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ENTREPRENEURSHIP DEVELOPMENT
UNIT I
The word entrepreneur immediately conjures up images of business tycoons like L N Mittal or Bill
Gates. While these rich, famous and successful individuals can be inspirational for some, most of us
would find it difficult to associate our own lives, personalities or abilities with them. But the fact is that
virtually everybody is entrepreneurial provided s/he exhibits certain characteristics decision making, risk
taking, creativity etc.
Entrepreneur is a person who creates an enterprise. The process of creation is called as
entrepreneurship.
The word entrepreneur is derived from the French word Entreprendre which means to undertake, i.e. a
person who undertakes the risk of new enterprise.
In the context of employment generation, the three terms i.e. income generation, self employment and
entrepreneurship are often used interchangeably. Entrepreneurship refers to identification of innovativeideas, setting up a new enterprise. Whereas, self-employment refers to full time involvement in ones own
occupation. One may or may not be bearing risk, mobilizing inputs, organizing production and marketing
the product or service. Income generating activities, on the other hand, are part time, casual and practiced
with a view of raising additional income. All entrepreneurs are self-employed and income generating
persons. But all self-employed and income generating persons may not be entrepreneurs.
All entrepreneurs are business persons but all business persons are not entrepreneur.
What the difference between Entrepreneur and Entrepreneurship?
Enterpreneur Entrepreneurship
Person Process Visualiser Vision Organiser Organisation Decision maker Decision making Innovator Innovation Risk bearer Risk bearing Motivator Motivation Creator Creation Leader Leadership Manager Management Initiator Initiation Planner Planning Communicator Communication Administrator Administration
Various Definitions of an Entrepreneur
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The New Encyclopaedia Britannica considers an entrepreneur as an individual who bears the risk of
operating a business in the face of uncertainty about the future conditions.
According to International Labor Organisation (ILO), entrepreneurs are people who have the ability to see
and evaluate business opportunities; together with the necessary resources to take advantage of them; and
to intimate appropriate action to ensure success.
As Professor Jan Tinberg points out: The best entrepreneur in any developing country is not necessarily
the man who uses capital, but rather the man who knows how to organize the employment and training of
employees. Whoever concentrates on this is rendering a much more important service to his country than
the man who uses huge capital.
With J.A. Schumpeter, the term entrepreneur had received a wide acclaim. He defined the entrepreneur as
an innovator who carries out new combination to initiate the process of economic development through
introduction of new products, new markets, conquests of new source of raw materials and establishment
of a new organization of industry. He said, The carrying out of a new combination we call enterprise, the
individuals whose function is to carry them out we call entrepreneurs. The entrepreneur is also a change
agent who provides economic leadership. Cole described entrepreneur as an individual who undertakes
to initiate, maintain or aggrandize a profit-oriented business unit for production or distribution of
economic goods and services.
J A Schumpeter thus writes: The entrepreneurin an advanced economy is an individual who introduces
something new in the economy a method of production not yet tested by experience in the branch of
manufacturer concerned, a product with which consumers are not yet familiar, a new source of raw
material or of new markets and the like. He further states the entrepreneurs function is to reform or
revolutionize the pattern of production by exploiting an invention or more generally, an untried
technological possibility for producing a new commodity
Briefly, an entrepreneur is one who innovates, raises money, assembles inputs, chooses managers and sets
the organization going with his ability to identify them. Innovation occurs through (i) the introduction of a
new quality in a product, (ii) a new product, (iii) a discovery of a fresh demand and a fresh source of
supply and (iv) by changes in the organization and management.
In the case of a developing country like India, the concept is being understood differently. An
entrepreneur in a developing economy is one who starts an industry (old or new), undertakes risk, bears
uncertainties and also performs the managerial functions of decision-making and co-ordination. He also
puts the new process based on technological research into operation. Even if he imitates any technique of
production from a developed economy, he is called an entrepreneur. Unlike in the developed industrial
world, emphasis is not put (nor is there any need for it) only on Schumpeterian innovations in the case
of developing countries.
Entrepreneurshipthe Dynamic Need
Entrepreneurship is the dynamic need of a developing nation. Entrepreneurship is one of the most
important inputs in the economic development of a country or a region.
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Employment generation Growing unemployment, particularly educated unemployment, is anacute problem of the nation. The available employment opportunities can cater to only 5-10 per
cent of the unemployed. This employment is a self-saturating process. When government creates,
say a hundred jobs in various departments, 100 persons get employed and the vacancies are filled
for thirty years or so, till these people retire and the vacancies are filled for thirty years or so, till
these people retire and vacancies re-emerge. If a hundred persons become entrepreneurs they notonly create jobs for themselves but create a hundred jobs to many more. As the time passes these
enterprises grow providing direct and indirect employment to many more. Thus, entrepreneurship
is the best way to fight the evil of unemployment.
National incomeThis consists of goods and services produced in the country and imported. Thegoods and services produced are for consumption within the country as well as to meet the
demand of exports. The domestic demand increases with ever increasing population and standard
of living. The export demand also increases to meet the needs of growing import due to various
reasons. An increasing number of entrepreneurs are required to meet this increasing demand for
goods and services. Thus, entrepreneurship increases national income.
Dispersal of economic power The world affairs have been dominated by power. Economicpower is the natural outcome of industrial and business activity. Developing a large number of
entrepreneurs helps in dispersing the economic power amongst the population. When a society
produces a small number of entrepreneurs, the enterprises due to lack of competition grow into a
few big business houses. This results in concentration of wealth in a few families. This can have
serious social and national implication. But when the same is shared by a large number of
entrepreneurs it leads to dispersing wealth and thus leading to a healthy economy.
Balanced regional developmentThe growth of industry and business leads to a large number ofpublic benefits like road transport, health, education, entertainment etc. When the industries are
concentrated in selected cities, the development gets limited to these cities. A rapid development
of entrepreneurship ensures a balanced regional development. When the new entrepreneurs grow
at a faster pace, in view of the increasing competition in and around the cities, they are forced toset up their enterprises in the smaller towns away from big cities. This helps in the development
of the backward regions.
Characteristics of a Successful Entrepreneur
The following are some characteristics that every successful entrepreneur must possess in adequate
measure.
a) Innovation: The terms creativity and innovation are often used to mean the same thing, but eachhas a unique connotation. Creativity is the ability to bring something new into existence. This
definition emphasizes the ability, not the activity of bringing something new into existence.A person may therefore conceive of something new and envision how it will be useful, but not
necessarily take necessary action to make it a reality. Innovation is the process of doing new
things, but creativity is a prerequisite to innovation. Ideas usually evolve through a creative
process whereby imaginative people bring them into existence, nurture them, and develop them
successfully.
Entrepreneurs innovate. Innovation is the specific instrument of entrepreneurship. It is the act that
endows resources with a new capacity to create wealth. Innovation, indeed, creates a resource.
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Successful entrepreneurs are not content simply to improve on what already exists, or to modify
it. They try to create new and different values and new and different satisfaction, to convert a
material into a resource, or to combine existing resources in a new and more productive
configuration. It is change that always provides the opportunity for the new and different.
b) Dynamism: Innovation together with dynamism constitutes a potential combination forprosperity. Dynamism revises the targets of the enterprise upwards time and again. The enterprisemay open new vistas, better product mix, charismatic product image stimulating steady growth.
c) Leadership: Leadership is the basic quality of an entrepreneur. This spirit keeps his pace forwardin any field. Leadership qualities will enable a person to stand apart in whatever profession he
might be in. The quality of his leadership is clear from personal relationships, mode of handling a
problem, generating resources and taking others in to ones own stride. An enterprise endowed
with the resource of leadership will always be prominent in the market.
d) Teambuilding: An entrepreneur should have an ability to build a team. A team is a group ofindividuals with a common purpose that is focused and aligned to achieve a specific task or set of
outcomes. A good team will be able to share knowledge, core competency, and goals.
e) Risk taking ability Entrepreneurs are persons who take decisions under conditions ofuncertainty, and therefore are willing to bear risk but never gamble with results. This is evidenced
by market studies, exploring alternative lines of production or a new product mix, or a new
combination of inputs, and so on. They set goals that require high level of performance. Risk
bearing and decision making calls for absolute clarity in thinking and coordinated actions.
Though decision-making can be taught in classrooms and perfected through experience,
individual ability always stands supreme. Every decision pertaining to an enterprise involves risk.
As a matter of fact, economic decisions become critical in an atmosphere of uncertainty. An
uncertainty is faced not just by a single enterprise but by all, like the market. An entrepreneur has
to make decisions under uncertainty and he has to take actions with unknown and unpredictable
results. They seem to be very much aware of no risk-no return, high risk-high return
continuum. They take moderate challenging risk where moderate returns are attainable and thesame are influenced by their abilities and decisions. This characteristic of entrepreneurs has
significant implications for the ways decisions are made, and thus, for the success or failure of the
business.
f) Decision making ability Decision-making in an environment of uncertainty requiresanticipation of risk. Profit is said to be the reward for anticipating and taking such a risk. The
stakes involved in the event of a wrong decision are enormous. The risk, however, needs to be
always well calculated. How far risk taking is justified depends on the caliber of the entrepreneur.
Persons who can take risks and make quick decisions tend to prosper. Therefore, entrepreneurs
develop the art of decision making under conditions of uncertainty as a matter of survival.
However, the progress of an entrepreneur depends increasingly on effective knowledge and its
continuous updating and proper utilization.
g) Business planningFor converting an idea into reality, an entrepreneur has to develop a businessplan. A comprehensive and concise business plan is basically a route map. It includes inputs for
the project like land, machinery, power, material etc. financial aspects like sources of finance,
assets and liabilities cost of production and marketability total income, operative net profit,
technological feasibility, licensing regulation etc.- information regarding marketing, present
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disposal, unless the enterprise is established, other functions do not get due focus. The task of
establishing an enterprise calls for mobilization of various resources. This needs an initial
investment in fixed assets.
viii) Manpower staffing The entrepreneur has to estimate manpower need of theorganization, lay down selection procedure/criteria, compensation scheme, training and
development rules etc.ix) Managing the enterpriseThe entrepreneur has also to perform the role of a manager to manage
the enterprise effectively. Managing involves decision-making, planning, organizing, staffing,
directing, and controlling.
x) Growth and developmentAn entrepreneur cannot afford to remain at his starting point. He hasto look for growth potential of his products and services. He has to pursue higher goals and
expand his market. He has to watch for the activities of the competitors and formulate appropriate
strategies of growth.
Managers and Entrepreneurs
Differing FocusAreas of Similarity Managers Entrepreneurs
To produce results -Results of today, this month,this year. Short-term and medium
term.
-Results of tomorrow, next year
and coming five years. Long-
term and very long-term
To produce resultsthrough people
-Have usually to handle people
oriented to day-to-day
management nitty-gritty and nuts
and bolts typeMen of details
-Have to deal with people who
can conceptualize with aggregate
perspectivesStrategists
To take decisions -Operational and administrativedecisions, which have a bearing
on short-term and medium-term
results.
-Mostly strategic decisions,
involving growth through
expansion, diversification, take-
overs and mergers. To co-operate under
constraints
-The constraints are usually
organizational i.e. those within
an organization like machinecapacity, labour productivity,
routing and scheduling,
information availability, financial
limitations etc.
-The constraints are
organizational as well as
environmental which lie outsidean organization like policy of
financial institutions, import
policy, licensing policy,
infrastructural constraints etc.
To follow soundprinciples of
management
-The principles are more oriented
towards internal administration
and control like delegation,
accountability, responsibility,
planning, budgeting, reportingand information system.
-The principles are with
reference to macro-social aspects
like social responsibility, equal
opportunity, employment, ethical
advertisement practices,adherence to government policies
etc.
Difference between and Entrepreneur and a Manager Intrapreneur
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Of late, a new breed of entrepreneurs is coming to the fore in large industrial organizations. They are
called intrapreneurs. They emerge from within the confines of an existing enterprise. In big
organizations, the top executives are encouraged to catch hold of new ideas and then convert these into
products through research and development activities within the framework of organization. The concept
of intrapreneurship has become very popular in developed countries. It is found that an increasing number
of intrapreneurs are leaving their jobs in big organizations and starting their own ventures. What is moreis that they are causing a threat to the organizations they have left. Such intrapreneurs breed to the
innovative entrepreneurs who inaugurate new products.
Entrepreneur Intrapreneur
Dependency -An entrepreneur is independentin his operations.
-An intrapreneur is dependent onthe entrepreneur, i.e. the owner.
Raising of Funds -An entrepreneur himself raisesfunds required for the enterprise.
-Funds are not raised by the
intrapreneur.
Risk -Entrepreneur bears the riskinvolved in the business.
-An intrapreneur does not fully
bear the risk involved in the
enterprise.
Operation -An entrepreneur operates fromoutside.
-An intrapreneur operates fromwithin the organization itself.
Types of Entrepreneur
a) Based on Functional Characteristicsi) Innovative entrepreneur Such entrepreneurs introduce new goods or new methods of
production or discover new markets or reorganize their enterprise. Entrepreneurs in this
group are characterized by an aggressive assemblage of information and analysis of
results, for trying out a novel combination of factors. Such an entrepreneur is one who
sees the opportunity for introducing a new technique of production process, a newcommodity, a new market, a new service or even reorganization of an existing enterprise.
ii) Imitating or adoptive entrepreneur Such entrepreneurs do not innovate themselves, butimitate techniques and technology innovated by others. They do not try out new ideas or
products, but if a new idea is accepted by the market, they imitate the new idea and hence
join in the competition. Entrepreneurs in this group are characterized by their readiness
to adopt successful innovations by successful entrepreneurs. Such entrepreneurs are
particularly suitable for developing and underdeveloped economies as adoption saves
costs of trial and error, and contribute significantly to the development of such
economies.
iii) Fabian entrepreneur Such entrepreneurs display great caution and skepticism inexperimenting with any change in their enterprise. They neither have the will to introduce
new changes nor desire to adopt new methods innovated by the most enterprising
entrepreneurs. They change only when there is an imminent threat to the very existence
of their enterprise. They are not much interested in taking risk and they try to follow the
footsteps of their predecessors. They are readily interested in introducing any change in
their organization and when they do so it is because unless they introduce the change they
would be out of the market.
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iv) Drone entrepreneurThis is characterized by a refusal to adopt and use opportunities tomake changes in production. They do not like changing the working organization with
changing times. They prefer facing loses to introducing changes in their present
processes, equipments and policies. Such entrepreneurs are characterized by a die-hard
conservatism and may even be prepared to suffer the loss of business. In the present
competitive world, these entrepreneurs are simply thrown out of the business for notbeing able to adapt themselves to the changing dynamics of business.
v) CopreneursWhen both husband and wife together start and run a business venture thenthey are called copreneurs. Emergence of copreneurs in the present times is a reflection
of the fact that womens role in business is increasing.
b) Based on Types of Entrepreneurial Business Manufacturing An entrepreneur who runs such a business actually produces the
products that can be sold using resources and supplies. For e.g. apparel and other textile
products, chemical and related products, electronics and other electrical equipments,
rubber and miscellaneous plastic products, stone etc.
WholesalingAn entrepreneur with such a business sells products to the middle man. RetailingAn entrepreneur with such a business sell products directly to the people who
use or consume them.
Service An entrepreneur in this business sells services rather than products. Theycontinue in their traditional way and in fields their product loses its marketability or their
operation becomes uneconomicalthey are pushed out of the market.
Entrepreneurial Development Process
i) Identification and evaluation of the opportunity - First, perceiving, identifying andevaluating opportunity which is a difficult task. In other words, it is the process by which
an entrepreneur comes up with the opportunity for a new venture. One has to be
watchful for opportunities. Ideas can come from various sources. The opportunities
should be carefully screened and evaluated. It is important for the entrepreneur to
understand the cause of opportunity. It may be technological changes, market shift,
governmental regulations. Opportunity analysis focuses only on the opportunity but not
the entire venture.
ii) Development of the business planAfter having identified the project, the next step is todevelop a plan for the venture. A good business plan must be developed in order to
exploit the defined opportunity.
iii) Determining the required resources - A further step in the process is to assess theresource position. The resources needed for the opportunity must be determined. It is
important not only for developing the opportunity but also essential to determine theresources required and obtaining these resources and successfully managing the resulting
venture. Any resource that is critical must then be distinguished from those which are just
helpful.
iv) Management of enterprise - Once the enterprise is established, an entrepreneur shouldalways look forward to indefinite future, to growth, development, or at least continuation.
After the resources are identified the entrepreneur must employ them through the
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implementation of the business plan. A control system must be established so that
problem areas can be carefully monitored.
Theories of Entrepreneurship
Entrepreneurship is an evolved thing. With the advancement of science and technology it has undergone
metamorphosis change and emerged as a critical input for socio-economic development. Various writers
have developed theories on entrepreneurship and popularized the concept among the common people.
1) Max Webers Theory of Social Change2) Hoselitz Sociological theory3) Trait theory of entrepreneurship4) Economic theory5) Schumpters Innovation theory6) McClellands Psychological Theory7) Theory of social Behavior8) X-Efficiency Theory1) Max Webers Theory of Social Change Weber contended that entrepreneurial growth is
dependent upon ethical value system of the society concerned. This theory provides an analysis of
religion and its impact on entrepreneurial culture. According to him the spirit of capitalism is a
set of attitudes towards the acquisition of money and the activities involved it. The elements of
capitalism include private property ownership, creation of goods/services for profit/income,
individuals and companies are allowed for their own economic gain, the accumulation of capital,
voluntary exchange and wage labour. The spirit of capitalism is subjected to a strict discipline
which is quite incompatible with giving free rein to impulse. This spirit of capitalism can be
generated only when mental attitude in the society is favourable to capitialism. According to
Weber the protestant ethic provides this mental attitude while Hinduism lacks such an attitude.However, the rapid growth of entrepreneurship in India since independence proves that Indians
are not averse to the spirit of capitalism and to adventurous spirit. Hinduism has contributed a lot
to the development of entrepreneurs in India.
(In Weberian theory, the spirit of capitalism is highlighted. As we know capitalism is an
economic system in which economic freedom and private enterprise are glorified and so also the
entrepreneurial culture. Spirit of capitalism is influenced by strict discipline and adventurous
spirit is affected by free force of impulse. According to Weber the spirit of capitalism intertwined
with the motive of profit resulted in creation of greater number of business enterprises.)2) Hoselitz Sociological theoryHoselitz explains that the supply of entrepreneurs is governed by
cultural factors. Entrepreneurs have emerged from a particular socio-economic class. According
to him, entrepreneurship can be developed only in a society in which cultural norms permit a
variety of choices and where social processes are not rigid and in a situation which encourages
the development of personalities interested in enterprise. Hoselitz emphasized the role of
culturally marginally groups like Jews and the Greeks in medieval Europe, the Chinese in south
Africa and Indian in east Africa in promoting economic development. History reveals that many
leading entrepreneurs have emerged from a particular socio-economic class. For e.g. Marwaris
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and Parsees in India and Samurai in Japan are considered to be the dominant social classes as the
source of entrepreneurship.
3) Trait theory of entrepreneurship According to F.A.Walker, an entrepreneur is one who isendowed with more than average capacities in the task of organizing and co-ordinating the factors
of production, i.e. land, labor, capital and enterprise. The profit an entrepreneur gets depends on
his efficiency and superior talents. In other words, to be successful an entrepreneur must possesscertain traits or characteristics like creativity, self confidence, risk taking, imagination,
perseverance etc. The trait theory holds that because these individuals called entrepreneurs
possessed certain specific traits it made them capable of generating new ideas and creating a new
venture. However, different studies have emphasized different traits which is a criticism of the
theory.
4) Economic theory According to economists, entrepreneurship and economic growth will takeplace in those situations where particular economic conditions are most favorable. G F Papanek
and J R Harris are the main advocates of this theory. According to them, economic incentives are
the main drive for the entrepreneurial activities. In some cases, it is not so evident, but the
persons inner drives have always been associated with economic gains. Therefore, these
incentives and gains are regarded as the sufficient condition for the emergence of industrial
entrepreneurship. The economic theory holds that when favorable economic conditions are
prevailing, entrepreneurship develops at a faster rate and come forward to establish new ventures
and bring resources, labor, materials and other assets and put them together to increase their
wealth.
5) Schumpeters Innovation theoryAccording Joseph Schumpeter, entrepreneurship is essentiallya creative activity. Entrepreneurship consists of doing such things as are generally not done in the
ordinary course of business. An entrepreneur is one who innovates i.e. carries out new
combinations. Thus, an entrepreneur is one who innovates, raises money, collects inputs,
organizes talent, provides leadership and sets the organization. Innovation may occur in the
following forms: The introduction of a new product with which consumers are not yet familiar or
introduction of a new quality of an existing product.
The introduction of a new method of production that is, not yet tested by experience inthe branch of manufacture concerned.
The opening of a new market, i.e. a market into which the particular branch ofmanufacture of the country in question has not previously entered.
Finding a new source of raw material or half-manufactured goods, again irrespective ofwhether this source already exists or whether it has to be created
The carrying out of the new organization of any industry, like the creation of a monopolyposition or the breaking up of a monopoly position.
Schumpeter makes a distinction between an innovator and an inventor. An inventor discovers new
methods and new materials. On the contrary, an innovator is one who utilizes or applies inventions and
discoveries in order to make new combination and thus produces newer and better goods which yield both
satisfaction and profits. An inventor produces ideas while the innovator implements these ideas (converts
into economic performance). An individual is an entrepreneur only when he actually carries out new
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combinations and ceases to be an entrepreneur the moment he settles down to running the established
business. The entrepreneur leads the means of production into new channels.
6) McClellands Psychological theory David McClelland (1961) developed his theory to explainthe psychological roots of entrepreneurship. He argued that certain needs are learnt and socially
acquired as the individual interacts with the environment. Such acquired needs or basic human
motives drive individuals towards entrepreneurial activities. He identified the following types of
needs:
Need for achievement (n Ach): a drive to excel, advance and grow. Need for power (n Pow): a drive to influence others and situation Need for affiliation (n Aff): a drive for friendly and close inter personal relationships
According to McClelland, it is the high need for achievement which drives people towards
entrepreneurial activities (prerequisite for becoming an entrepreneur). Individuals with high achievement
motive tend to take keen interest in situations of high risk, desire for responsibility and a desire for a
concrete measure of task performance. They are highly motivated by challenging and competitive work
situations. Employees with a high need for achievement derive satisfaction from achieving goals.
7) Theory of Social Behavior Kunkel presented a behavioral model of entrepreneurship. Thismodel is concerned with the overtly expressed activities of individuals and their relations to the
previous and present surroundings, social structures and physical conditions. According to
Kunkel, individuals perform various activities of which some are accepted by the society while
others are not. The accepted ones are rewarded. The rewards act as reinforcing stimulus
increasing the probability of repeating that behavior pattern. The supply of entrepreneurship
depends upon four structures found in a society or community. These structures are:
Limitation structure In this structure the entrepreneur is viewed as the most importantdeviant individual and such behavioral pattern is restricted. The society limits specific
activities and this limitation structure affects all the members of a society. It is basically
social and cultural in nature.
Demand Structure It is mainly economic and changes with economic progress andgovernment policies. It can be improved by providing material rewards. Such rewards are
necessary to lay the foundation for future social gains. In short, behavior of people can be
made entrepreneurial by manipulating certain selected components of the demand
structure.
Opportunity structure It consists of the availability of capital, management andtechnological skills, information concerning production methods, labor and markets.
Opportunity to learn and all the activities associated with the effective planning and
successful operation of industrial enterprises are also covered. This structure is requiredto increase the probability of entrepreneurial activity.
Labor StructureIt is concerned with the supply of competent and willing labor. Laborsupply cannot be at par with the supply of material factors like capital. The supply of
labor is governed by several factors such as available alternative means of livelihood,
traditionalism and expectations of life.
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Thus, entrepreneurial supply depends upon the four structures given above.
Entrepreneurship depends on rather specific combinations of circumstances which are
difficult to create and easy to destroy.
8) X-efficiency Many firms face the problem of inefficient utilization of various inputs orresources. Innovative entrepreneurs come forward to check inefficiencies in the utilization ofvarious resources through novel ways. According to Liebenstein, the most significant feature of
entrepreneurship is gap filling. It is the job of the entrepreneur to fill the gap or make up the
deficiencies which always exist in the knowledge about the production function i.e. utilization of
various resources. The gaps or deficiencies in the production function arise because all the inputs
in the production function cannot be marketed. Some inputs like motivation and leadership are
vague and their output is indeterminate. An entrepreneur has to marshall all the inputs to achieve
efficiency and economy. Thus, entrepreneurship is a function of input completing and gap filling.
Role of Socio Economic Environment in Entrepreneurship Development
Development of entrepreneurship is not always spontaneous. It is very often affected by environmentalfactors like economic, social, political, legal, cultural etc. These conditions or factors may have both
positive and negative influences on the emergence and development of entrepreneurship. Positive
influences constitute facilitative and conducive conditions for the development of entrepreneurship,
whereas negative influences discourage development of entrepreneurship. In most of the developed
countries, the educational system is designed in such a way that it creates more entrepreneurs. The type of
education prevailing in the country is also an important factor for entrepreneurship development.
Therefore, any attempt to understand the entrepreneurial spirit among people should include an
examination of the socio-economic origins of the entrepreneurs.
a) Social Environment Social environment strongly affects the entrepreneurial behavior whichcontributes to entrepreneurial growth. The social factors can be family background, relatives,friends and teachers, religion, social status, social mobility and social marginality.
Family background greatly affects the entrepreneurial environment and maintenance of socialsystem. This factor includes size of family, type of family, and economic status of family.
Joint family or nuclear families have their own benefits and disadvantages. There is more
sentimental attachments of family members of joint family as compared to nuclear family. To
some extent joint family provided family property to invest and expand the family firm. But
even in nuclear families, sentimental association or emotional bonds are stronger in India as
compared to those in the western countries. In some families due to access to political power,
the members exhibited higher level of entrepreneurship. Background of a family in
manufacturing provided a source of industrial entrepreneurship. Rural background is not
necessarily a handicap for the exercise of entrepreneurship though urban background may
provide to be an added advantage. The environment of the family also influences the
entrepreneurship. Support from family and friends are important factors for motivating the
people to become successful entrepreneurs. Children of entrepreneurs are more likely to
adopt the same occupation because of certain inherent advantages.
Caste and Religion Due to the influence of prevailing social factors, some social groupshave produced more entrepreneurs than others. It has been suggested that certain religious
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and castes encourage the growth of entrepreneurial talent. In India, some religious
communities like the Parsees, Marwaris and Sindhees seem to have an affinity for industrial
activity. The protestant ethics in the west, the Sammurai in Japan and the like in other
countries have distinguished themselves as entrepreneurs. However, entrepreneurship is no
more confined to the traditionally known communities.
Social StatusIt has its own role to play. Every human being aspires for a high social statusand once s/he achieves a reasonable level, his aspirations and desires for it start getting
multiplied. People, therefore, become quite responsible in the wake of protecting and
developing their status. Chester Barnard said that the desire for improvement of status and
especially the desire to protect status appears to be the basis of a sense of general
responsibilities. People work hard to maintain their status as it also contributes to their
entrepreneurial growth.
Social MobilityIt involves the degree of social and geographical mobility and the nature ofmobility channels within a system. Hoselitz and McClellands need for openness of a system
and the flexibility in role relations respectively reveal an imperative role of mobility within a
system for entrepreneurship development. Their viewpoint is that high degree of social
mobility would help in the emergence of entrepreneurship.
b) Economic EnvironmentThe entrepreneurship growth and development is also governed by theeconomic environment. It encompasses a wide spectrum of items, namely land, availability of
raw materials, skilled labour, infrastructure, machinery, capital and so on. Apart from this, if an
entrepreneur does not posses knowledge and various marketing techniques, he is unlikely to
survive.
Barriers to Entrepreneurship
Personal Barriers These barriers are caused by emotional blocks of an individual. These barriers cause
mental obstruction to the individual and lead to the failure in business. Some of the personal factors are:
Lack of ConfidenceMany people think that they lack what it takes to become an entrepreneur.They think that they would never be able to find a successful idea or would be unable to attract
the resources required and therefore dismiss the thought of becoming self-employed as irrelevant.
They may regard themselves as risk-averse and feel that running a business is too risky.
Lack of Dependability on Others Many entrepreneurs aim to gain their additional expertisethrough the trail and error of experience, rather than seeking further personal development or
assistance from others. As business grows, they increasingly need to replace the initial, largely
informal management arrangements with more formality. They need to think more strategically
and devise effective management systems in order to grow and prosper. Individuals who do not
recognize that they need support when they start to do things are likely to be less successful in thelong run.
Lack of Motivation When an individual starts a new business venture he is filled withenthusiasm and drive to achieve success, but when he faces the challenges of real business, bears
losses or his ideas dont work, he loses interest/motivation. This causes further loss of interest and
the entrepreneur starts withdrawing from the mainstream competition.
Lack of PatienceThe desire to achieve success in the first attempt or to become rich instantlyare the motivating factors of modern youth. They want to achieve success through cakewalk.
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When such desires are confronted by business challenges/ problems they lose interest. Apart from
inability to get into the details of business.
Inability to DreamIt is being rightly said, think big to achieve big. The entrepreneurs who areshort of vision or become complacent (satisfied) with what they achieve sometimes lose interest
in further expansion/growth of business, which further impedes the growth of the business.
Environmental Barriers These are the factors which do not lie within the individual but are present in
the environment.
Raw materialsNon-availability of raw materials required for production of goods, especiallyduring the peak season causes hindrances in the growth of the business. In such kind of
situation, competition causes increase in the price of the raw material. This problem becomes
more severe if there are alternative goods or services available in the market.
Labour Human resources have been identified as the most important resource in anorganization. But unfortunately, there is always a dearth of the desired manpower in an
organizationeither because of the lack of skilled labour in the market or because of lack of
committed and loyal employees in the organization. MachineryGood machineries are required in the organization for production and operation of
goods. These machines come at a cost and because of rapid technological developments they
also become obsolete very soon and need to be replaced, which requires a lot of money.
Land and building Acquisition of land and construction of building at prime location withrespect to business requires a lot of expenditure. An alternative approach could be acquiring
land on lease or rent. But this becomes a matter of constant concern for the entrepreneur.
Other Infrastructure requirements Apart from the factors of production mentioned above,there are other infrastructure requirements of the business and which when not present in
adequate amount, can further cause barriers to the growth of business. Any business
organization requires some basic infrastructure support like adequate power supply, proper
roads, water and drainage facilities etc. This support has to come from the various development
authorities, which again is a chain in a long bureaucratic system that suffers from problems like
corruption and red-tapism.
Financial BarriersAvailability of funds is one of the most important ingredients required forthe successful running of a business. There are various methods by which entrepreneur arranges
for funds like his own savings, borrowing from friends and relatives, banks and other
institutional bodies supporting new ventures. If there is a delay in the release of payments by
the source of finance, it causes delay in starting and/or running business.
Societal Barriers Traditionally, the hardest barrier to overcome is the societal barrier, which inhibits
many people even from thinking of starting a business. For e.g. it is still rare that teachers or doctorssuggest, as an active choice, that people should consider starting their own business. Conversely, people
whose parents have run their own business are usually more disposed to consider their own business.
Arguably, more needs to be done to raise awareness of the option of starting a business. Starting off ones
own enterprise needs to be seen a positive career option.
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Unit - II
Broadly, the entrepreneurial process involves two phases:
1) Spotting an opportunity2) Championing a project
The first process involves generation of ideas, scanning of environment and transforming ideas into
potential opportunities. The second process involves starting a new enterprise, may be in the small scale
sector. This includes the steps involved in setting up an enterprise i.e. market research, feasibility,
business plan and operational steps of resource mobilization and project commissioning.
Steps in Setting up a New Business Unit
a) Scanning the environment for entrepreneurial opportunitiesb) Development of products/service ideac) Assessment of feasibility of the idead) Preparation of business plane) Appraisal by funding agenciesf) Resource mobilizationg) Project commissioning and launch
Opportunty Analysis
Opportunities for launching new enterprises exist in the environment.
The entrepreneurs perceive opportunities, synthesize the available information and analyse emerging
patterns that escape the attention of other people.
They are people with a vision, capable of persuading others such as customers, partners, employees andsuppliers to see the opportunity, share it and support it.
For entrepreneur opportunity exists in the environment in the form of needs and problems of people and
society.
After spotting an opportunity, they evolve a strategy to find a creative solution to the problem or need.
Idea Generation
Entrepreneurship is not just limited to innovation (generation of an entirely new concept, product or
service, but it also encompasses incremental value addition to the concept/ product/ services offered to the
consumer, shareholder and employee). Hence, value addition is the key work that an entrepreneur needs
to keep in mind while generating new ideas even at the inception stage.
It involves generation of new concepts, ideas, products/services to satisfy the existing demands and future
demands of the market.
There are different sources of idea generation which could be:
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- Consumers, Existing companies, Employees, Research and development, Dealers, suppliers,retailers.
Also ideas can be generated by/through:
- Good understanding of the economy- Changing needs of the people in a locality/society- Emerging trends in the society (e.g. migration of people from rural to urban centres, preference
for fast food among youth.
- Extensive travelling and wide range of readingEven with such sources of ideas, a creative person is likely to derive more advantage than a person who is
less creative and continues to think on traditional lines.
Every problem is an opportunity for a creative person. Creativity is a major tool for the survival of an
entrepreneur. It not only gives one the edge for recognizing needs, generating business and marketing
ideas, but it also helps in solving problems.
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WHAT IS A BUSINESS PLAN?
A business plan is the blueprint of the step-by-step procedure that would be followed to convert a
business idea into a successful business venture. A business plan first of all identifies an innovative idea,
researches the external environment to list the opportunities and threats, identifies internal strengths and
weaknesses, assesses the feasibility of the idea and then allocates resources (production/operation,
finance, human resources) in the best possible manner to make the plan successful.
The objectives of a business plan are:
To give directions to the vision formulated by entrepreneur. To objectively evaluate the prospects of business. To monitor the progress after implementing the plan. To persuade others to join the business. To seek loans from financial institutions. To visualize the concept in terms of market availability, organizational, operational and financial
feasibility. To guide the entrepreneur in the actual implementation of the plan. To identify the strengths and weaknesses of the plan. To identify challenges in terms of opportunities and threats from the external markets. To clarify ideas and identify gaps in management information about their business, competitors
and the market.
To identify the resources that would be required to implement the plan. To document ownership arrangements, future prospects and projected growths of the business
venture.
Preparing a business plan is not an easy task. A business plan makes the entrepreneur forcibly plan all the
critical dimensions of business and it also ensures that entrepreneur does a thorough research about the
planned business venture. The process of researching and writing the business plan helps to identify the
gaps in the existing plan. For any business venture all the functional plans (marketing,
operation/production, finance, human resources) have to be prepared. The functional plans reveal the
resources required, strategies planned and the budgeted expenditure of each functional area. The also
determine when the company would break-even and when it would begin registering profits. It is
important to keep in mind that preparing a business plan is not just a one-time activity but is an ongoing
process. A successful business enterprise constantly keeps improving its business plan based on market
dynamics and learning experiences.
A business plan is a written document, which has to be presented to various stakeholders to get their
consent. The shareholders require it to ascertain the ownership patterns and future prospects, the
government needs it to give various certifications like pollution control, the financial institutions like
venture capitalists need it to estimate the prospects and the risks in disbursing funds to the business
venture.
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PREPARING A BUSINESS PLAN
A plan which looks very lucrative/feasible at the first instance, might actually not be when the details are
drawn. Hence documenting the business plan is one of the early steps that an entrepreneur should take.
The various steps involved in preparing a business plan are:
I] Preliminary Investigation: Before preparing the plan entrepreneur should:
Review available business plans (if any). Draw key business assumptions on which the plans will be based (e.g. inflation, exchange rates,
market growth, competitive pressures etc,)
Scan the external environment and internal environment to assess the strengths, weaknesses,opportunities and threats.
Seek professional advice from a friend/relative or a person who is already into similar business (ifany).
II]Business Planning Process: A successful entrepreneur lays down a step-by-step plan that s/he follows
in starting a new business. This business plan acts as a guiding tool to the entrepreneur and is dynamic in
nature it needs continuous review and updating so that the plan remains viable even in changing
business situations. The various steps involved in business planning process are:
1) Idea Generation Idea generation in the first stage of business planning process. This stepdifferentiates between an entrepreneur and a businessman. An entrepreneur is a highly creative
person who gets an innovative idea about a product or service that could be brought into the
market. It is not necessary to have an idea which is entirely new; even value added to the new
products in market is included in the innovative products/services. Idea generation is the first
stage of business planning process. It involves generation of new concepts, ideas, products or
services to satisfy the existing demands, latent demands and future demands of the market. The
various sources of new ideas are:
Consumers/customers Existing companies Research and Development Employees Dealers, retailers
The various methods of generating new ideas are:
- Brainstorming: There are a variety of ways to approach brainstorming, but theprinciples remain the same.
o Idea generation is separated from analysis of the idea.o You usually get more ideas with a group than by yourself.o No criticisms during the idea generation phase.o Do not waste time by trying to sell or explain your idea to others during the
idea generating stage.
o The apparently weird and silly ideas often are not so.o Changes in the way you look at something may generate new ideas.
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o Avoid experts in the idea generating group, as they tend to have rigid mindsloaded with traditional approaches.
o Ideas should breed a combination of ideas. You are seeking a large quantityof ideas.
- Reverse brainstorming e.g. how can possibly cause the problem instead ofsolving/preventing it.
- Group discussion- Data collection through questionnaire/schedules etc. from consumers, existing
companies, dealers and retailers
- Invitation of ideas through advertisement, mails, the internet.- Value addition to the current products/services.- Market research- Even contests are being-organised to identify business ideas like business bazigaar
on Star TV, which invites participation in the contest and rewards the best business
plans.
2) Environmental Scanning Once a promising idea emerges through, idea generation phase thenext step in environmental scanning, which is carried out to analyse the prospective strengths,
weakness, opportunities and threats of the business enterprise. Hence before getting the finer
details of setting up business it is advisable to scan the environmentboth external and internal
and collect the information about possible opportunities, threats from external environment and
strength and weaknesses from the internal environment. The different variables to be scanned are
in terms of socio-cultural, economic, governmental, legal, technological, demographic changes
taking place in the external environment and availability of raw materials, machinery, finance,
human resources etc with the entrepreneur. The various sources for gathering the information are
informal sources (family, friends, colleagues, etc.) and formal sources (bankers, magazines,
newspaper, government departments, seminars, suppliers, dealers, competitors). The objective a
successful environmental scanning should be to maximize the information and hence theentrepreneur should collect information from as many sources as possible and then analyze them
to understand whether the given information would be supportive/obstructive to the business
venture. The more supportive the information, the greater is the confidence regarding the success
of the business.
Internal Environment- Raw MaterialIt assesses the availability of raw material now and in the near future.
It the availability of raw material is less now or would be less in future then the
entrepreneur should give a serious thought to establishing a venture as the entire
system can come to a standstill due to shortage of raw material.
- Production/Operation It assesses the availability of various machineries,equipments, tools and techniques that would be required for production/operation.
- FinanceIt assesses the total requirement of finance in terms of start-up expenses,fixed expenses, and running expenses. It also indicates the sources of finance that can
be approached for funding.
- MarketIt assess the present, potential and latent demands of the market.
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- Human ResourceIt assesses the kind of human resources required and its demandand supply in the market. This further helps in estimating the cost and level of
competition in hiring and retaining the human resources.
External Environment- Socio-cultural AppraisalIt assesses the social and cultural norms of a society in a
given period of time. The variables that are appraised are values, beliefs, norms,fashions and fads of a particular society. It can help in understanding the level of
rigidity/flexibility of a given society towards a new product/service/concept. Take for
example, the socio-cultural norms of United States and UAE. Americans are
experimenting and adventurous whereas Arabs are conservative. If an entrepreneur
wishes to introduce an innovative product like bungee jumping its acceptability
would be more in America than in the UAE. Apart from this, the socio-cultural
environment determines the code of conduct the business should follow. If a business
follows unethical practices, various social groups and Government will intervene to
discipline it. E.g. if an industrial not fair wages to workers, trade unions and
Government will intervene.
- Political Environment Appraisal The viability of a business depends upon theability with which it can meet the challenges arising out of the political parties,
political stability, governments intervention in business, constitutional provisions
affecting business, foreign policy etc. All these factors have a bearing on business.
For instance, bottling and sale of Coca Cola was discontinued in India in the late
seventies because of the government policy of restricting the growth of multinational
companies in the country. In 1989, the Government allowed another multi-national
company, Pepsico, to enter the Indian market to give boost to the food processing
industry. Again in 1991, the Government revised its Industrial Policy which
liberalized licensing, imports and exports and inflow of foreign capital and
technology into the country. The trend towards globalization and creation of WorldTrade Organisation have posed new challenges for the Indian business.
- Economic AppraisalIt assesses the status of economy in a given society in terms ofinflation, per capita income and consumption pattern, balance of payments, consumer
price index etc. A healthy economy offers greater opportunities for growth and
development of the industry and therefore provides greater confidence to the
entrepreneur about the success of his venture.
- Governmental Appraisal It assesses the various legislations, policies, incentives,subsidies, grants, procedures etc. formulated by government for a particular industry.
The softer the government norms for the industry, the easier it is for the entrepreneur
to establish and run the business. Take for e.g., the government policies of subsidized
electricity in Uttaranchal. A manufacturing unit highly dependent on power has an
added advantage for setting up industry there. On the other hand, take Uttar Pradesh.
Here, the electricity is not just expensive but there is acute shortage of it as well and
entrepreneurship in UP are dependent on personal generators for electric supply,
which automatically increases the cost of product. Hence, it would be wise decision
on the part of entrepreneur to set up/shift his manufacturing unit to Uttaranchal. The
outcome of government policies in other sectors too should be taken into reckoning
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while conducting an appraisal of its policies. One such e.g. is the governments
intentions to allow only partial FDI in the retail segment. Because of this particular
clause, multinational retail outlets like Wal-Mart will not be able to enter the Indian
market, though the market potential and financial feasibility is in abundance.
- Legal Environment AppraisalLegal environment is determined by various laws andcourt decisions also put pressure on the business and managers. For instance, in 1992,several tanneries in Kanpur were ordered to be closed down by the Supreme court as
they were polluting the Holy Ganga. In August 1993, the Supreme Court passed an
order for the closure of iron foundries around the historical Taj Mahal because of air
pollution caused by them had adverse impact on the whiteness of Taj Mahal.
- Technological AppraisalIt assesses the various technological know-how availableto convert the idea into a product. It can also be done to assess the various modern
technologies expected in the near future and their receptiveness by the industry. For
e.g. an entrepreneur has an idea of manufacturing tobacco-free herbal cigarattes
which would not harm the health of smokers; technological appraisal can assess
whether manufacturing of this kind of product is possible or not.
- Demographic Appraisal It assesses the overall population pattern of a givengeographical region. It includes variables like age profile, distribution, sex, education
profile, income distribution etc. The demographic appraisal can help in identifying
the size of target customers.
- Financial Market Appraisal Finance is an important resource for starting andrunning a business. Thus, scanning of financial environment is very crucial before
planning to tap various sources of finance. Scanning of financial environment will
yield very useful information about financial institutions and other sources to raise
funds for an enterprise. Availability of finance from different sources and time
required for processing, sanction and release of funds are also important inputs for
deciding the size, nature, and profile of the enterprise. A very important factor relatedto finance is the rates of interest charged by different lending institutions. The terms
and conditions of repayment will always be a key factor for any entrepreneur.
- Physical Environment Appraisal Physical and geographical factors can play apredominant role in constituting the non-economic environment and thereby affecting
the business. Today there is a lot of emphasis on social responsibilities of business.
Business now has to calculate social net profitability of its ventures. In this
calculation, business must consider the physical environmental factors such as the
quantity and quality of existing forest wealth, possibility of artificial rain, the
exploitation sea products like fish, the health hazards out of pollution etc.
3) Feasibility Analysis This is done to find whether the proposed project (considering the aboveenvironmental appraisal) would be feasible or not. Environmental appraisal is carried out to
assess the external and internal environment of a business enterprise an enterprise intends to set
up. Whereas, feasibility study is carried out to assess the feasibility of the project itself in a
particular environment in greater detail. Hence, though feasibility would be dependent on
environmental appraisal yet it is more descriptive. The various variables/dimensions are:
Market AnalysisThis is to be conducted for the following reasons:
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- To estimate the demand of the proposed product/service in future.- To estimate the market share of the proposed product/service in the future.
The demand analysis and market share is based on a number of factors like
consumption pattern, availability of substitute goods/services, type of competition
etc. A wide variety of information has to be collected to make these estimations.
A preliminary discussion with consumers, retailers, distributors, competitors,suppliers etc. is carried out to understand the consumer preferences, existing, latent
and potential demands, strategy of competitors and practices of distributors, retailers
etc.
Technical/Operational AnalysisIt is done to assess the operational ability of the proposedbusiness enterprise. The cost and availability of technology may be of critical importance to
the feasibility of a project or it may not be an issue at all. Some of the key questions to be
answered: What are the technological needs of the proposed business? What other equipment
does the proposed business need? From where will this technology and equipment be
obtained? From where can the raw material be obtained? What would be the equipment and
technology?
Technical/operational analysis collects data on the following parameters: material
availability, material requirement planning, plant location, plant capacity, machinery and
equipment, plan layout.
Financial Feasibility Once the analysis of marketing and operations has been donesuccessfully, a final financial feasibility is done to assess financial issues of the proposed
business venture. Following cost estimates have to be carried out: Cost of land and building,
cost of plant and machinery; Preliminary cost estimation to assess how much would be
requird in conducting market survey, preparing feasibility report, establishment expenses,
expenses in raising capital from public and other miscellaneous expenses; Provision for
contingencies to cover certain unexpected expenses which can emerge due to change in the
external environment like price of raw material, or transport costs going up if the petrol prices
are revised; Working capital estimates for running the business are also made; Cost of
production; Sales and Production estimates; Profitability projections to be made on
parameters like cost of production, sales expenses, administrative expenses, expected sales.
The summation of all above gives gross profit.
Based on the above information, the following projections are made: break-even point, cash flow
statement, balance sheet statement, multiyear projections.
4) Drawing Functional Plans After positive results from the feasibility study, functional plans aredrawn. After the feasibility study gives positive indication about the viability of the proposed
project, one can go into the details of drawing of drawing functional plans which would plan the
strategies for all the operational areas.
Marketing Plan It lays down the strategies of marketing which can lead to success ofbusiness. These strategies are in terms of marketing mix (product, price, place and
promotion). From the market feasibility study and marketing research, potential/present
demand of customers is determined, which helps in understanding the profile of customers is
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determined which helps in understanding the profile of customers and hence helps in laying
down the strategies for segmentation of the market, identification of the target market and
laying down strategies for target market.
Production/Operation Plan Production plan is drawn for business enterprises in themanufacturing sector whereas operational plans are drawn for business enterprises in the
service sector. The production/operation plan should include strategies for the followingparameters: Location and reasons for selecting the location; Physical layout; Cost and
availability of machinery, equipments, raw material; list of suppliers and if possible
distributors; cost of manufacturing/running the operations; Quality Management; Production
scheduling, capacity management and inventory management; changes in above in case of
expansion of business.
Organisational Plan It defines the type of ownership: it could be single proprietary,partnership firm, company, private limited or public limited. It also proposes an
organizational structure and proposes human resource management practices that would
govern the successful running of the proposed business enterprise.
Financial PlanIt indicates the financial requirements of the proposed business enterprise:- cost incurred in smooth running of all the financial plans (marketing, operation, and
human resources). E.g. cost incurred in the marketing plan would include forecasting
sales, for production plan it includes cost of goods, for organizational plan it includes
cost of compensation to employees.
- Projected cash flows- Projected income statement- Projected break-even point- Projected ratios- Projected balance sheet
5) Project Report Preparation After environmental scanning and feasibility analysis, a projectreport is prepared. It is a written document that describes step-by-step, the strategies involved instarting and running a business.
6) Evaluation, Control and Review - It is imperative to continuously review and evaluate thebusiness constantly. This is because the competition in todays globalised world is intense and
technological changes are taking place at much faster rates. In this dynamic business environment
it is important to evaluate, control and review the business periodically and introduce changes to
keep up with a dynamic and changing market.