4 Entrepreneurial pitfalls by Peter Drucker

Many businesses start out extremely well and then suddenly are in trouble as there are
typical mistakes (pitfalls) that entrepreneurs make. Peter Drucker pointed out that
there are four entrepreneurial pitfalls where the new and growing business typically
gets into trouble. All of them are foreseeable and avoidable.

1. Knowing better than the market. The entrepreneur does not realize that a
new product or service is not successful where he thought it would be but it is
instead successful in a totally different market. Many businesses fail because the
founder-entrepreneur is so obsessed with his or her original plan and refuse to
grab the opportunity in the unexpected market. In essence, the entrepreneur
rejects unexpected, unplanned success because it crashes their belief that they
know better than the market.

2. Focusing on profits. Entrepreneurs do not pay enough attention to cash flow.

They believe that profit is what matters most in a new enterprise. But profit is
secondary. Cash flow matters most. Many businesses are getting caught in a cash
crunch because entrepreneurs are financially illiterate and have a hard time
grasping the concept of cash flow.

3. The management crisis. As a business grows, the person who founded it

becomes incredibly busy. Rapid growth puts an incredible strain on a business.
The entrepreneur outgrows his management base as he does everything himself.
Unfortunately, he does not realize he outgrows his management capabilities. He
does not get the management team in place quick enough. Then all the sudden,
everything goes wrong. The quality falls. Customers don’t pay. Deliveries are
missed. The business is eventually hit hard by manage crunch.

4. Loss of perspective. When the business is a success the entrepreneur begins to

put himself and his needs before his business. Focusing on his desires or needs,
the entrepreneur neglects to make the needs of the business the highest priority
and thus he ends up killing himself and the business.
https://www.franchiseindia.net/pdf/pune/Day-2-Entrepreneur-Prof-CM-chitale.pdf

Innovation “It is the process of doing new things” Ideas have little value until they are
converted into useful products or services Innovation transforms creative ideas into
useful applications.

Sources of the business ideas • Discussion with other people • Looking through book
• Visiting shops & attending trade shows • Information from research institutes •
Brainstorming • Converting hobby into business

Entrepreneurial pitfalls – where the new and growing business typically gets into
trouble

Government plays a very important role in developing entrepreneurship. Government

develop industries in rural and backward areas by giving various facilities with the
objective of balances regional development. The government set programmes to help
entrepreneurs in the field of technique, finance, market and entrepreneurial
development so that they help to accelerate and adopt the changes in industrial
development. Various institutions were set up by the central and state governments in
order to fulfil this objective.

A. Institutions set up by Central Government

1. Small industries development organization (SIDO)

SIDO was established in October 1973 now under Ministry of Trade, Industry and
Marketing. SIDO is an apex body at Central level for formulating policy for the
development of Small Scale Industries in the country,headed by the Additional
Secretary & Development Commissioner(Small Scale Industries)under Ministry of Small
Scale Industries Govt. of India. SIDO is playing a very constructive role for strengthening
this vital sector, which has proved to be one of the strong pillars of the economy of the
country. SIDO also provides extended support through Comprehensive plan for
promotion of rural entrepreneurship.

2. Management development Institute(MDI)

MDI is located at Gurgaon(Haryana).It was established in 1973 and is sponsored by
Industrial Finance Corporation Of India,with objectives of improving managerial
effectiveness in the industry.It conducts management development programs in various
fields.In also includes the programmes for the officers of IAS,IES,BHEL,ONGC and many
other leading PSU’s.
3. Entrepreneurship development institute of India (EDI)
Entrepreneurship Development Institute of India (EDI), an autonomous and not-for-
profit institute, set up in 1983, is sponsored by apex financial institutions – the IDBI
Bank Ltd., IFCI Ltd., ICICI Bank Ltd. and the State Bank of India (SBI). EDI has helped set
up twelve state-level exclusive entrepreneurship development centres and institutes.
One of the satisfying achievements, however, was taking entrepreneurship to a large
number of schools, colleges, science and technology institutions and management
schools in several states by including entrepreneurship inputs in their curricula. In the
international arena, efforts to develop entrepreneurship by way of sharing resources
and organizing training programmes, have helped EDI earn accolades and support from
the World Bank, Commonwealth Secretariat, UNIDO, ILO, British Council, Ford
Foundation, European Union, ASEAN Secretariat and several other renowned agencies.
EDI has also set up Entrepreneurship Development Centre at Cambodia, Lao PDR,
Myanmar and Vietnam and is in the process of setting up such centres at Uzbekistan and
five African countries.

4. All India Small Scale Industries Board(AISSIB)

The Small Scale Industries Board (SSI Board) is the apex advisory body constituted to
render advise to the Government on all issues pertaining to the small scale sector.It
determines the policies and programmes for the development of small industries with a
Central Government Minister as its president and the representatives of various
organization i.e. Central Government,State Government,National Small Industries
Corporations,State Financial Corporation,Reserve Bank of India,State Bank of
India,Indian Small Industries Board,Non government members such as Public Service
Commission,Trade and Industries Members.

5. National Institution of Entrepreneurship and Small Business

Development(NIESBUD),New Delhi
It was established in 1983 by the Government of India.It is an apex body to supervise
the activities of various agencies in the entrepreneurial development programmes.It is a
society under Government of India Society Act of 1860.The major activities of institute
are:

i) To make effective strategies and methods

ii) To standardize model syllabus for training

iii) To develop training aids,tools and manuals

iv) To conduct workshops,seminars and conferences.

v) To evaluate the benefits of EDPs and promote the process of Entrepreneurial

Development.

vi) To help support government and other agencies in executing entrepreneur

development programmes.
vii) To undertake research and development in the field of EDPs.

6. National Institute of Small Industries Extension Training

It was established in 1960 with its headquarters at Hyderabad.The main objectives of
national Institute of Small Industries Extension Training are:

i) Directing and Coordinating syllabi for training of small entrepreneurs.

ii) Advising managerial and technical aspects.

iii) Organizing seminars for small entrepreneurs and managers.

iv) Providing services regarding research and documentation.

7. National Small Industries Corporation Ltd. (NSIC)

The NSIC was established in 1995 by the Central Government with the objective of
assisting the small industries in the Government purchase programmes.The corporation
provides a vast-market for the products of small industries through its marketing
network.It also assists the small units in exporting their products in foreign countries.

The government plays an important role in the development of entrepreneurship. The

central and state governments have set up a number of institutions to promote
entrepreneurship. They are:

i. Small Industries Development Organization - SIDO formulates policies for the

development of small scale industries in the country. It provides support for promotion
of rural entrepreneurship.

ii. Management Development Institute - MDI conducts management development

programs to improve managerial effectiveness in the industry.

iii. Entrepreneurship Development Institute of India - EDI has helped to set up twelve
state-level exclusive entrepreneurship development institutes and centres.

iv. All India Small Scale Industries Board - AISSIB advises the Government on all issues
related to the small scale sector. It determines the programmes and policies for the
development of small scale industries.
v. National Institution of Entrepreneurship and Small Business Development - NIESBUD
supervises the activities of the different agencies involved in the entrepreneurial
development programmes.

vi. National Institute of Small Industries Extension Training - The objective of the
institute is to direct and coordinate the syllabi for training of small entrepreneurs. It
organizes seminars for small entrepreneurs and managers.

vii. National Small Industries Corporation Ltd. - NSIC provides a vast-market for the
products of the small industries through its marketing network. It also helps the small
units in exporting their products to foreign countries.

Role of State Govt. in promoting entrepreneurship

An entrepreneur requires a continuous flow of funds not only for setting up of the
business, but also for successful operation as well as regular up gradation/
modernization of the industrial unit. To meet this requirement, the Government
(both at the Central and State level) has been undertaking several steps like setting
up of banks and financial institutions; formulating various policies and schemes, etc.
All such measures focus on promoting, developing & enhancing the global
competitiveness of small and medium enterprises.

The government has been taking active steps to promote entrepreneurship in

various industry & service sectors. It has declared several policy measures and is
implementing schemes and programmes.

Government Incentives, Subsidies and Grants : Incentives, Subsidies and Grants

are the financial assist provided by various institutions either governmental or non-
governmental. It is an efficient tool to promote entrepreneurship. The objective of
providing incentives, subsidies & grants is to motivate an entrepreneur to set up a
new venture in the larger interest of the nation and the society.

1) Incentives: The term incentive means encouraging productivity. It is a

motivational force which makes an entrepreneur takes a correct decision and
proceeds upon it. Broadly, incentives include concessions, subsidies and
bounties. Incentives may be financial or non-financial. Non-financial incentives
push an entrepreneur towards decision and action.

Examples of Incentives
Industrial estates, industrial complexes, availability of power, concessional
finance, capital investment subsidy, transport subsidy, are few examples of
incentives to solve constraints faced by entrepreneurs in small scale sector.
 2) Subsidy: Subsidy indicates a single lump-sum which is given by the government
to an entrepreneur to cover up the cost. Subsidy is a financial assistance or a sum
of money provided by a government, to an industry for public welfare or interest.
It is any financial aid, grant, or contribution.

Power subsidy
Capital investment subsidies to new enterprises established in some
selected districts.

3) Grants: Grants are a financial help by the government to prospective

entrepreneurs without expecting that money will be refunded. In cost-effectively
challenged periods, the government is main sources of grants.

Policies and Incentives

The Ministry of Micro, Small and Medium Enterprises is the nodal Ministry for
formulation of policies, programmes and schemes, their implementation and related
co- ordination, for the promotion and development of small scale industries in India.
The role of the Ministry is to assist the States in their efforts for the growth of the
small scale sector, by enhancing their competitiveness in an increasingly liberalized
economy. It is assisted by an attached office and two public sector enterprise,
namely:-
Micro, Small and Medium Enterprises Development Organization (MSME-DO)
National Small Industries Corporation Ltd (NSIC)
Khadi and Village Industries Commission (KVIC)
Coir Board

 Micro, Small and Medium Enterprises Development Organization (MSME-DO) :- It

is the apex body for assisting the Government in formulating, coordinating,
implementing and monitoring policies and programmes for micro, small and
medium enterprises (MSMEs) in the country. MSME-DO provides a comprehensive
range of common facilities, technology support services, marketing assistance,
entrepreneurial development support, etc.

Coir Board :- is a statutory body, established under the Coir Industry Act, 1953, for
the promotion and development of coir industry in India as well as for uplifting the
living conditions of the workers engaged in this industry

 National Small Industries Corporation Ltd (NSIC) :- was established by the

Government with a view to promoting, aiding and fostering the growth of micro, small
and medium enterprises in the country, with a focus on commercial aspect of their
operations. It implements several schemes to help the MSMEs in the areas of raw
material procurement, product marketing, credit rating, acquisition of technologies,
adoption of improved management practices, etc
Khadi and Village Industries Commission (KVIC) :- established under the Khadi and
Village Industries Commission Act, 1956, as a statutory organisation engaged in
promotion and development of khadi and village industries for providing employment
opportunities in the rural areas.

https://msmedihimachal.nic.in/msme_adm/writereaddata/upload/files/INSTITUTION
AL%20SUPPORT.pdf
 Role an entrepreneur in the economic development of a country

Economic development essentially means a process of upward

change whereby the real per capita income of a country increases
over a period of time.

Entrepreneur plays a vital role in the economic growth and standard of living of the
local community, state, region, and the country as a whole. Entrepreneurs serve
as the catalysts in the process of industrialization and economic
growth. Following are the important roles an entrepreneur plays in the economic
development of a country.

1. Wealth Creation and Sharing: By establishing the business entity, entrepreneurs

invest their own resources and attract capital (in the form of debt, equity, etc.) from
investors, lenders and the public. This mobilizes public wealth. Investment of public
savings in industry results in productive utilization of national resources. Rate of capital
formation increases which is essential for rapid economic growth. Thus, an
entrepreneur is the creator of wealth.

2. Create Jobs: Entrepreneurs are job creators. When you become an entrepreneur,
there is one less job seeker in the economy, and then you provide employment for
multiple other job seekers. So the Govt. of India has launched initiatives such
as StartupIndia to promote and support new start-ups, and also others like the Make in
India initiative to attract foreign companies into the Indian economy. All this in turn
creates a lot of job opportunities, and is helping in enhancing our standards to a global
level.
3. Balanced Regional Development: Entrepreneurs setting up new businesses and
industrial units help with regional development by locating in less developed and
backward areas. The growth of industries and business in these areas leads to
infrastructure improvements like better roads and rail links, airports, stable electricity
and water supply, schools, hospitals, shopping malls and other public and private
services that would not otherwise be available.

Every new business that locates in a less developed area will create both direct and
indirect jobs, helping lift regional economies in many different ways.

4. GDP and Per Capita Income: Each new enterprise units makes use of resources like
land, labor and capital to develop products and services that add to the national income,
national product and per capita income of the country. This growth in GDP and per
capita income is again one of the essential goals of economic development.

5. Standard of Living: Increase in the standard of living of people in a community is yet

another key goal of economic development. Entrepreneurs again play a key role in
increasing the standard of living in a community. They do this not just by creating jobs,
but also by developing and adopting innovations that lead to improvements in the
quality of life of their employees, customers, and other stakeholders in the community.
For example, automation that reduces production costs and enables faster production
will make a business unit more productive, while also providing its customers with the
same goods at lower prices.

6. Exports: Any growing business will eventually want to get started with exports to
expand their business to foreign markets. This is an important ingredient of economic
development since it provides access to bigger markets, and leads to currency inflows
and access to the latest cutting-edge technologies and processes being used in more
developed foreign markets. Another key benefit is that this expansion that leads to more
stable business revenue during economic downturns in the local economy.

7. Community Development: Economic development doesn’t always translate into

community development. Community development requires infrastructure for
education and training, healthcare, and other public services. For example, you need
highly educated and skilled workers in a community to attract new businesses. If there
are educational institutions, technical training schools and internship opportunities,
that will help build the pool of educated and skilled workers.

A good example of how this kind of community development can be promoted is Azim
Hashim Premji, Chairman of Wipro Limited, who donated Rs. 27,514 crores for
promoting education through the Azim Premji Foundation. This foundation works with
more than 350,000 schools in eight states across India.

So, there is a very important role for entrepreneurs to spark economic development
by starting new businesses, creating jobs, and contributing to improvement in various
key goals such as GDP, exports, standard of living, skills development and community
development.
http://www.economicsdiscussion.net/entrepreneurs/role-of-entrepreneurs-in-economic-
development/31496
http://www.preservearticles.com/business/role-of-an-entrepreneur-in-economic-
development/1770
https://accountlearning.com/role-entrepreneurs-economic-development-country/