreneurship.

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1. Individual motivation . This is the basic requirement for

entrepreneurship development. The individual must have a strong

desire to be a successful entrepreneur. Achievement motivation, power

motivation develops desire to lead or start an oraganisation . Personalefficiency is again an important factor for individual motivation.

Efficiency implies power of decision making, leadership, project planning

and high levels of energy. Efficiency relating to manage financial,

marketing, personnel and technical activities. The individual need to

posses coping ability i.e. tackling the stressful situations. The success

of an enterprise depends upon a capable entrepreneur who will lead the

enterprise even during most stressful times. All entrepreneurs are highlymotivated.

2. Environment :- Economic and political environment, government

policies and infrastructure plays an important role in development of

entrepreneurship. Availability of raw material power supply transport and

communication marketing facilities financial institutions is prerequisites of a successful

enterprise. Government policies regarding taxation and subsidies effects profitability of anenterprise, consistence government policies give encouragement to development of

entrepreneurship.

3. Social Cultural systems : - Entrepreneur gets encouragement from society. Some

societies groom entrepreneur right from childhood and shape values and attitude of

individuals. Risk bearing approach, desire for independence is results of family and social

atmosphere. Social institutions affect individuals thinking and attitude. Peer pressure, social

pressure influence individual decisions. If society assigned high values to entrepreneurs

then individuals are automatically motivated to become entrepreneurs.

4. Family:- Goals and expectation of an individuals are framed by family expectations.

Individuals respond to this pressure normally in positive manner. Usually children born in

business family tend to become businessmen , they are groomed to take risk and taught to

be self- reliant, they value work and are willing to work with endurance.

5. Supports from concerned institution :-Several agencies and organizations operate to help

and support the entrepreneur. Following are the examples of support systems. Corporations

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specially set-up to develop entrepreneurship and small industries in a region, Financing

institutions including banks, extension services of the department of industries (including

SISIs), non- government organizations of small industries or entrepreneurs, consultants,

private agencies doing research or providing services to entrepreneur, and similar training

institutions. Educational institutions working in the field of entrepreneurship like Institutesof Technology, Institutes of Management, Universities, and engineering Colleges also

encourage and support entrepreneurship. Development of administration in the district and

large industrial establishment interested developing ancillary industries also promote

entrepreneurship. They help small units to grow and develop.

Entrepreneurial Behavior (EB) is a function of an individual personality characteristics andenvironmental factors. This could be represented as:-

EB = f (P,E)

Where

P = Personality characteristics

E = Environmental factors.

This environmental factor could be either nutrant or impediments to entrepreneurial

development.

One really cannot draw any conclusion regarding following points that how they promote

entrepreneurship. There are examples of entrepreneurs coming from varied educational

background, age and family background.

1. Education

2. Age

3. Family

4. Community

5. Technology

6. Resources

1. Education :- Educational background of individual and family plays an important role in

placing entrepreneurship development. Proper education especially education in field of

management is believed to encourage entrepreneurial ventures. However, on the other hand we

have instances where children born in poor and uneducated family have strong desire to excel in

their career and life.

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2. Age :- This is an important factor in choosing the career. Usually the entrepreneur set their

enterprise after having some field experience. Some start their business immediately after

completing their education whereas some decide to take some industry experience before starting

the enterprise. However, majority of the entrepreneur make up their minds before 30. Individuals

in the age group 40 to 50 rarely take the risk of entrepreneurial venture and such thoughts are postponed till retirement and we observe that there are some successful entrepreneurs who have

stated the business after attaining their retirement age. One can understand the psychology of a

retired person when he decides to jump into a new venture after generating sufficient funds and

after fulfilling family responsibilities.

3. Family: - Family background as well as the financial status play and important role in

shaping the decision of investments. Parents are the role models for children. Their advice andattitude ultimately shape the behavior of children naturally enterprising parents encourage

entrepreneurship whereas risk adverse parents discourage entrepreneurship. Study of financial

status indicates that more than 60% of the first generation enterprises are started by entrepreneur

belonging to middle income group, very few entrepreneur have come from low income group. This

implies that the financial status is an important factor in deciding upon the entrepreneurial venture.

Cooperation from the spouse is a very vital element in development entrepreneurship it is

observed that male entrepreneur are supported by educated and working wives and women

entrepreneur get moral / financial support from parents, husbands and other family members.

4. Community :- Pre-entrepreneur background is a key factor in grooming the necessary skills.

Some communities are famous for entrepreneurship venture such communities value

business spirits and inculcate the same spirit among the children such communities follow the

established trade. Some communities, under some threats try to prove themselves by taking

risky ventures for example in India Marvadi and Sindhi community is famous for business

venture.

5. Technology :- Advanced technology does motivate entrepreneurs in their new ventures however

technology cannot deter the spirit of entrepreneurs. In many cases technology develops as a

response to the need and requirements of business.

6. Resources - Easy availability of resources encourage busines growth. The best example for

this factor is development of Tata Iron & Steel Co. ( TISCO) at Jamshedpur.

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Qualities of a successful entrepreneur

(Critical attributes of a successful entrepreneur)

1. Need for Achievement - All successful entrepreneurs have a very strong need for achievement.

This strong urge leads to absolute passion for the goal and the person gathers enormous energy to

work and push the entire team to the goal. Kiran majumdar, Narayan Murthy as first generation

entrepreneurs have exhibited this strong desire to establish the enterprise and untiring energy to

take the organization to higher levels.

2. Vision The entrepreneurs feel the change before it actually occurs. So they prepare for the

change in advance and thus make huge profit if their predictions proved to be correct. They

prdict market response to a given change and offer the products and services as per the

changed requirements.

3. High level of motivation - This class of people is highly motivated and in turn motivatesmany more to achieve their goals. Failures cannot stop them. They are very energetic and

carry positive vibes whwrever they go.

4. Risk bearing capacity - Entrepreneurs are risk bearers and they are ready to risk their

money, time and resources for the business. They all strongly believe that profit emerge

only if risks are properly managed.

5. Perseverance Stories of early struggles and failures are very common in the case of all

entrepreneurs. The business enterprises require proper care and nurturing at the early stages,entrepreneurs wait patiently to let the business settle and then bloom.

6. Self confidence and Self esteem- Most of the entrepreneurs set up the business in order to

be on their own. They believe in framing their own life as per their own wishes. They have

a very high degree of self respect and confidence to be master of their own fortune.

7. Excellent leadership- Entrepreneurs are the best leaders, who can motivate the entire team

towards the set goal. They have excellent skills of decision making and they work hard to

make their decision right. They are inspired and self motivated. They exhibit very high

levels of stamina with which they can work untiringly.

8. Team building ability A well focused and motivated team can achieve anything

and everything. Team building is a rare skill. The leader needs to address the conflicting

issues among team members and to set a common and bigger aim for all. He must create a

all win situation and distribute the gains to all. Leader needs to have faith and support of the

entire team to perform the difficult tasks. A successful entrepreneur possesses the team

building ability.

4. Ethics and values All the successful entrepreneurs base their business on the basic

principles of ethics and values. The statistical studies indicate a very high correlation between

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business ethics and long survival with good profits. The most respectable entrepreneurs of today,

Narayan Murthy and Ratan Tata are very well known for their ethics and values.

Prepare an outline of basic qualities of any one entrepreneur of your choice - Narayan Murthy

(Ref. his book Better India Better World.)

Difference between - Entrepreneur Manager - Intrapreneur

A Professional manager needs to know the basic principles of management.

1. Planning 2. Organising 3.Staffing 4.Monitoring and Controlling

Managers like entrepreneur, are energetic, motivated and goal oriented. We may compare the two

on the following grounds.

Managers work with a short term motive and resigns from the job when gets a better opportunity.

For an entrepreneur, his enterprise is like his own baby. So he has a longer perspective and is ready

to take any efforts for the betterment of the organisation

A good manager in any organisation is good at the assigned task. However he is a sheer follower of

the selected path but is unable to choose the best path. Entrepreneurs set the path.

A manager is paid a contractual payment and hence does not take any risk of profit and loss. For an

entrepreneur profit will be a reward for his risk bearing capacity.

Managers entire aim is to fulfill the targets set by the higher up and hence they have set objectives

to attain. Entrepreneurs set the goals themselves and motivate the team to attain these goals.

Managers maintain performance oriented relationship with colleagues and subordinates. They treat

the team members in a professional manner, whereas an entrepreneur considers the man power as

an important resource and hence treat all with more care and compassion.

In many cases, the manager has better paper qualification and the skill set than the entrepreneurs.

Manager is appointed for a specific profile and hence he is required to have the relevant experienceand qualifications. An entrepreneur may think of a business opportunity for which he himself may

not have the required skill set for the execution.

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Compare the personality of any good and successful manager known to you with Narayan

Murthy/ Bill Gates/ Sahanaj Hussain

Difference between entrepreneur and intrapreneur -

(Comparison between an intrapreneur and an entrepreneur-

Outline similarities and differences between entrepreneurs and managers)

Intrapreneur is the one who has new ideas or new ways of doing existing process within the

corporate unit.

Intrapreneurship can be termed as corporate entrepreneurship.

Intrapreneurs operate within the framework of the organization.

Encouraging intrapreneurship helps to improve the corporate business. Many modern organizations

such as Googal encourage the staff to think about the processes that are beyond their domain. This

leads to overall motivated atmosphere in the organization. If ideas need incubation and further

research, the company provides full support in terms of resources and time and the concern

employee is appropriately honored.

If intrapreneurship is encouraged, competitiveness among employees leads to better ideas and

better strategies. Corporate image is enhanced and corporations attract better employees. Attrition

becomes very low and the work environment becomes congeal. Thinking out of the box is

promoted among all employees. Interdisciplinary teams are formed and exchange of ideas improvethe overall productivity.

1. Both, entrepreneurs and intrapreneurs are creative and have capacity to innovate. Both are

highly motivated and are very focused on their aims.

2 Entrepreneurs undertake the risk of running a business whereas intrapreneurs do not bear

any business risks.

3 Entrepreneurs have to organize all the resources for the new experiment, pilot study and isoverall responsible for profits and losses whereas the company takes up the responsibility of

providing resources at different levels of experiments and the intrapreneur is not directly

responsible for the financial success and failure of the business

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4. Entrepreneurs set the goal and work hard to achieve the same, whereas intrapreneurs find

some new ideas within the corporates domain which may enhance the profitability of the

company.

The modern organizations are promoting intrapreneurship by conducting idea generation sessionsfor the employees. When employees across the verticals think out of their own domain or think out

of the box, better ideas emerge and if these ideas are properly shaped, it may lead to new areas of

business development.

The process can be outlined as

1. Create a healthy and interactive work environment

2. Encourage and respect new ideas

3. Give opportunities to all to handle different responsibilities.4. Conduct idea generation sessions in regular intervals.

5. Select workable ideas.

6. Provide necessary resources for R and D and incubation.

7. Provide mentoring

8. Appreciate and encourage concern employee/employees in public

9. Implement the idea and have the market test

An excellent example of Intrapreneurship is Tata Swach Water purifier that will have low cost to

suit the requirements of lower middle class and poor class. The product is designed for the rural

market.

Gather more information about Swatch water purifier

Theories of entrepreneurship

Market Process Theory

Hayek and Krizner

Knight - Risk and Uncertainty

Joseph Schumpeter - Theory of Innovation

Hayek Relationship between market equilibrium and role of entrepreneurs

Process of adjustment

Centralised and decentrlised process

Hayek Relationship between market equilibrium and role of entrepreneurs

Process of adjustment

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Centralised and decentrlised process

Krizner-

Alertness to disequilibrium

Flashes of eoresights

EcoKnight-

Risk and uncertainty

Consolidation of uncertainty

Appointment of the personnel

Rewards to entrepreneurs For the ability

Scarcity of supply of self confident people with necessary power.

Joseph Schumpeter

Innovation and invention

Five types of innovations

New Product

New Market

New source of raw material

New method or tecnology

New form of organisation

Effects of innovation -

Demand

Cost

Three motivating factors

1. Dream

2. Strong willpower

3. Joy of creation

Economic Theories

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1. Richard Cantillon Noted economist and renowned author developed an early theory of

entrepreneurship in 1700 , describing entrepreneur as risk bearer. All those who buy at a

certain fixed price and sell at an uncertain price operate at risk. Therefore merchants,

farmers, craftsmen are the real entrepreneurs.

Persons bearing risks are different from one who is supplying capital.2. Mark Casson According to this theory, the demand for an entrepreneur arises out of the

need to adjust to the changes . The supply of entrepreneurs is scarce as the qualities

required for a successful entrepreneur are very rare.

Definition- J B Say coined the term Entrepreneur

Joseph Schumpeter Innovation

Peter Drucker- The entrepreneur always searches for change, responds to it and exploits it as

an opportunities.Entrepreneurship Composite skill mix of qualities and traits

Creative and innovative response to the environment- social, education, business, agriculture

and many more.

Doing new things or finding a new way of doing existing process.

Scope of the concept

Business

AgriculturePublic administration

Service sector

Social work

1997 Survey of 30 founder companies of 17 states of US upto $6.5 B

Effectual reasoning

Inverse of Causal

All teaching so far is to develop causal reasoning

Managerial thinking Causal reasoning

Strategic thinking - Creative causal reasoning

Entrepreneurial thinking Effectual reasoning

Causal process idea market research financial projections team business plan

finance prototype to market to exit.

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The process of effectual reasoning

Three categories of means

1.What they are traits, tastes and abilities

2.What they know education, training, expertise and experience3. Whom they know social and professional network

Causation model -

Example of starting an Indian restaurant by causal way-

Effectuation model lunch packets to restaurant

Principles of effectual reasoning

1- Affordable loss principle hands on selling

2. The principle of strategic partnership focus on building partnership than competitors analysis

3. The leveraging contingencies principle The ability to turn unexpected into profitable.

Predictable market and unpredictable market

Causal reasoning -

If we predict the future, we can control it

Effectual reasoning -

To the extent we can control the future , we need not predict it.

Effectual logic is people dependent.

Getting right people

Dark side of the reasoning

No specific goal

Efforts - will and aspirations of the people.

Example of U- Haul (1945) Leonard Shoen

Creating right people

Indian styles of entrepreneurship

India is a country of multiple language, caste and culture. Indian business scenario is influenced by

all these aspects. The family, value system and society play a very important role in shaping of the

individuals.

History of Indian entrepreneurship

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Prior to British rule, India was well-known for the artwork, spices, silk, and handicraft among all

neighboring and even far off countries. All these businesses had brought glory and fame to India in

the international market. Many communities such as Parsees, marwarees, gujrathies and Punjabis

were known for the business traits.

During British rule all the business suffered a set back because our goods could not stand the

competition from British goods in terms of quality and price. The education system produced more

clerks and accountants rather than business leaders. However, some money lenders, steel

companies were set up in this time span.

After Independence, we did not have a sizable rise in startup companies. In fact Indian

entrepreneurship has remained limited to some specific regions, caste and communities. Parsees,marwares, gujrathies and Punjabis still dominate the business scenario. The leading business houses

are carrying on their family business. The basic features of Indian styles of business

1.Family based business houses More than often, business runs in some of the business families.

Tata, Birla are some of the business family groups which are being run for years and are in fourth

and fifth generations.They have diversified in many areas and today they are coporate giants. Vast

experience and through understanding of Indian market have enabled them to take correct and

timely decisions and so are highly successful.

These business houses started with a focus on one area and gradually with backward and

forward linkages they have attained diversification. The new generations have added different

dimensions to business handled by previous generations. For example, Asim Prmji added IT arm,

Vijay Mallya added airlines. The major controls are retained in the family and then they have gone

public to raise the required resources.

2.Caste/Community based businesses - Some communities are known for their expertise in

specific areas such as Money lending and trading in Marwari community and Stock broking in

Guajarati. Many Gujarati motels are famous in US and UK. Patels are known for their shops

providing all Indian products in US and UK.

3.Sindhi and Punjabi styles - A different class of businessmen emerged after independence and

post partion of India and Pakistan. Those Sidhi and Punjab who migrated to India had to struggle

for their survival. They came to India and left all their wealth back in Pakistan. They entered in

business for sheer survival and then are now established business houses.

5. High tech IT based business houses A new class of educated people entered into

knowledge based industry with IT boom. Numbers of new IT companies were set up by IT

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professionals around 1980. For eg Infosys, Patni computers. Indian IT professionals have also set

up new companies in Silicon valley of US.

6. Women enterprises Few Indian women with extraordinary capacities have proved to be

very successful in their business. They have come from different family , educational background,

but have shown common qualities ,such as commitment and perseverance. Kiran Shaw majumdar (Biocon), Sahanaz Hussain (Sahanaz), Vandana Luthra (VLCC)are some of the successful women

entrepreneurs.

7. Social entrepreneurs - The individuals aiming at social change and enabling weaker

elements, are setting up social enterprises. This is a very recent development and in this style of

business social change happens along with commercial gains. Anandvan, a colony set up by Baba

Amte for rehabilitation of leprosy patients is a place where the patients have achieved self

sufficiency and are producing surplus for the market. Pratham Mr. Chavan, Arvind Kejriwal(Megasaysay Recipient and a social entrepreneur)

Challenges

1. Our education system is tuned to produce more clerks and accountants rather than

entrepreneurs. Education system need more flexibility and space for original thinking for the young

minds.

2. Even today, some of the communities prefer to avoid risk and prefer to take risk free way of

life. They do not have nor nurture the business traits.

3. Indian peoples attitude towards money and business needs to be changed. Most often

money is treated as evil and the rich and wealthy are assumed to be cheaters and unreliable. We

need to concentrate on the following-

Entrepreneurship Development Education -

Skill development Program

Mentoring and incubation centers

To bridge up the resource gap - Funding

Women and Entrepreneurship-

Traditionally the role of women in any society was limited to child bearing and upbringing,

household responsibilities such as cooking and housekeeping, maintain the social and family

relationships and to provide a whole-hearted Support to all family members.

The role of women in modern society is changing gradually. It is found that women can perform

better if they are convinced and enabled.

Characteristics of women

1. Physical strength Women are physically stronger than men and have longer life

expectancy than men.

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2. Adaptability Women can adapt easily to a change in the situation.

3. Understanding others requirements- Since women take care of all the family members,

they are found to be more sensitive to the others requirement.

4. Commitment Women by nature are found to be more committed. They believe in

fulfilling the promises they make. In case of repayment of loans, the number of womendefaulters is much less than that of men.

5. Financial management Women manage funds in a better way. They know how to manage

with limited resources to meet the end requirements. They are expert in sitting the priorities.

6. Leadership The natural leadership talents come out of the desire to achieve and excel.

Favorable factors for women to be an entrepreneur -

1. Flexibility and adaptability2. Desire to support to family income

3. Natural ability to multitasking

4. Sense of responsibility

5. Higher degree of commitment

6. Leadership styles participative and democratic type

7. Endurance and perseverance

Weaknesses of women entrepreneurs

8. Sensitivity and low emotional intelligence- This has an adverse impact on the rational

decision making process.

9. Lack of interest in legal matters Since women are sensitive and are driven by emotions

rather than facts, they are likely to commit errors bypassing the legal framework.

10. Submissive nature Many women do not pursue their viewpoint and try be more

accommodative rather than being persistent.

11. Limited mobility and exposure Lack of exposure and protective upbringing limit the

imaginations of women. Ideas become tough and hence the business suffer.

Barriers for Women entrepreneurs-

Age of entry

Education

Family background and support

Psychological factors

Case study (UOM 2005)

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Shahnaz Husain : Worlds Greatest Woman Entrepreneur

There are perhaps few others who can stand testimony to the truth of these words, as Shahnaz

Husain, Indias pioneer in herbal cosmetics. Credited with single-handedly placing Indian Herbals

on the world cosmetic map, her success story that of young girl from a conservative Muslim

family who rose to become an international trailblazer in the field of herbals is by now legend.

President of CIDESCO, the first Asian to enter Selfridges in London and break a 40-year old sales

record GQM Commitment to Quality award, FICCIs outstanding woman entrepreneur, US

magazine Successs Worlds Greatest Woman Entrepreneur the list of accolades and

achievements is endless.

An entrepreneur in the truest spirit of the word, the lady has a whopping 80 percent of the domestic

herbal market, and sales counters in the best stores internationally, be it the Seibu Chain in Japan,Bloomingdales in the US, Galeries Lafayette in Paris, Harrods and Selfridges in Londonit goes

on.

Meeting the high priestess of herbals in her office in Greater Kailash, one is struck by the fact that

Shahnaz wears the accolades with the confidence of a person who deserves them there is no self-

effacing embarrassment when she discusses the more than humble beginnings of the Shahnaiz

Husain empire.

Though I was married at a very young age, I always knew that I was made for something more,

begins Shahnaz. Not prepared to sit back as a housewife and mother at the age of 16, the young

Shahnaz set about writing for magazines to earn money so that she could fund her education.

Staying with husband Nasir in Tehran, Shahnaz found the ideal opportunity in the international

beauty schools there. After studying cosmetic chemistry in international beauty schools in centres

including London, Paris and Denmark for close to eight year, Husain hit upon the idea of exploringthe 4000-year old Indian Ayurvedic system, so that she could research and develop herbal cures

and treatments.

I had seen the debilitating effects of synthetic cosmetics abroad; there was no doubt in my mind

that the herbal system would work, recalls Shahnaz.

She returned to India to set up shop in one room, with a startup investment of Rs.35,000/- borrowed

from her father. The going was tough Shahnaz had priced her product well above the existing

market.

I began with just one product Shalife, a massage cream. My facial was priced at Rs.100, while

you get one in the market for a paltry for Rs.6, reminisces Husain. However, that did not stop the

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crowds from coming in, and soon, Shahnaz had more than clients than she could handle. The lady

invented a marketing style uniquely her own; she decided to make the brand a personality-driven

one, flying in to various cities to lecture on herbal and Ayurveda, inaugurating Shahnaz franchises

and salons, and returning the same day.

I would go to a place for one day, offer free prescriptions and advice, inaugurate the salon, and go

back, says Shahnaz. It worked - today, there are more than 600 salons in India and abroad. The

Shahnaz Husain group of companies has acquired a global presence, with exports to 132 countries

including those in the Middle East, South-East Asia, Australia and all over Europe. Recently, the

company has been approached by a Fortune 500 investment company to explore business

opportunities.

The strategy was one she applied with great success internationally as well at one point, during a

makeup demonstration in Russia, Shahnaz was asked to stop as the floor was caving in under the

pressure of the people who had turned upto watch. Interestingly, Shahnaz has never advertised her

product, a fact that Harvard in the US wanting to use her marketing system as a case study.

In retrospect, Shahnaz attributes her success to her sheer grit and determination. I do not

believe in destiny the word fail does not exist in my dictionary. I never fail, because I never

stopped trying, says she. That she doesnt is obvious 17 herbal lines, with many more in R&D,

Husain is busy expanding her empire by adding health resorts, signature garments accessory lines

and more to her portfolio.

Having completed 25 years in the business, the self-taught marketing miracle reveals her formula

for success. In life, you get what you negotiate. Any woman has the capacity to do what I did it

doesnt matter what you want, what matters is how badly you want it.

Questions :

1. Examine the true qualities involved in Mrs.Shahnaz Husain as a successful entrepreneur.

2. Describe the pricing and marketing strategy adopted by Shahnaz Husain.

3. How does Shahnaz Husain start her new saloon ?

4. What are the factors that led Shahnaz become successful globally ?

Economic environment and analysis of business opportunities -

Political Economic Social Technological (PEST) analysis -

Political aspects

1. Internal stability Internal law and order provide necessary

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safety required by business enterprises.

2. Military invasion or external aggression discourage business ideas 3.

Political

Ideologies-

Government policies regardingPolitical support for new ventures

Economic aspects

Economic system

capitalism freedom of enterprises private ownership ; Socialism Central planning and

government ownership and Mixed economy Coexistence of Planning and freedom of investment

and coexistence of private and public ownership

Business cycles Phases - Inflation boom disinflation- recession Crisis- revival

Moderate degree of inflation is favorable for business as profits rise during this

phase and recession is characterized as falling profits and hence is not a

favorable phase for business.

Exchange rates Business depending on imports and exports are affected by

exchange rates.

Financial institutions Existence of financial network help business to raise

short and long term loans.

Fiscal and monetary policies- The fiscal policy determines the tax liabilities

of the business and people and monetary policy determines the cost and

availability of funds. Both are important factors that affect the profitability of the business.

Social aspects

Demographics

Education

Class and caste and gender issues

Culture and attitude

Technological aspects

Technological status

Cost of technology

Technology and cost of production

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Other complimentary resources

The industry analysis can be done through following two models -

Michael Porter Five forces model

John Mullins Seven domain model

Michael Porters Five forces model Late 1970s To measure the attractiveness of the industry

Profitability of the industry

Five forces

Threat of entry

Buyer power

Supplier power

Threat of substitutes

Competitive revelry

Threat of entry Is it easy or difficult to enter the industry?

Those hoping to build enduring business prefer high entry barriers

Buyer power Do buyers have power to set terms and conditions?

Entrepreneurs prefer weak buyer power

Supplier power -Do supplier have power to set terms and conditions?

Entrepreneurs prefer weak supplier power

Threat from the substitutes-

Will substitutes steal my market?

Entrepreneurs prefer little threat

Competitive rivalry Is competitive rivalry intense or genteel?

Entrepreneurs prefer little rivalry.

John Mullins Seven domain model- The business road test John Mullins

1.Industry Micro

2.Industry - Macro

3.Market Macro

4.Market Micro

5.Entrepreneurial team- Mission, aspiration

6.Entrepreneurial team- Ability to execute

7.Entrepreneurial team- Connectedness across the value chain

Process of idea generation, screening and selecting an appropriatebusiness idea.

Feel the market pain and find out what can sell in the market.

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Define the product.

Estimate the market size.

Decide upon the team

Prepare the business plan

Validate or screen the viability of the projectOrganize resources

Choose business form

Execute the idea.

Recently the process of idea generation is slightly modified Saras Sarsvathy HBR submission

Write down what one is good at, in order of individual efficiency.

Check the market requirement for a suitable business opportunity that matches the efficiency.

Select the idea which has a potential market and for which the team has the required skill set.Prepare business plan for that idea.

Check the feasibility of the idea.

Organise the required resources.

Business Plan

Why to prepare business plan?

Business plan is an important tool for a prospective entrepreneur who is seriously thinking of

starting a business.

To raise the external finance

To consider all facets of business

To Test feasibility

Provides confidence in decision making

Identify the future needs

Entrepreneur/ CEO should himself or herself write the Business Plan in order to have clarity about

the entire proposal.

The main focus of the business plan is on Market plan, Financial plan and on the details of

management team

Appropriate cover page, graphs, diagrams and photographs are needed to make business plan

attractive for interested parties.

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There is no specific format of business plan as yet however a general guideline can be drawn as

follows -

General outline of a business plan -1. Executive summary

2. Background of the business

3. Product description

4. Market analysis

5Management and organisation

6. Financial summary

7. Funding requirement8. Appendices

1.Contents of Executive Summary-

Mission

Purpose

Sales and Marketing strategy

Business opportunity and product design

Management team and their experience

Financial planning and projections

Future projections

Required funding

Executive summary must highlight the idea and ability of the team for the execution of the same.

2. Background The entrepreneur needs to explain the consumer pain that his product may be

addressing or new area it may be introducing. The evolution of the idea and the current stage of the

business must be mentioned. The entrepreneurs belief in his own idea is the prerequisite for

attracting funding and good people to the venture.

3 Product/service description

Description of the product, the unique features of the product must be explained by the

entrepreneur. Distinguishing the product via a comparison with competitors product brings clarity

for the readers. Honest acceptance of limitations and the identification of the risk highlights the

unbiased and logical thinking of the entrepreneurs.

4 Market analysis

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Realistic estimation of the market size, taste and trends in the market help in arriving at the proper

estimation of the financials. Mention of the characteristics of target market, future market trends

and distribution channels add weight to business plan.

5 Management team and organisationDetails of team members along with their skill sets and commitment

Details of Advisers, network and contacts

6. Financial summery

Projected Profit and Loss account, balance sheet and cash flow forecasts Quarterly analysis for at

least three years

7. Funding requirement Assessment of the requirement

Sources of funds

Usage of funds with details of expenditure

Timeframe required

To go live Time needed to bring product in the market

To Break even Pay back period Time needed to get the initial investment back.

Exit route

8. Appendices or Exhibits

Product description

Marketing and sales plan

Financial projections

Project plan

Management biographies

Details of Marketing plan

4 Ps- Product

1. Product variety, Quality, Design, Features, Brand name, Packaging, Size, Services,

Warranty and Returns.

2. Price List price, Discounts, Allowances, Payment period and Credit terms.

3. Promotion Sales promotion, Advertising, Sales force, Public relations and Direct marketing

4. Place - Channels, coverage, Location, Invetory and Transport.

Marketing mix strategy

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Offering mix Communication mix

Distribution channels Target customers

Details of Financial planning-

Profit and Loss account Expected revenue, cost taxes and profits.Projected Balance sheet assets and liabilities.

Cash flow statement estimated cash receipts and disbursement for the period and resulting

inflow or outflow

Estimation of the operating cash requirements

Break-even analysis FC / (P V)

Why businesses fail?

Marketing aspect Competitors, customer service, lack of team support and changingcustomer requirement

Financial aspects Errors in cash flow estimation, lack of foresight

Unrealistic goals, lack of deadlines, lack of flexibility and personal issues.

For a successful new ventures following focus is required

1. Constant feel of the market

2. Financial foresight

3. Building a top management team

4. Entrepreneurs decision and

5. Outsiders advice

Univac- Company to manufacture first computer- lost business to IBM as it never

visualized the size of the market. DDT , Xerox and Novocain suffered because of the same

reasons.

Lack of market focus.

Innovators have limited vision or tunnel vision.

Wrong financial foresight-

Old bankers rule of thumb Cash income will be delayed by 6months and outlay

will be proponed by 6 months.

Increasing Capital requirement

Lack of Financial management system- controls

Failure to build a top management team

Team building should start before the need is felt.

Assignment of key areas

To trust people

Entrepreneurs decision

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Soichiro Honda , Henry Ford and Henry Ford II

Narayan Murthy and Bill Gates

Prepare a business plan of your own suitable business idea.

While assessing any business plan check the marketability of the idea, details of marketing plan, details of financial plan and the information about the team and

its vision, mission and skill set

Options to start a business or Quick Startups

1. Franchising

2. Acquisition

3. Ancillary unit4. Starting afresh

1.Franchising Definition A management whereby the manufacturer or sole distributor of

trademarked product or services gives the exclusive rights of local distribution to independent

retailers for their payment and conformance to standardized operating procedures.

Franchiser The one who lends his trademark

Franchisee The one who pays royalties for the right business under franchisers name

Three types of franchising

Product- Dealers, Outlets selling the branded products Car dealers , sellers of consumer

durables.

Process Outlets producing and sellingthe branded product or services- MacDonalds, KFC,

Subway etc.

Business format name, process and knowledge transfer- Chain of hotels, Chain of cinema

houses etc.

Advantages to franchisee

Lesser risk

Already established name and brand

Managerial assistance training and guidance

Initial financial support

Identified location, suppliers and market

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Challenges for the franchisee Dependency on franchiser leading to lot of controls and

regulations.

If the franchiser faces problems and decides to discontinue the product or service, then

franchisee is not left with any other option.

Advantages to Franchiser 1.Expansion with lesser cost and responsibilities

Economies of scale Reduction in cost

Diversification of the market risks-Operation at different locations reduce the risk.

Challenges for franchiser Quality control- In process and business format types of

franchisee, The franchiser has lessof direct control over the quality of the product and

services.

Acquisition This can be considered as a start up or expansion strategy

Acquisition is preferred for the advantages s uch as

1.well established customer base, suppliers and sales channel

2.Existing staff and goodwill

Challenges-

Study of the company for sale

Need to have expertise to handle the weak areas

Retention of key employees

Determining the price of acquisition - Methods of valuation -

(Asset valuation and Cash flow)

Identification of the candidate

Ancillary unit- Manufacturing the spare parts or components of a product or developing a part of

the service. Here the scale of production, technology and investment requirement is comparatively

smaller. This can be an option of startup for a SME entrepreneur or can be considered as backward

integration strategy for expansion.

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Advantages- The ancillary units can be set up with less of investment, and the output has an

assured market. This becomes a B to B model and hence enjoys certain coverage from the market

risk. The company gets support and help from the parent company for expansion as well as for

Rand D.

Challenges 1. These units face derived demand and hence the profits depend on demand for the

parent product. The piling up of the inventory stock is again a major risk for the unit.

2.Delayed payments from the other business unit aggravate risk elements.

3. Changed specifications If the parent product requires any modifications , the this unit need to

adapt to the change instantly.

Starting a fresh

Market

Existing New

Product Existing Market Penetration Market development

New Product Development Diversification

The new business can be penetrating the market if the entrepreneur feels that there is further scope

to sell more in the same market. A revised or a new product is sold the market under Productdevelopment. When an entrepreneur tries to explore a new market with the existing product, he is

adopting market development strategy. If an entrepreneur is aiming to sell a new product in

altogether new market, he is diversifying.

Growth strategies

Diversification

Joint ventures

Acquisitions

Mergers

Franchising

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Diversification

Current product New product

Current market Market penetration Product develop.

New market Market develop. Total diversification

Joint venture Both the parties contribute to create new

equities.

Local partnerSpreading of risk

New technology

Leveraging strength and finance

ECommon in automobiles and food

conomies of scaleGlobal Expansion

Relocation

Financing growth

Indian multinational enterprises

A multinational corporation (MNC) is an enterprise which owns or controls production facilities or provides services to more than one country. United Nations defined MNC as enterprises which

control assets - factories, mines, sales offices and the like in two or more countries. The

International Labour Organization (ILO) has defined MNC as a corporation which has its

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management headquarters in one country known as the home country and operates in several other

countries known as host countries.

The companies of merchant traders in medieval Venice and the English, French and Dutch trading

companies of 17 th and 18 th centuries were very close to present form of MNC. However they were

essentially trading companies rather than manufacturing ones. The first modern MNC is generally

thought to be the Dutch East India Company which was set up in March 1602. The MNCs have

grown in terms of physical, economic and political power over the years. Most of the large business

houses have overseas operations.

However, recently even small or start up companies are also getting involved in foreign operations

at an early stage. They are popularly known as Micro-multinationals. Enabled by Internet based

communication tools, this new breed of multinational companies is growing in numbers. These

multinationals start operating in different countries from the very early stages. What differentiates

micro-multinationals from the large MNCs is the fact that they are small businesses. Some of these

micro-multinationals, particularly software development companies, have been hiring employees in

multiple countries from the beginning of the Internet era. But more and more micro-multinationals

are actively starting to market their products and services in various countries. Internet tools like

Google and Yahoo make it easier for the micro-multinationals to reach potential customers in other

countries. Service sector micro-multinationals, like Facebook started as dispersed virtual businesseswith employees, clients and resources located in various countries. Their rapid growth is a direct

result of being able to use the internet, cheaper telephony and lower traveling costs to create unique

business opportunities

The macro objectives of MNCs are to make worldwide profit and maximize their market share of

the global market. The decision to set up production or the service providing units in a different

country is mainly guided by economic and political considerations.

Cost considerations Easy and cheaper availability of resources such as raw material and

labour, motivates the company to shift the production base or to undertake typical production

processes at different locations This enhances their profit margin. Cheaper and abundant labour

available at India and China has attracted many MNCs operations to their countries.

2. Technological and infrastructural advantage The companies operating in less developed

economies plan to set up production units in advanced nations to reap the befit of technology. The IT majors of Indian origin have their international offices in US and other

advanced countries.

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3. Economies of scale As the scale of production enhances, the company can take advantage

of managerial, technological, financial economies of scale and hence can attain higher

profits.

4. Market considerations A country with good demographics and purchasing power attracts

the best of the business houses. India and China are presently considered as the best market

to sell anything and everything. Leading companies of different sectors are reaching out to

these huge markets.

Market imperfections and price discrimination In current global scenario, the market leader

company aspirers to gain global leadership through acquisition of market players in the host

country. Pepsi and Coca Cola have followed this strategy across the globe to maintain the

leadership and to practice the price discrimination. Hedging the market risk The economies of different nations face different phases of the

business cycle. Even today, when many nations are still struggling to come out of recession,

some are experiencing 8 to 10% of the growth rate. Market conditions differ from country to

country. Hence having business in many countries can give a good cover for the risk.

Tax and other fiscal gains Governments of some nations provide incentives to MNCs such as

tax breaks, pledges of governmental assistance or improved infrastructure, or lax environmental

and labor standards enforcement. This process of becoming more attractive to foreign

investment can be one of the driving forces for MNCs.

Because of their size and technological strength, multinationals can have a significant impact on

government policy matters. Along with economic gains, MNCs aim at attaining political control on

the host country. The MNCs give threat of withdrawal to set the policies at their advantage. MNCs

lobbying is directed at a range of business concerns, from tariff structures to environmental

regulations. Companies that have invested heavily in pollution control mechanisms may lobby for

very tough environmental standards in an effort to force non-compliant competitors into a weaker

position. Corporations lobby tariffs to restrict competition of foreign industries. Overall all MNCs

aim at influencing the government policy decisions to maximize the economic and political gains of

themselves and the home country.

When a domestic company aims at MNC status, it needs to undertake a comprehensive study of the

proposed host country in terms of prevailing economic, political, social and cultural conditions.

Every country has different rules and guidelines regarding foreign trade and investment and the

company needs to follow the same. Setting up of foreign offices is a part of strategic planning for

the company and hence the decision needs to be taken after due diligence.

http://en.wikipedia.org/wiki/Incentivehttp://en.wikipedia.org/wiki/Environmental_lawhttp://en.wikipedia.org/wiki/Labor_lawhttp://en.wikipedia.org/wiki/Foreign_investmenthttp://en.wikipedia.org/wiki/Foreign_investmenthttp://en.wikipedia.org/wiki/Government_policyhttp://en.wikipedia.org/wiki/Lobbyinghttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Environmental_regulationhttp://en.wikipedia.org/wiki/Environmental_regulationhttp://en.wikipedia.org/wiki/Incentivehttp://en.wikipedia.org/wiki/Environmental_lawhttp://en.wikipedia.org/wiki/Labor_lawhttp://en.wikipedia.org/wiki/Foreign_investmenthttp://en.wikipedia.org/wiki/Foreign_investmenthttp://en.wikipedia.org/wiki/Government_policyhttp://en.wikipedia.org/wiki/Lobbyinghttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Environmental_regulationhttp://en.wikipedia.org/wiki/Environmental_regulation

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The domestic corporation has different routs open to become a MNC. A company may adopt any

suitable strategy

1. To open a liaison office in the host country

2. To initiate a representative office

3. To start a project office

4. To set up a branch office

5. To establish wholly or partially owned subsidiary office

6. To enter into joint venture with enterprise of the other nation.

Presently, numbers of Indian companies have attained the status of MNCs and their operations are

widely spread across the globe. In global world of the day, multinational corporations are the

powerful agents of economic, political and social change

Social Entrepreneurship

William Drayton- Asoka (1980) introduced the concept of social Entrepreneur.Definitions 1. Social entrepreneurs are individuals with innovative solutions to

societys most pressing social problems

2-Schwab Foundation for Social Entrepreneurship - Social entrepreneurs

Innovate by finding a new product, a new service, or a new approach to a

social problem.

3-Wikipedia defines social entrepreneurs as someone who recognizes a social

problem and uses entrepreneurial principles to organize, create and manage

ventures to make social change.

Social entrepreneurs assess their success in terms of the impact that they

have made on society.

4-Arvind Kejriwal (Megasaysay Recipient and a social entrepreneur)

Social entrepreneur is blend of entrepreneur and NGO.

The concept - Social returns on investment (SROI)

Guidelines to measure social benefits.

1. Include positive and negative impacts.

2. Consider all stakeholders.

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3. Avoid double counting the value created by the company.

4. Quantify and monetize the social impact.

5. Add the necessary risk factor.

6. Use appropriate discounting methods for social cash flows.

7. Social challenges caste, class and sex discrimination, Illiteracy8. Economic challenges Poverty, inequality and

9. Political challenges Corruption, lack of transparency

Health and hygiene - Ignorance, misconceptions and resources to fight

diseases

Socio-Psychological challenges Stress , depression

Need for social entrepreneurship in India - Existance of Dualism-Urban Rural divide, Economic divide i.e. gap between rich and poor, Social

divide, gender Discrimination and Regional divide call for the intervention by

the social entrepreneurs.

Reasons for slow progress

1. Focus of social entrepreneurs on social change and hence revenue side

is neglected.

2. No institutional setup for encouragement3. Lack of social support

4. Absence of regulatory body

Roadmap towards social entrepreneurship

Social Servant leadership Robert Greenleaf (1977)

Dr. V as an example of socil servant leadership

2- Agapao Love Respectful consideration and treatment for others.

3 -Altruism,4-T rust, Empowerment Altruism Set of moral acts intended to promote

happiness for others and Perseverance to face the challenges

5. Newness syndrome

Challenges from the society

Challenges from the target group

All regular entrepreneurial challenges

6-The change makers7-Drive the change, steering the change

8. Collaboration

With Corporate sector CSR activity

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With Government Projects

With Community -

How it works?

Deep retrospection and Far Vision

Strong ambition and belief

Transparency

Commitment

Social Mission with a sustainable model-

Double bottom-line strategy

Social mission and Sustainability of the model

Grameen Bank is an example of social entrepreneurship initiated by Dr.

Muhammad Yunus in Bangala Desh with an objective to enable rural women

with funds to start their own small business.

Examples of Indian Social Entrepreneurs -

Goonj- Mr. Anshu Gupta

Left his job in 1998- Family support. Corporate collaboration

Recycling of cloths, books and school material to poor and disaster victims

Aasha Foundation Dr. Glory Alexander

Action Service Hope for Aids

Established 1998

Special focus on prevention, treatment and support to HIV infected

people and their families.

Parivartan Mr. Arvind Kejriwal

IIT- 1989

Parivartan in 2000

Transperant governance and RTI

Pratham -Madhav Chavan

Established in 1994

to make education mandatory to all children

Corporate, Government and citizens

Project and funding

ICICI bank , Government

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GEM report- Global Entrepreneurship Monitoring stressed on the need for the

support to entrepreneurs.

There are three types of supports provided to entrepreneurs world wide -

1. Incubation2. Business cluster

3. Policies

Global Entrepreneurship Monitor (GEM)

As per HBR Sept. 2010

The findings are based on study of entrepreneurs from 54 countries

emerging and developed markets of 2009

Incidence of entrepreneurship is twice in emerging markets

Only 14% of startups create 20 or more jobs.

In developing countries -Out of 100 , 10 were launching business

Out of 10, four were necessity driven and six are opportunity driven.

In developed nations Out of 100 only 5 were ready to launch business

and out of five one was necessity driven and four opportunity driven.

Need to develop opportunity driven business.

The study of entrepreneurship at Saudi Arabia indicates that top 500

companies have grown at 40% and have created almost 30,000 jobs.

The reasons for the higher Entrepreneurial intensity in emerging

economies

Migration talent- Talents returning back for better opportunities at home.

Pent up supply- Due changes in government policies of the emerging

economies.

Low seed requirement- Small ideas with less capital requirement

Abilities to scale up- Large market and support from growing economy

Incubators Govt. and educational institutions are creating incubators to

nurture and support new business ideas.

Global radar When such small business appear on global scene, they

receive appreciation and support as incentive to do still better.

Support at different levels family, friends, community, alumni

networks,

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Indian clusters- IT at Bangalore, Automobile at Pune.

Policy framework ( Ref. MSME act 2006)

Entrepreneurship education

Skill development

Innovations

Simplification of procedures

Access to market

Access to finance

Special support to weaker sections

Need For Finance- (Risk Return ratio)

1. Long term For Start ups, expansion, diversification, take over, buyouts..

2. Short term For day to day operations and transactions

Long term - Equity

Term loans

Higher purchase

Short term Bank borrowing

Sundry creditors

Personal

Deposits from customers

Stages of business financing

1. Early stage financing Seed capital, start up- For developing and

selling the product such Funds are costly as it carry very high risk.

2. Expansion or development finance Funds for working capital,

sales expansion.

3. Bridge finance in the interim period preparation towards going

public.

Funds are easy and less costly

4. Acquisition and buyout- Funds in large amounts are needed for

such purposes.

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Three risk capital markets

1. Informal risk capital market Angel investing.

2. Venture capital market

3. Private equity market Informal risk capital market Angle investing.

A group of wealthy investors who support early stage business ventures

are called as Angle investors or Business angles.

Role of angle investor is to invest their funds in startups at seed

and early stage. Along with this financial assistance, they also provide

much needed entrepreneurial expertise, knowledge and contact

networks. Most of the angles undertake investment for helping theentrepreneurs fulfill their dreams. For many angles, investing is giving

back to community. Angle investing is very popular in US, UK and other

developed countries.

Angle investors are highly motivated and high net worth

individuals falling in the age group 45 to 65. Most of them are successful

entrepreneurs and many times do not disclose their identity while

assessing the business proposal.Angels love to take risk and usually invest around 5% of their net

worth in any one company. Angles are quick at decision making as they

are dealing with their own money. They follow IPO or management

buyout as their exit policy. The time horizon is 3 to 7 year and they

expect returns in the range of 30 to 100%. The expected Risk- Reward

Ratio is higher for startup and less for established ones.

Types of angles Guardian angels , who bring in entrepreneurialexpertise and Operational angles are the one who have industry

experience but may not have the experience of starting a company.

Financial angles may neither have entrepreneurial nor industry

experience, and may have monetary returns as the objective.

The common criteria used by angles for selection of a business

proposal are

Potential returns on the investment. A good business plan in terms of vision, mission, planning and projections.

Capable management

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Existence of exit route

The history indicates a massive growth in number of angel investors and

the amount of angle funding. In 1878, J P Morgan and Spencer Trask backed

the idea of electricity of Thomas Edison. The growth thereafter is mainly due tofocus of venture capital funds on larger and later stage investment rather than

early stage and start ups.

Google is Worlds greatest angel investment in 1996 Larry Page and

Sergey Brin of Stanford university started a search engine and in 1998, one of

the founder of Sun Microsystems provided the angle funding of $100,000 to

start Google Inc.

Ram Shriram, one of the founder employee has now become an angleinvestor in the Silicon valley and is interested in becoming an angle investor in

India.

For many years, Gururaj Deshpande (Sycamore Networks, Inc) mentored and

invested money in helping first-time entrepreneur, Sanjay Nayak, build India's

first homegrown telecom-equipment company, Tejas Networks. Now six years

old, Tejas Networks has grown dramatically and currently holds the No. 2

market share in India. Similarly, former McKinsey & Co. managing directorRajat Gupta, who left India more than 20 years ago, used a combination of his

Indian savvy skills and brilliant network abroad to help build the Indian School

of Business and the Public Health Foundation of India (PHFI). Six years after it

opened its doors for the first time, ISB is now the eighth largest business

school in the world.

Venture capital or VC or Venture is a type of private equity capital typically

provided for early-stage, high growth potential companies in the interest of generating a higher returns. Venture capital investments are generally made

as cash in exchange for shares in the invested company. It is typical for

venture capital investors to identify and back companies in high technology

industries such as biotechnology and information and communication

technology.

Venture capital firms typically comprise small teams with technology

backgrounds or those with business training or deep industry experience.

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A core skill within VC is the ability to identify novel technologies that have the

potential to generate high commercial returns at an early stage. By definition,

VCs also take a role in managing entrepreneurial companies at an early stage,

thus adding skills as well as capital (thereby differentiating VC from buy out

private equity which typically invest in companies with proven revenue), andthereby potentially realizing much higher rates of returns. Inherent in realizing

abnormally high rates of returns is the risk of losing all of one's investment in a

given startup company. As a consequence, most venture capital investments

are done in a pool format where several investors combine their investments

into one large fund that invests in many different startup companies. By

investing in the pool format the investors are spreading out their risk to many

different investments versus taking the chance of putting all of their money inone start up firm.

A venture capitalist is a person or investment firm that makes venture

investments, and these venture capitalists are expected to bring managerial

and technical expertise as well as capital to their investments. A venture

capital fund refers to a pooled investment vehicle that primarily invests the

financial capital of third-party investors in enterprises that are too risky for the

standard capital markets or bank loans .

Venture capital is also associated with job creation, the knowledge economy

and used as a proxy measure of innovation within an economic sector or

geography.

Venture capital is most attractive for new companies with limited operating

history that are too small to raise capital in the public markets and have notreached the point where they are able to secure a bank loan or complete a

debt offering . In exchange for the high risk that venture capitalists assume by

investing in smaller and less mature companies, venture capitalists usually get

significant control over company decisions, in addition to a significant portion

of the company's ownership (and consequently value).

Young companies wishing to raise venture capital require a combination

of extremely rare yet sought after qualities, such as innovative technology,

potential for rapid growth, a well-developed business model, and an impressive

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management team. VCs typically reject 98% of opportunities presented to

them, reflecting the rarity of this combination.

For a very long time, Silicon Valley venture capitalists only invested

locally. However, throughout the years, they expanded their investments

worldwide. Most recently, Matrix Partners, a leading American venture

capitalist firm, had announced a $150 million India fund, where they will

provide internet, mobile, media, entertainment, leisure, and travel services to

customers in Mumbai. Sequoia Capital, a Silicon Valley-based VC firm, wanted

to take advantage of investing in startup companies and had acquired

Westbridge Capital, an Indian firm, for $350 million. Several other major VCs

who are also taking advantage of the growing Indian market are Kleiner

Perkins, NEA, Norwest, Battery, Sierra, and Canaan Partners. It is no wonder

that venture capitalist investments in India have risen dramatically within the

past few years. From 2005 to 2007, VC investments in India grew from $320

million to about $777 million, respectively.

Indian Venture capital

All India level-

State level-

Bank sponsored

Private funds

Support Infrastructure for Entrepreneurs

Portfolio objectives of V. C.

ROI - Early start ups 50%Development finance 40%

Characteristics of venture capital -

Long term investment of 5 to 10 years .

Lack of liquidity.

High risk.

Equity participationParticipation in management.

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Three criteria of assessment

1. Strong management team backed by the strong family support.

2. Unique product that has market opportunities.

3. Significant capital appreciation

Process of assessment

1. Preliminary screening

2. Understanding and Agreement

3. Review and due diligence

4. Final approval

5. Valuation of a company

6. Business history7. Industry analysis

8. Cost liabilities

9. Future earnings and Dividend payment plan

10. Goodwill and intangibles

11. Previous stocks performance.

General valuation approachesAssessment of comparable companies

Present value of future cash flows

Replacement value

Adjusted book value General valuation method

Present value = Future value/ (1+i) n

Investors share = Initial funding/ Present value.

Basic tips to entrepreneurs

Perfect Business plan

Proper way of approach

Avoid shopping

Proper presentation

Private equity capital.

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Equity pool is formed by wealthy partners, investment bankers,

institutions and foreign investors to invest in companies which are not

listed or to enable leveraged buyout .

First established in 1946 , by France- born Professor General Georges F

Doriot at Harvard Business School and two wealthy men, John Whitneyand Laurance Rockfeller. The seeds of the US private equity industry were planted in

1946 with the founding of two venture capital firms: American Research and Development

Corporation (ARDC) and J.H. Whitney & Company . Before World War II , venture capital

investments (originally known as "development capital") were primarily the domain of

wealthy individuals and families. ARDC was founded by Georges Doriot , the "father of

venture capitalism"and founder of INSEAD, with capital raised from institutional investors,

to encourage private sector investments in businesses run by soldiers who were returningfrom World War II. ARDC is credited with the first major venture capital success story

when its 1957 investment of $70,000 in Digital Equipment Corporation (DEC) would be

valued at over $355 million after the company's initial public offering in 1968 (representing

a return of over 500 times on its investment and an annualized rate of return of 101%) It is

commonly noted that the first venture-backed startup is Fairchild Semiconductor (which

produced the first commercially practicable integrated circuit), funded in 1959 by what

would later become Venrock Associates.

Private equity is money invested in companies that are not publicly

traded on a stock exchange or invested as part of buyouts of publicly traded

companies in order to make them private companies.

Among the most common investment strategies in private equity include

leveraged buyouts (LBO), venture capital , growth capital , distressed

investments and mezzanine capital . Many times investments are short innature.

Leveraged buyouts involve a financial sponsor agreeing to an acquisition

without itself committing all the capital required for the acquisition. To do this,

the financial sponsor will raise acquisition debt which ultimately looks to the

cash flows of the acquisition target to make interest and principal payments.

Acquisition debt in an LBO is often non-recourse to the financial sponsor and

has no claim on other investment managed by the financial sponsor.

Therefore, an LBO transaction's financial structure is particularly attractive to a

fund's limited partners, allowing them the benefits of leverage but greatly

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limiting the degree of recourse of that leverage. This kind of financing

structure leverage benefits an LBO's financial sponsor in two ways: (1) the

investor itself only needs to provide a fraction of the capital for the acquisition,

and (2) the returns to the investor will be enhanced (as long as the return on

assets exceeds the cost of the debt).

As a percentage of the purchase price for a leverage buyout target, the

amount of debt used to finance a transaction varies according to the financial

condition and history of the acquisition target, market conditions, the

willingness of lenders to extend credit (both to the LBO's financial sponsors

and the company to be acquired) as well as the interest costs and the ability of

the company to cover those costs. Historically the debt portion of an LBO will

range from 60%-90% of the purchase price, although during certain periods

the debt ratio can be higher or lower than the historical averages. Between

2000-2005 debt averaged between 59.4% and 67.9% of total purchase price

for LBOs in the United States.

Business Ethics Origin from Ethos which means character or manners. Character or

conduct is determined by the series of actions.It is study of moral behavior or conduct It is

Normative science stating what is right and what is wrong.Moral principles and standards that

guide behavior of the business world. Systematic handling of values in business and industry.

Mc Namara defines Business ethics is generally coming to know what is right and what is

wrong in the work place and doing what is right.

Ethical values is a mechanism that controls behavior of business Ethical restrains are more

powerful than crude controls such as police, laws and economic disincentives.

Sources of ethics-

1. Religion

2. Culture3. Genetic inheritance

4. Legal system

5. Code of conduct

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Views towards business ethics-

Business as a part of society Business for the social gain. Classical economists believed

that the only goal of business is profit maximization. Integrated view Business as

economic entity must aim at profit but also needs to fulfill social responsibilities.

Business ethics and business success

1.Profits 2.Long run survival 3.Diversification 4.Support from society 5.Support from

employees

Business ethics and Social Accountability

CEP and ILO

SA8000 (1998)

covers all labour rights

GRI 2002

97 performance indicators

Economic performance 13

Environment performance 35

Social performance - 49

labour practice and decent work- 17

Human rights 14

Society - 7

Product responsibility - 11

Business ethics- Marketing

Pricing

Promotion

Business ethics and Finance

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Insider trading

Hostile takeovers

Frauds in financial statements

Business ethics and Human Resources

Hiring

Retrenchment

Remuneration

Discrimination

Towards ethical behavior

Commitment from the top

Code of ethics

Transparency

Reward and punishment system

Internal and External audit

Examples of ethical companies Tata group of companies

Unethical behavior and business failure- Satyam

Governments role in developing entrepreneurship in India -

Coir Board - Coir Board is a statutory body established by the Government of India under a legislation enacted by the Parliament namely Coir Industry Act

1953 (45 of 1953) for the promotion and development of Coir Industry in India