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Meaning
The term 'Entrepreneur' has been derived from a French word 'Entreprendre'
meaning to undertake certain activities. Normally, entrepreneur has to perform
two types of functions which are explained here with the help of pictures given
below.
Factors of production viz. land, labour and capital are scattered at different
places. All these factors have to be assembled together. This work is done by
enterprise through entrepreneur. This is an 'Organization Function'. Organization
function is the work of bringing the required factors together and making them
work harmoniously.
1. Entrepreneur initiates the business activity
He has to start the business activity by preparing a proper plan. The plan should
deal with the type of goods or service to be produced, sources of raw material and
credit, type of technology to be used, the markets where the products can be sold,
etc. The plan should be detailed one covering all the aspects of the business.
Thus the entrepreneur is the pivot around which all the activities of the firm revolve
around. He is the one who gives direction to the business firms & ensures its
effective operation.
SKILLS OF AN ENTREPRENEUR
1. Motivation
Entrepreneurs are enthusiastic, optimistic and future-oriented. They believe they’ll be successful and
are willing to risk their resources in pursuit of profit. They have high energy levels and are sometimes
impatient. They are always thinking about their business and how to increase their market share. Are
you self-motivated enough to do this, and can you stay motivated for extended periods of time? Can you
bounce back in the face of challenges?
Successful entrepreneurs have the creative capacity to recognize and pursue opportunities. They
possess strong selling skills and are both persuasive and persistent. Are you willing to promote your
business tirelessly and look for new ways to get the word out about your product or service?
3. Versatility
Company workers can usually rely on a staff or colleagues to provide service or support. As an
entrepreneur, you’ll typically start out as a “solopreneur,” meaning you will be on your own for a while.
You may not have the luxury of hiring a support staff initially. Therefore, you will end up wearing several
different hats, including secretary, bookkeeper and so on. You need to be mentally prepared to take on
all these tasks at the beginning. Can you do that?
Entrepreneurs are naturally capable of setting up the internal systems, procedures and processes
necessary to operate a business. They are focused on cash flow, sales and revenue at all times.
Successful entrepreneurs rely on their business skills, know-how and contacts. Evaluate your current
talents and professional network. Will your skills, contacts and experience readily transfer to the
business idea you want to pursue?
5. Risk Tolerance
Launching any entrepreneurial venture is risky. Are you willing to assume that risk? You can reduce your
risk by thoroughly researching your business concept, industry and market. You can also test your
concept on a small scale. Can you get a letter of intent from prospective customers to purchase? If so,
do you think customers would actually go through with their transaction?
6. Drive
As an entrepreneur, you are in the driver’s seat, so you must be proactive in your approaches to
everything. Are you a doer -- someone willing to take the reins -- or would you rather someone else do
things for you?
7. Vision
One of your responsibilities as founder and head of your company is deciding where your business
should go. That requires vision. Without it, your boat will be lost at sea. Are you the type of person who
looks ahead and can see the big picture?
While entrepreneurs need a steadfast vision and direction, they will face a lot of unknowns. You will
need to be ready to tweak any initial plans and strategies. New and better ways of doing things may
come along as well. Can you be open-minded and flexible in the face of change?
9. Decisiveness
As an entrepreneur, you won’t have room for procrastination or indecision. Not only will these traits
stall progress, but they can also cause you to miss crucial opportunities that could move you toward
success. Can you make decisions quickly and seize the moment?
The entrepreneur who is a business leader looks for ideas and puts them into effect in fostering
economic growth and development. Entrepreneurship is one of the most important input in the
economic development of a country.
The nature of a developing economy is quite different from a developed economy. The developing
economy can be an agricultural country moving towards the industrialization or it may be the one where
in the industry may be in its infancy lacking advance technology.
The modern era is an era of changes. The whole world is becoming a village due to the industrial
revolution and fast developing communication technology. The globalization of industry and commerce
is bringing a vast change in various aspects of life.
Economic development of a country is the outcome of purposeful human activity. The modern era is an
era of changes. The whole world is becoming a village due to the industrial revolution and fast
developing communication technology. The globalization of industry and commerce is bringing a vast
change in various aspects of life.
A developing country needs entrepreneurs who are competent to perceive new opportunities and are
willing to incur the necessary risk in exploiting them. A developing economy is required to be brought
out of the vicious circle of low income and poverty. Entrepreneur can break this vicious circle.
Entrepreneurs and helping government can change a developing economy in developed economy.
Employment Generation
Entrepreneurs not only give employment to the entrepreneur but also a source of direct and indirect
employment for many people in a country. Unemployment is a chronic problem in most of the
developing and underdeveloped countries. Entrepreneurs play an effective role in reducing the problem
of unemployment in the country which in turn clears the path towards economic development of the
nation
Entrepreneurs mobilize the idle funds which lead to capital formation. The funds which are used by
entrepreneurs is a mix of their own and borrowed. This leads to creation of wealth which is very
essential for development of an economy.
Great dynamism is one of the qualities of the small and medium enterprises. This quality of dynamism
originates in the inherent nature of the small business. The structure of small and medium enterprises is
less complex than that of large enterprises and therefore facilitates quicker and smoother
communication and decision- making. This allows for the greater flexibility and mobility of small
business management. Also, small enterprises, more often make it possible for owners, who have a
stronger entrepreneurial spirit than employed mangers, to undertake risk and challenges.
Small business promotion needs relatively low investment and therefore can be easily undertaken in
rural and semi-urban areas. This in turn creates additional employment in these areas and prevents
migration of people from rural to urban areas. Since majority of the people are living in the rural areas,
therefore, more of our development efforts should be directed towards this sector. Small enterprises
use local resources and are best suited to rural and underdeveloped sector
The growth of industries and business in these areas lead to a large number of public benefits like road
transport, health, education, entertainment, etc… Setting up of more industries leads to more
development of backward regions and thereby promotes balanced regional development.
Innovations in Enterprises
Business enterprises need to be innovative for survival and better performance. It is believed that
smaller firms have a relatively higher necessity and capability to innovate. The smaller firms do not face
the constraints imposed by large investment in existing technology. Thus they are both free and
compelled to innovate.
Entrepreneurship development is accelerating the pace of small firm’s growth in India. An increased
number of small firms are expected to result in more innovations and make the Indian industry compete
in the international market.
Entrepreneurs play a vital role in achieving a higher rate of economic growth. Entrepreneurs are able to
produce goods at lower cost and supply quality goods at lower price to the community according to
their requirements. When the price of the commodes decreases the consumers get the power to buy
more goods for their satisfaction. In this way they can increase the standard of living of the people.
Self-Reliance
Entrepreneurs are the corner stores of national self-reliance. They help to manufacture indigenous
substitutes to imported products which reduce the dependence on foreign countries. There is also a
possibility of exporting goods and services to earn foreign exchange for the country. Hence, the import
substitution and export promotion ensure economic independence and the country becomes self-
reliance.
Entrepreneurs act as catalytic agent for change which results in chain reaction. Once an enterprise is
established, the process of industrialization is set in motion. This unit will generate demand for various
types of units required by it and there will be so many other units which require the output of this unit.
This leads to overall development of an area due to increase in demand and setting up of more and
more units. In this way, the entrepreneurs multiply their entrepreneurial activities, thus creating an
environment of enthusiasm and conveying an impetus for overall development of the area.
TYPES OF OWNERSHIPS
SOLE PROPREITERSHIP
A sole proprietorship is owned and run by one individual who receives all profits and has unlimited
responsibility for all losses and debts. In a sole proprietorship, there is no legal distinction between the
individual and the business. Thus, every asset is owned by the proprietor, and they have unlimited
liability.
Examples include writers and consultants, local restaurants and shops, and home-based businesses. A
sole proprietor may use a trade name or business name other than his or her legal name.
A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business
entity that is owned and run by one individual and in which there is no legal distinction between the
owner and the business. Some formal definitions of a sole proprietorship are "a business owned by one
person who is entitled to all of its profits" (Glos & Baker) and "a business owned and controlled by one
man even though he may have many other persons working for him".
The individual entrepreneur owns the business and is fully responsible for all its debts and legal
liabilities. The owner receives all profits (subject to taxation specific to the business) and has unlimited
responsibility for all losses and debts. Every asset of the business is owned by the proprietor, and all
debts of the business are the proprietor's. This means that the owner has no less liability than if they
were acting as an individual instead of as a business. It is a "sole" proprietorship in contrast with
partnerships. More than 75% of all United States businesses are sole proprietorships. Examples include
writers and consultants, local restaurants and shops, and home-based businesses.
As a sole proprietor, filing your taxes is generally easier than a corporation. Simply file an individual
income tax return (IRS Form 1040), including your business losses and profits. Your individual and
business income are considered the same and self-employed tax implications will apply.
Limited capital is a reality for many start-ups and small businesses. The costs of setting up and operating
a corporation involves higher set-up fees and special forms. It's also not uncommon for a lawyer to be
involved in forming a corporation.
Handling money for the business is easier than other legal business structures. No payroll set-up is
required to pay yourself. To make it even easier, set up a separate bank account to keep your business
funds separate and avoid co-mingling personal and business activities.
Government Regulation
Sole proprietorships also have the least government rules and regulations affecting it. They do need to
comply with licensing requirements within the states in which they do business and they do need to pay
attention to local regulations. However, the paperwork required is much less than large corporations.
Thus, they can operate quite easily. Sole proprietorships also do not pay corporate taxes.
The sole proprietor can own the business for as long as he or she decides, and can cash in and sell the
business when they decide to get out. The sole proprietor can even pass the business down to their heir,
a common practice.
PARTNERSHIP
Starting an unincorporated company with one or more partners via an agreement is generally referred
to as a partnership, in which each of the owners assume personal liability for the legal actions and debts
of the entity (unless otherwise stated by law or within the agreement). Under this model, there are a
few different formats that new business owners should consider before finalizing the agreement. Each
format has implications, primarily revolving around the concept of liability, and choosing the right
format for the needs of the partners is a critical starting point.
TYPES OF PARTNERSHIPS
For the purpose of this discussion, the most important types of partnerships to consider are general
partnerships, limited partnerships, joint liability partnerships, several liability partnerships, and limited
liability partnerships.
This represents a default version of a partnership, which governs the relationships between the
individual partners as well as between the partnership and the outside world. Each partner in the
organization is considered an agent of the partnership, which means each partner represents the
organization when dealing with external parties. Similarly, each partner has equal right to participate in
the management, decision-making, and control (unless otherwise stated). Under most formats, adding a
new partner requires the complete support and consent of all existing partners.
In terms of risks and returns (or liabilities and profits), the default assumption is that profits are
distributed equally, and that liability is shared jointly and severally. Any debt or liability impacting the
organization can be distributed equally (or via allocated responsibility) across the partners' personal
assets.
Limited Partnerships (LP)
In a limited partnership, a general partner may collaborate with a limited partner. A limited partner has
no managerial authority, nor in most situations would they earn equal returns. However, the limited
partner is protected by limited liability in legal situations regarding debt or other costs that may impact
the general partner's personal assets. Along similar lines, limited partners are not considered agents of
the organization from a legal perspective. It is also important to understand that this is not the same as
a limited liability partnership (LLP), in which all partners have limited liability.
Exactly as it sounds, a joint liability partnerships holds all partners equally liable for any financial and
legal issues. As opposed to a several liability concept, in which liability may be distributed based on
certain proportionate responsibility, joint liability partnerships are equal across the board. Picture a
married couple purchasing a home. A joint liability on that loan would stipulate that both parties are
equally responsible for repayment as well as equally in possession of the asset (i.e. the home).
Several liability is the converse to joint liability, in which the involved parties will settle liability disputes
based on respective obligations. This is easiest to demonstrate via an example. Assume two partners
create a business, let's say exporting wine. Partner A is in charge of sourcing, getting great wine from
around the world. Partner B is responsible for the buyer side, and ensuring legality with the countries
they are selling too. While selling to a more conservative country, it turns out Partner B accidentally
overlooked some legal steps in the importing process.
As alcohol can be legally complex with costly mistakes, and it was partner B's responsibility, it could be
argued in a several liability case that partner B owes 80% of the cost for that mistake. To say 100%
would likely be a little unfair, considering Partner A should be aware of the full channel. But how much
liability does each party deserve? These are difficult questions, making this type of partnership slightly
more complex.
Finally, there are limited liability partnerships (LLPs). In this situation, some or all partners have limited
liability, which grants it some similarity with a corporation. LLPs do not hold each partner responsible for
the financial and legal mistakes of the other partners. In some countries, LLPs must have a central GP
with unlimited liability to put this risk somewhere (see limited partnerships). This format is quite popular
among certain high-end services, such as law and accounting. It allows collaborative work while
maintaining independence in regards to liability.
Like most legally complex concepts, in the United States in particular, LLP rulings can vary significantly
from area to area. Understanding which liabilities are limited and which are not is important information
to have before entering into a partnership.
Conclusion
When considering the appropriate type of partnership, liability is the key word. Prior to any formalized
arrangement, each party should put forward their expectations concerning profit sharing and liability in
clear terms. Aligning on the risk and return is the first step to moving forward in any professional
business relationships at the ownership level.
CORPORATIONS
Nonprofit Organization
A nonprofit organization is an organization that uses surplus revenues to achieve
its goals rather than distributing them as profit or dividends. While not-for-profit
organizations are permitted to generate surplus revenues, they must be retained
by the organization for its self-preservation, expansion, or plans.
Advantages of Corporations
Unlike a partnership or sole proprietorship, shareholders of a modern business
corporation have limited liability for the corporation's debts and obligations. As a
result, their losses cannot exceed the amount which they contributed to the
corporation as dues or payment for shares. This enables corporations to socialize
their costs. Socializing a cost is to spread it to society in general. The economic
rationale for this is that it allows anonymous trading in the shares of the
corporation by eliminating the corporation's creditors as a stakeholder in such a
transaction. Without limited liability, a creditor would probably not allow any
share to be sold to a buyer at least as creditworthy as the seller.
Limited liability reduces the amount that a shareholder can lose in a company so
it allows corporations to raise large amounts of finance for their enterprises by
combining funds from many stock owners. This increases the attraction to
potential shareholders and increases both the number of willing shareholders and
the amount they are likely to invest.
However, some jurisdictions also permit another type of corporation, in which
shareholders' liability is unlimited, for example the unlimited liability corporation
in two provinces of Canada, and the unlimited company in the United Kingdom.
Another advantage is that the assets and structure of the corporation may
continue beyond the lifetimes of its shareholders and bondholders. This allows
stability and the accumulation of capital, which is then available for investment in
larger and longer-lasting projects than if the corporate assets were subject to
dissolution and distribution. This was also important in medieval times, when land
donated to the Church (a corporation) would not generate the feudal fees that a
lord could claim upon a landholder's death. However, a corporation can be
dissolved by a government authority, putting an end to its existence as a legal
entity. But this usually only happens if the company breaks the law. For example,
it it fails to meet annual filing requirements or, in certain circumstances, if the
company requests dissolution.
2. Separate legal Entity : Being an artificial person a company has its own legal
entity separate from its members. It can own assets or property, enter into
contracts, sue or can be sued by anyone in the court of law. Its shareholders can
not be held liable for any conduct of the company.
5. Common Seal : Being an artificial person a joint stock company cannot sign any
documents thus this common seal is the company’s representative while dealing
with the outsiders. Any document having common seal and the signature of the
officer is binding on the company.
6. Transferability of Shares : Members of a joint stock company are free to
transfer their shares to anyone.
7. Capital : A joint stock company can raise large amount of capital by issuing its
shares.
8. Management : A joint stock company has a democratic management which is
managed by the elected representatives of shareholders, known as directors of
the company.
9. Membership : To form a private limited company minimum number of
members prescribed in the companies Act is 2 and the maximum number is 50.
But in the case of public limited company the minimum limit is 7 and no limit on
maximum number of members.
10. Formation : Generally a company is formed with the initiative of group of
members who are also known as promoters but it comes into existence after
completing all the formalities prescribed in Companies Act 1956.
Investors typically look for businesses that can grow their valuation to over $1
billion, Crater said. "Think about how to do that," she advised. "If you have
experts on your founding team that can execute the business [operations] well,
investors will have confidence in those people. [You also] need a good product
market fit."
Another way to overcome this issue is by working to get more female investors
involved in supporting one another, said Felena Hanson, founder of Hera Fund, a
female angel investor group. According to Hanson, groups like hers are "looking to
not only inspire and encourage female investors, but to grow and support other
female entrepreneurs through both funding and strategic educational
workshops."
"I've had to catch myself on occasion when I noticed that I'm giving away too
much without a financial commitment from a potential client," Downing said. "[I]
recommend other women value their knowledge as well."
Sharon Rowlands, CEO of digital marketing firm ReachLocal, agreed that
confidence is the key to success, even when you're up against a boardroom full of
men. Rowlands noted that when she was a newly appointed CEO, she often felt
her ideas received more scrutiny than those from her male colleagues. However,
she didn't let that discourage her from being a great business leader.
"I had confidence in my abilities to run the business," Rowlands told Business
News Daily. "I just made sure that any initiative I was trying to move forward was
backed up by a solid business case. I was never unprepared for the questions that
I knew would come. I [also] think many women naturally have extraordinary
common sense, a sharp intuitive sense and a great focus on people. These are
extremely valuable in business and can help to set us apart as leaders."
Knowing where to find the right support network isn't always easy. A few good
places to start include women-focused networking events — such as Womancon,
Women in Technology Summit and WIN Conferences— as well as online forums
and groups created specifically for women in business, such as Ellevate Network.
"You need to have massive failure to have massive success," Passi said. "You may
need 100 'noes' to get one 'yes,' but that one 'yes' will make you more successful
tomorrow than you were today."
Pierson offered similar advice for female entrepreneurs, encouraging them to
work through the moments of self-doubt that every business owner faces.
"I have stopped worrying if people will treat me differently in business because of
my gender … and have stopped comparing myself to others, including men," she
said. "The bottom line is, if you're successful, no one cares whether you are man
or a woman."
I.NEW ENTRY
A. New entry refers to:
1. Offering a new product to an established or new market.
2. Offering an established product to a new market.
3. Creating a new organization.
B. Newness is both positive and negative.
1. Newness can help differentiate a firm from its competitors.
2. However, newness creates a number of challenges for entrepreneurs.
C. Entrepreneurial strategy represents the set of decisions, actions, and reactions
that first generate, and then exploit over time, a new entry in a way that
maximizes the benefits of newness and minimizes its costs.
D. The elements of an entrepreneurial strategy are:
1. The generation of a new entry opportunity, the result of a combination of
knowledge and other resources into a bundle that will be valuable, rare, and
difficult for others to imitate.
2. The exploitation of a new entry opportunity.
3. A feedback loop.
E. If the entry warrants exploitation, then firm performance depends on1. The
entry strategy; the risk reduction strategy.
2. The way the firm is organized.
3. The competence of the entrepreneur and the management team.
F. Long-run performance is dependent upon the ability to generate and exploit
numerous new entries.
1. GENERATION OF A NEW ENTRY OPPORTUNITY
A. Resources as a Source of Competitive Advantage.
1. Resources are the basic building blocks to a firm’s performance.
a. These resources are the inputs into the production process.
b. These can be combined in different ways to achieve superior performance.
2. These resources need to be considered as a bundle rather than just the
resources that make up the bundle.
3. In order for a bundle of resources to be the basis of a firm’s superior
performance, the resources must be valuable, rare, and inimitable.
4. A bundle of resources is:
a. Valuable when it enables the firm to pursue opportunities, neutralize threats,
and to offer products and services that are valued by customers.
b. Rare when it is possessed by few, if any, competitors.
c. Inimitable when replication of this combination of resources would be difficulty
and/or costly for competitors.
5.The text uses the example of Breeze Technology, Inc., which invented a
technology that could be applied to the ventilation of athletic shoes to reduce
foot temperature.
a. The product was valuable because it provided the means of entering into a
large, lucrative market.
b. This technology also appeared to be rare and inimitable.
c. The process was also novel and obvious.
d. A patent protects the owner of the technology from people imitating the
technology.
B. Creating a Resource Bundle That Is Valuable, Rare, and Inimitable.
1. The ability to obtain, and then recombine, resources into a bundle that is
valuable, rare, and inimitable represents an important entrepreneurial resource.
a. The basis of this resource is knowledge, built up over time through experience.
b. Experience is idiosyncratic–unique to the life of the individual–and therefore
can be considered rare.
c. Knowledge is important for generating a bundle of resources that enables the
firm to prosper.
d. The text discusses the impact of mountain bikers in causing innovation in the
industry.
e. This sort of knowledge is unlikely to be learned in a textbook or in class.
2. Market knowledge refers to the entrepreneur’s possession of information,
technology, know-how, and skills that provide insight into a market and its
customers.
a. The entrepreneur shares some of the same knowledge that customers have
about the use and performance of products.
b. The entrepreneur’s market knowledge is deeper than the knowledge that could
be gained through market research.
c. Entrepreneurs who lack this intimate knowledge are less likely to recognize or
create attractive opportunities for new products and/or new markets.
d. The text again uses the example of mountain bikers who were aware of the
problems that they personally encountered.
e. Because these bike enthusiasts had an intimate knowledge of the market, they
were able to bring together resources in a way that provided a solution to
customers’ dissatisfaction.
3. Technological knowledge refers to the entrepreneur’s possession of
information, technology, know-how, and skills that provide insight into ways to
create new knowledge.
a. The text uses the example of laser technology–those with expertise in the
industry are more able to adapt and improve the technology and open up a
potentially attractive market.
b. Another example is the new markets that have arisen from the development of
computer technology.
c. Technological knowledge has led to technological advancement that creates
new markets rather than generating a technology to satisfy an unmet market
need.
4. The resource bundle is created from the entrepreneur’s market knowledge,
technological knowledge, and other resources.
D. Managing Newness.
1. The creation of a new organization offers some liabilities of newness.
a. New organizations face costs in learning new tasks.
b. As people are assigned to the roles of the new organization, there will be
some overlap or gaps in responsibilities.
c. Informal structure, necessary for communication, takes time to establish.
2. If these liabilities can be overcome, then the entrepreneur can benefit from
some assets of newness, the advantages that a new organization has over a
mature one.
a. Established routines, systems, and processes can be a liability when the firm
needs to adapt to changes in its environment.
b. New firms find that their lack of established routines, systems, and processes
means that they have a clean slate, giving them learning advantages over older
firms.
3. A heightened ability to learn new knowledge needs to be fostered by the
entrepreneur.
4. New ventures have strategic advantage over mature competitors, particularly
in dynamic, changing environments.
Design phase
The list of requirements that is developed in the definition phase can be used to
make design choices. In the design phase, one or more designs are developed,
with which the project result can apparently be achieved. Depending on the
subject of the project, the products of the design phase can include dioramas,
sketches, flow charts, site trees, HTML screen designs, prototypes, photo
impressions and UML schemas. The project supervisors use these designs to
choose the definitive design that will be produced in the project. This is followed
by the development phase. As in the definition phase, once the design has been
chosen, it cannot be changed in a later stage of the project.
In a young, very informal company, the design department was run by an artist.
The term design department was not accurate in this case; it was more a group of
designers who were working together. In addition, everyone was much too busy,
including the head of the department.
One project involved producing a number of designs, which were quite important
to the success of the project. A young designer on the project team created the
designs. Although the head of the design department had ultimate responsibility
for the designs, he never attended the meetings of the project team when the
designs were to be discussed. The project leader always invited him, and sent him
e-mails containing his young colleagues sketches, but the e-mails remained
unanswered. The project leader and the young designer erroneously assumed
that the department head had approved the designs. The implementation phase
began. When the project was nearly finished, the result was presented to the
department head, who became furious and demanded that it be completely
redone. The budget, however, was almost exhausted.
Development phase
During the development phase, everything that will be needed to implement the
project is arranged. Potential suppliers or subcontractors are brought in, a
schedule is made, materials and tools are ordered, instructions are given to the
personnel and so forth. The development phase is complete when
implementation is ready to start. All matters must be clear for the parties that will
carry out the implementation.
In some projects, particularly smaller ones, a formal development phase is
probably not necessary. The important point is that it must be clear what must be
done in the implementation phase, by whom and when.
Implementation phase
The project takes shape during the implementation phase. This phase involves the
construction of the actual project result. Programmers are occupied with
encoding, designers are involved in developing graphic material, contractors are
building, the actual reorganisation takes place. It is during this phase that the
project becomes visible to outsiders, to whom it may appear that the project has
just begun. The implementation phase is the doing phase, and it is important to
maintain the momentum.
In one project, it had escaped the project teams attention that one of the most
important team members was expecting to become a father at any moment and
would thereafter be completely unavailable for about a month. When the time
came, an external specialist was brought in to take over his work, in order to keep
the team from grinding to a halt. Although the team was able to proceed, the
external expertise put a considerable dent in the budget.
At the end of the implementation phase, the result is evaluated according to the
list of requirements that was created in the definition phase. It is also evaluated
according to the designs. For example, tests may be conducted to determine
whether the web application does indeed support Explorer 5 and Firefox 1.0 and
higher. It may be determined whether the trim on the building has been made
according to the agreement, or whether the materials that were used were
indeed those that had been specified in the definition phase. This phase is
complete when all of the requirements have been met and when the result
corresponds to the design.
Those who are involved in a project should keep in mind that it is hardly ever
possible to achieve a project result that precisely meets all of the requirements
that were originally specified in the definition phase. Unexpected events or
advancing insight sometimes require a project team to deviate from the original
list of requirements or other design documents during the implementation of the
project. This is a potential source of conflict, particularly if an external customer
has ordered the project result. In such cases, the customer can appeal to the
agreements that were made during the definition phase.
As a rule, the requirements cannot be changed after the end of the definition
phase. This also applies to designs: the design may not be changed after the
design phase has been completed. Should this nonetheless be necessary (which
does sometimes occur), the project leader should ensure that the changes are
discussed with those involved (particularly the decision-makers or customers) as
soon as possible. It is also important that the changes that have been chosen are
well documented, in order to prevent later misunderstandings.
Follow up phase
Although it is extremely important, the follow-up phase is often neglected. During
this phase, everything is arranged that is necessary to bring the project to a
successful completion. Examples of activities in the follow-up phase include
writing handbooks, providing instruction and training for users, setting up a help
desk, maintaining the result, evaluating the project itself, writing the project
report, holding a party to celebrate the result that has been achieved, transferring
to the directors and dismantling the project team.
The central question in the follow-up phase concerns when and where the project
ends. Project leaders often joke among themselves that the first ninety per cent
of a project proceeds quickly and that the final ten per cent can take years. The
boundaries of the project should be considered in the beginning of a project, so
that the project can be closed in the follow-up phase, once it has reached these
boundaries.
It is sometimes unclear for those concerned whether the project result is to be a
prototype or a working product. This is particularly common in innovative projects
in which the outcome is not certain. Customers may expect to receive a product,
while the project team assumes that it is building a prototype. Such situations are
particularly likely to manifest themselves in the follow-up phase. Consider the
case of a software project to test a very new concept.
There was some anxiety concerning whether any results would be produced at all.
The project eventually produced good results. The team delivered a piece of
software that worked well, at least within the testing context. The customer, who
did not know much about IT, thought that he had received a working product.
After all, it had worked on his office computer. The software did indeed work, but
when it was installed on the computers of fifty employees, the prototype began
to have problems, and it was sometimes instable.
Although the programmers would have been able to repair the software, they had
no time, as they were already involved in the next project. Furthermore, they had
no interest in patching up something that they considered a trial piece. Several
months later, when Microsoft released its Service Pack 2 for Windows, the
software completely stopped functioning. The customer was angry that the
product once again did not work. Because the customer was important, the
project leader tried to persuade the programmers to make a few repairs. The
programmers were resistant, however, as repairing the bugs would cause too
much disruption in their new project. Furthermore, they perceived the software
as a prototype. Making it suitable for large-scale use would require changing the
entire architectural structure. They wondered if the stream of complaints from
the customer would ever stop.
FINANCING A NEW VENTURE
Equity Financing
Equity financing means exchanging a portion of the ownership of the business for
a financial investment in the business. The ownership stake resulting from an
equity investment allows the investor to share in the company’s profits. Equity
involves a permanent investment in a company and is not repaid by the company
at a later date.
The investment should be properly defined in a formally created business entity.
An equity stake in a company can be in the form of membership units, as in the
case of a limited liability company or in the form of common or preferred stock as
in a corporation.
Companies may establish different classes of stock to control voting rights among
shareholders. Simi-larly, companies may use different types of preferred stock.
For example, common stockholders can vote while preferred stockholders
generally cannot. But common stockholders are last in line for the company’s
assets in case of default or bankruptcy. Preferred stockholders receive a
predetermined dividend before common stockholders receive a dividend.
Personal Savings
The first place to look for money is your own savings or equity. Personal resources
can include profit-sharing or early retirement funds, real estate equity loans, or
cash value insurance policies.
Life insurance policies - A standard feature of many life insurance policies is the
owner’s ability to borrow against the cash value of the policy. This does not
include term insurance because it has no cash value. The money can be used for
business needs. It takes about two years for a policy to accumulate sufficient cash
value for borrowing. You may borrow most of the cash value of the policy. The
loan will reduce the face value of the policy and, in the case of death, the loan has
to be repaid before the beneficiaries of the policy receive any payment.
Friends and Relatives
Founders of a start-up business may look to private financing sources such as
parents or friends. It may be in the form of equity financing in which the friend or
relative receives an ownership interest in the business. However, these
investments should be made with the same formality that would be used with
outside investors.
Venture Capital
Venture capital refers to financing that comes from companies or individuals in
the business of investing in young, privately held businesses. They provide capital
to young businesses in exchange for an ownership share of the business. Venture
capital firms usually don’t want to participate in the initial financing of a business
unless the company has management with a proven track record. Generally, they
prefer to invest in companies that have received significant equity investments
from the founders and are already profitable.
They also prefer businesses that have a competitive advantage or a strong value
proposition in the form of a patent, a proven demand for the product, or a very
special (and protectable) idea. Venture capital investors often take a hands-on
approach to their investments, requiring representation on the board of directors
and sometimes the hiring of managers. Venture capital investors can provide
valuable guid-ance and business advice. However, they are looking for substantial
returns on their investments and their objectives may be at cross purposes with
those of the founders. They are often focused on short-term gain.
Venture capital firms are usually focused on creating an investment portfolio of
businesses with high-growth potential resulting in high rates of returns. These
businesses are often high-risk investments. They may look for annual returns of
25 to 30 percent on their overall investment portfolio.
Because these are usually high-risk business investments, they want investments
with expected returns of 50 percent or more. Assuming that some business
investments will return 50 percent or more while others will fail, it is hoped that
the overall portfolio will return 25 to 30 percent.
More specifically, many venture capitalists subscribe to the 2-6-2 rule of thumb.
This means that typically two investments will yield high returns, six will yield
moderate returns (or just return their original investment), and two will fail.
DEBT FINANCING
Debt financing involves borrowing funds from creditors with the stipulation of
repaying the borrowed funds plus interest at a specified future time. For the
creditors (those lending the funds to the business), the reward for providing the
debt financing is the interest on the amount lent to the borrower.
Debt financing may be secured or unsecured. Secured debt has collateral (a
valuable asset which the lender can attach to satisfy the loan in case of default by
the borrower). Conversely, unsecured debt does not have collateral and places
the lender in a less secure position relative to repayment in case of default.
Debt financing (loans) may be short term or long term in their repayment
schedules. Generally, short-term debt is used to finance current activities such as
operations while long-term debt is used to finance assets such as buildings and
equipment.
There are mainly three schemes viz. PMEGP, Seed Money Scheme and District
Industries Loan Scheme implemented by Directorate of Industries for unemployed
youth. The brief features of these schemes are described below :-
A) PMEGP
Coverage:
Industry projects upto Rs. 25 lakh investment and service/business projects upto
Rs. 10 lakh investment are eligible under the scheme. Project cost will include
fixed capital (excluding land cost) plus working capital.
Extent of assistance:
90% loan for general group and 95% for special group will be available from public
sector banks, Regional rural banks, IDBI. In urban areas, 15% margin money
subsidy for general group and 25% for special group will be available through
KVIC. In rural areas, the margin money subsidy will be 25% to 35% respectively.
Special group include SC/ST/OBC/minority/woman/ex-servicemen/physically
handicapped.
1. Eligibility:
1. Any individual, above 18 years of age
2. For setting up of project costing above Rs.10 lakh in the manufacturing
sector and above Rs. 5 lakh in the business/service sector, the beneficiaries
should have at least VIII standard pass educational qualification.
3. Assistance under the Scheme is available only for new projects sanctioned
specifically under the PMEGP.
4. Self Help Groups (including those belonging to BPL provided that they have
not availed benefits under any other Scheme) are also eligible for assistance
under PMEGP.
5. Institutions registered under Societies Registration Act,1860;
6. Production Co-operative Societies, and Charitable Trusts.
7. Existing Units (under PMRY, REGP or any other scheme of Government of
India or State Government) and the units that have already availed Government
Subsidy under any other scheme of Government of India or State Government are
not eligible.
2. Implementing Agencies :
In urban areas, the scheme will be implemented through DIC, while in rural areas
through KVIC/KVIB/DIC all three agencies.
B) Seed Money Scheme (SMS)
1. The objective of the scheme is to encourage unemployed person to take up
self-employment ventures through industry, service and business, by providing
soft loans to meet part of the margin money to avail institutional finance.
2. Eligibility :
Local unemployed person or group of persons fulfilling:
o Age Group: 18 to 50 years
o Qualification: Std. VII pass
o Domiciled in the state of Maharashtra for the last 15 years.
3. Scope
o Project cost upto Rs. 25 lakhs for industry, service and business
activity.
o Seed Money assistance at 15 per cent of the project cost approved
by financial institutions is offered. In case of projects costing up to Rs.
10 lakhs, the quantum of assistance ranges upto 15 per cent for
General category and 20% for SC/ST and OBC/NT/VT/Handicapped
upto 20 per cent.
o Seed Money component up to 3.75 lakhs maximum.
o Bank loan 75% of the project cost.
o The rate of interest on seed money is 6% and if the borrower pays
the repayment of installment regularly and within scheduled time,
then the borrower will get rebate of 3% in interest. So he has to pay
only 3% interest.
o If the installment is not repaid in time, it will attract 1% penal
interest.
o The repayment of loan starts after three years in four yearly
installments for industry cases. In other cases repayment starts after
six months of loan availment
C) DISTRICT INDUSTRIES CENTRE LOAN SCHEME :
1. The objective of the scheme is to provide financial assistance in the form of
margin/seed money for the promotion of tiny industries in semi-urban and rural
areas with a view to generate employment opportunities including self-
employment.
2. Margin money assistance is admissible only to those units whose
investment in plant & machinery does not exceed Rs. 2 lakh.
3. All towns and rural areas having population of less than 1 lac are covered
under the Scheme.
4. The extent of assistance is 20 % of the total investment or Rs. 40000/-
whichever is less in case of entrepreneur belonging to general category and in
case of entrepreneur belonging to scheduled caste & scheduled tribe, assistance
upto 30 % of total fixed capital investment or upto maximum of Rs. 60000/- which
ever is less is provided.
5. All units falling within the purview of the Small Scale Industries Board and
Village Industries, handicrafts, handlooms, Silk & Coir Industries are covered
under the Scheme.
6. The State Government’s rate of interest on this loan is 4 % and repayment
is to be done within 7 years.
7. This scheme is particularly useful for rural artisans.
NABARD
District Rural Industries Project (DRIP)
NABARD has launched an integrated area-based credit intensification programme
in collaboration with Government, Banks and other development agencies with
district as a focus known as District Rural Industries Project (DRIP).
Objective : Creation of significant number of sustainable employment
opportunities in rural areas through enhanced credit flow to RNFS with
complementary financial and non-financial promotional support.
List of DRIP Districts Phase VII (2004 – 05)
Orissa – Sambalpur, M.P. – Vidisha, Balaghat, A.P. – Srikakulum, Chitoor, West
Godawari, Gujarat – Bharuch, Raiasthan – Bikaner, Jodhpur, Maharashtra – Latur,
Kamataka – Bellang, Shimoga, U.P. – Jaunpur, Bahraich, Farukabad, Tamil Nadu –
Kanyakumari, Assam – , West Bengal – Murshidabad, Hoogly, Punjab – , Haryana –
Rewari, Kerala – Kozhikode, Himachal Pradesh -, Chattisgarh – Mahasmund, Jammu
& Kashmir -, Uttranchal – Almora, Jharkhand -East Singhbhum, Bihar – Bhoj pur,
Nalanda
Important Components /Strategies
Conduct of Detailed Potential Survey of the District.
Strategy meets at District & State level.
Sensitization of the Functionaries of Project Partners – Govt
/Banks/NGOs/VAs/DAs.
Goal Oriented Project Planning (GOPP) Workshop at the District Level.
Training of the officials of Primary Lending Institutions. (PLIs).
Preparation of DRIP Action Plan.
Detailing of DRIP Action Plan with Service Area Plans (SAPs) of Banks.
Adoption of Cluster Approach.
Awareness creation / skill upgradation amongst Entrepreneurs.
Technology Upgradation / Transfer.
Focus on implementation of Credit-linked Promotional Programmes through
NGOs/ VAs/DAs.
Encouraging Credit Delivery Innovations.
Monitoring the progress closely through Project Coordination & Guidance
Committees (PCGCs) at the district and state level.
Women have been among the most disadvantaged and oppressed section of our
country with regard to access to and control over resources. Problems faced by
them continue to be grave particularly for illiterate & semi literate women of rural
and urban areas In order to alleviate their problems, Govt. of India launched a
scheme entitled " Trade Related Entrepreneurship Assistance and Development"
(TREAD) during the 9th plan period which has slightly been modified and is now put
in operation. The scheme envisages economic empowerment of such women
through trade related training, information and counseling extension activities
related to trades, products, services etc.
OBJECTIVES
Experience has revealed that apart from counseling and training, delivery of credit
poses the most serious problem for the poor women. There is also dearth of
information with regard to existing status of women and their common needs for
providing necessary support. Since such women are not able to have an easy access
to credit, it has been envisaged that the credit will be made available to women
applicants through NGOs who would be capable of handling funds in an
appropriate manner. These NGOs will not only handle the disbursement of such
loans needed by women but would also provide them adequate counseling,
training and Assistance in developing markets.
SALIENT FEATURES OF THE REVISED TREAD SCHEME FOR EMPOWERMENT OF
WOMEN
Credit
Credit to Projects - Government Grant up to 30% of the total project cost as
appraised by lending institutions which would finance the remaining 70% as loan
Assistance to applicant women, who have no easy access to credit from banks due
to their cumbersome procedures and the inability of poor & usually illiterate/semi-
literate women to provide adequate security demanded by banks in the form of
collaterals. GOI Grant and the loan portion from the lending agencies to assist such
women shall be routed through eligible NGOs engaged in assisting poor women
through any kind of income generating activities in non farm sector. For example if
an NGO submits project(s) for a number of individual or group(s) women say for Rs.
50,000 each for a group of 50 women, then the loan amount required by 50 women
would be Rs. 25 lakhs. To it would be added the expenditure that the NGO will make
in training / counseling of staff, part expenses on operationalising a management
and monitoring system, vehicles, charges for legal documentation, training of
loaners, auditors fees charged. Say duly approved by lending institutes, it works out
to be Rs. 15 lakhs. Then the total project cost would be Rs. 25 + 15 = 40 lakhs. The
GOI grant would be maximum up to Rs. 12 lakhs (30% of Rs. 40 lakhs).