Business Environment Analysis for Enterprise Creation

Ashwani Innovators Workshop

Part I: Prepare
The Entrepreneurial Venture Context

Entrepreneur

Who is an Entrepreneur ?

An urge to build Want to make the future state the present state Its taken from a French word entrprendre which means to undertake Take an idea off the ground and keeping it afloat A true entrepreneur is a doer not a dreamer

The Mindset
Lets begin with why:

To get rich? Follow a passion? Scratch an itch? Just got laid off? To manage your own destiny?

There are lots of valid reasons to become an entrepreneur, but youd better know your reason.

Definitions

Economists E as one who brings resources, labor, raw material, and other assets into combinations that increase their value from before and also one who introduces changes, innovations and a new order Psychologists E as a person who is typically driven by some forces, which create a desire to obtain or attain something. Sociologists E as a person whose actions would determine his social status and who contributes to the development of society.

Definition

Management E as person who has a vision and generates an action plan to achieve it.

Entrepreneurship
Mainstream

Economic

Factors
Land Labor Capital Entrepreneurship

Entrepreneurship
Entreprendre...17th century French...the individual who undertook the risk of a new enterprise... undertakers. They were contractors who bore the risks of profit or loss Examples: soldiers of fortune, adventurers, builders, merchants and funeral directors

Entrepreneurs...
14th century...Tax contractors...bore the risks of collecting taxes. If they collected more than the fee...they kept the rest as profit. Called the change agents of progressive economies

Entrepreneurs...

Essai sur la nature du commerce en general...1755 ...describes an entrepreneur as a person who pays a certain price for a product to resell it at an uncertain price, thereby making decisions about obtaining and using resources while consequently assuming the risk of enterprise

Entrepreneurs...
Adam Smith...The Wealth of Nations: spoke of the enterpriser as an individual who undertook the formation of an organization for commercial purposes A. Smith...mentioned role of industrialist...,person with unusual foresight who could recognize potential demand for goods and services

Entrepreneurs...
A Treatise on Political Economy...describes an entrepreneur as one who possessed certain arts and skills of creating new economic enterprises, yet a person who had exceptional insight into societys needs and was able to fulfill them. Influences society and is influenced by it.

Entrepreneurs...

John Stuart Mill...describes an entrepreneur as a business founder Recognized entrepreneurship as central to economic theory Carl Menger...Principles of Economics: Economic change does not arise from circumstances but from an individuals awareness and understanding of those circumstances

Entrepreneurs...

In 19th century entrepreneurs were:

risk takers decision makers aspired to wealth endured commensurate losses gathered and managed resources to create new enterprises

Entrepreneurship
Joseph Schumpeter...20th century talks about creative destruction whereby established ways of doing things are destroyed by the creation of new and better ways of getting things done Described it as a process and entrepreneurs as innovators who use process to shatter the status quo through new methods...

Entrepreneurs...
Are not equal to inventors...inventor might only create anew product, whereas an entrepreneur will gather resources, organize talent, and provide leadership to make it a commercial success Peter Drucker...Resources, to produce results, must be allocated to opportunities rather than to problems...

Changing Definition
1755 A Person Bearing Risk 1816 Agent combining all factors of production 1921 Recipient of pure profits 1934 Ability to identify new opportunities 1988 Actions taken to create organization 1991 Characteristics of the Entrepreneurial process

Char of an E

Self Confident & Optimistic Able to take calculated risk Responds positively to challenge Flexible and able to adapt Knowledgeable of markets Able to get along with others better Independent Minded Versatile Knowledge Energetic and Efficient Creative, need to achieve Dynamic Leader Takes Initiatives Resourceful

Qualities

Focus Commitment Perseverance Sees the Big Picture Roll up the sleeve / Get your hands dirty attitude Delegation Always thinking about the idea and validating it

What it Takes

Courage Fortitude Focus Determination Passion Competitiveness Common Sense Strong Stomach CONFIDENCE

And these are just the genetic factors you need to get started!

This is Hard Stuff

It takes a lot of hard work, good timing, and luck to make a successful company.

You dont control all these factors. The buck stops with you. There are many forces conspiring against you.

Learn to follow your strengths and mitigate your weaknesses.

Find a partner. Ask for help. Its ok to screw up, but learn.

The Business

What are you doing?

Articulate it in 30 seconds. Make it clear to the layperson. It better be. And it better be 10x.

Is it better, faster, or cheaper?

How do you know theres a market? Whats the total opportunity? What will it take to win? Ok, what will it really take to win?

Optimism

MBA students: Do you know the startup formula?

3 x (expected capital) + 3 x (expected effort) + 3 x (expected time) -------------------------------= x (expected result)

Pessimism

Entrepreneurs are genetically optimistic.

Plan for it. Take your most absurdly conservative projections and apply a factor of three on the downside.

Dream of success, plan for struggle.

Objectives

Ok, you have the genes. You have the idea. Youve got realistic expectations. What are your objectives?

Lifestyle business? World domination?

Do some waterfall projections.

The Waterfall

Make a five-year plan with top-line revenue goals

The walk back and figure out the drivers: How many customers added per month? How many employees? Rent? Other expenses?

Do the ratios!

Revenue/Employee Profit Margin Market share ()

Is your growth realistic?

The Waterfall

The idea is to demonstrate what you have to do each month.

Is it realistic? Are you growing faster than any company in history? Is your revenue/employee higher than Google? Maybe you should be more realistic? How does that affect your plans?

The Customer

Its amazing how many people start a business without talking to a customer. Its not hard. They usually want to help and validate (or invalidate). This can save you a lot of time. Not just will they buy?, but

How they buy.

What are the nuances? Other opportunities?

Spouse & Family

If you are young and single

It will never be easier just do it.

Have a supportive spouse. They will sacrifice for you sacrifice for them. Involve them but not too much.

If you are not

The Buck

If all goes well, youll make a lot of them. But it stops with you.

Dont expect it to be easy. It can be tough when youre all alone. The world is unfriendly towards entrepreneurs. You must be prepared for times that will test you. Learn the difference between setback and deadend.

Trust yourself.

Act! Adapt!

Type of Risk
Financial Risk Family and Social Risk Career Risk Psychological Risk

Entrepreneurial Process
1. 2. 3. 4.

Identify an opportunity Establish Vision Persuade others Gather Resources

1.

2.
3.

Financial Operating Human & Knowledge

5. 6.

Create new venture, product or market Change / adapt with time

Scope of E in India
Its important coz of so many problems It helps in harnessing youth vigor Fostering economic growth and development E helps in solving the problem of monopoly and balanced regional development

Factors motivating the E

Internal Factors

Desire to do something new Educational Background Experience Government assistance and support Availability of raw material and labor Encouragement of big business houses Promising demand from the product

External factors

Factor Responsible for Emergence of Entrepreneurship

1.

Background Factors
1. 2. 3.

Education, Training and Experience Family, Role Models and Association with similar type of individuals Financial conditions Need for achievement Personal motives and expectations Business Environment

2.

Motivational Factors
1. 2. 3.

Cont
1.

Economic Factors
1.

2.
3. 4.

Supportive government policies Availability of financial assistance from various funding bodies Ancillary support Availability of technical factors like premises, electricity labor Recognition Social Status

2.

Reward
1.

2.

Classification of E

Based on Ownership

Founders or Pure Ent. Second Generation Franchisees Owners-Managers The Personal Achiever Induced Entrepreneur The Expert Idea Generator The Real Manager The Real Achievers

Based on Personality Traits & Style

Classification Cont

Type of Business Ent

Business Entrepreneur Trading Entrepreneur Industrial Entrepreneur Corporate Entrepreneur Agricultural Entrepreneur Technical Entrepreneur Non-Technical Entrepreneur

According to the Use of Technology

Classification Ent

Based on Motivation
Pure Entrepreneur Induced Entrepreneur Spontaneous Entrepreneur Motivated Entrepreneur

Growth Entrepreneur
Growth Entrepreneur Super-Growth Entrepreneur

Classification Cont.

Stages of Development

First Generation Entrepreneur Modern Entrepreneur Classical Entrepreneur Women Entrepreneur

Type of Start-ups
Lifestyle firm (A small venture that supports the owners and usually does not grow) Foundation co (A type of company formed from research & development that usually does not go public) High potential venture (A venture that has high growth potential and therefore receives great investor interest)

INTRAPRENEURSHIP
I refers to entrepreneurial activities that acquire organizational sanction and commitment of resources for the sole objective of innovative results. I aims at boosting the entrepreneurial spirit within the limits of the organization, thus creating a development oriented environment.

Char of Intrapreneurs

I bridge the gap between the inventors and managers They have the vision and courage to realize it They can imagine what business realities will follow from the way customers respond to their innovations. They have the ability to plan necessary steps for actualization of the idea. They have high need for achievement and they take moderate calculated risks.

Barriers to Entrepreneurship

Environmental Barriers

Raw Material Labor Machinery Land & Building Other Infrastructure requirements

Financial Barriers Societal Barriers Personal Barriers

Lack of Confidence Lack of dependability of others Lack of Motivation Lack of Patience Inability to Dream

Roles of Entrepreneur
1. 2. 3. 4. 5. 6. 7.

Searching for and identifying business opportunities Preparation of business plans and project report Risk Taking Resource Allocation Performance of Managerial Functions Innovation Leading & Motivation

Entrepreneur & Entrepreneurship

Entrepreneur Refer to a person Visualizer Creator Organizer Entrepreneurship Process Vision Creation Organization

Innovator
Technician Initiator Decision Maker Planner Leader Administrator

Innovation
Technology Initiative Decision Planning Leadership Administration

Innovation

When a series of action and thoughts which create new ideas are given the shape of a physical object or service the action is called innovation Hence innovation can be defines as the successful exploitation of new ideas incorporating new technology, design and best practice the key business process that enables businesses to compete effectively

Innovation cont.

I is the process of doing new things I is the combination of the vision to create a good idea and the perseverance and dedication to remain with the concept through implementation.

4 Types of Innovation
Invention novel or untried Extension different application of the current idea Duplication creative touch not just copying Synthesis combination of existing concepts into a new formulation

Internal & External areas

1. 2. 3. 4.

5.
6.

Unexpected occurrences Incongruities Process Needs Demographic changes Market Changes Knowledge Based Concepts

Creativity
C can be defined as the process of developing an original product, service or idea that makes a socially recognized contribution. C is the ability to bring something new into existence The emphasis is on ability and not the activity of bringing anything new

Process of Creativity
Stage Stage Stage Stage Stage Stage

I Inception 2 Preparation 3 Incubation 4 Idea Generation 5 Idea Validation 6 Outcome Assessment

Creative Thinking
Specific though processes that improve the ability to be creative. It is important to be at an optimal state of mind for generating new ideas Creative thinking is all about to ability to think of original, diverse and elaborate ideas. Its a series of mental actions, which produce changes and development of thoughts

Lateral Thinking
Coined by Edward de Bono A set of systematic techniques used for changing concepts and perceptions and generating new ones Employing multiple possibilities and approaches instead of pursuing a single approach

4 Critical Factors
Recognize dominant ideas that polarize perception of a problem Search for different way of looking at things Relax the rigid control of thinking Use chance to encourage other ideas

Source of Idea Generation

Present and Potential consumers Existing companies Raw material providers Distributors and retailers R & D Existing employees

Part II: Jump

The Team

Dont do anything dont quit your job, dont form a company, dont think about Ferraris

Until you know your respective roles.

Equal partnership? Responsibilities? Boundaries? Are you going solo? Responsibilities and boundaries had better be crystal clear.

 A Business Plan is a roadmap for the organization, showing the destination it seeks, the path it will follow to get there, and the supplies and wherewithal required to complete the journey

Business Plan

Business Plan

Importance of Business Plan

Preparation of Business Plan

Outline of a B.P.
(i)
(i)

Introductory Page
(ii)
(iii) (iv)

Name & Address of business Nature of Business Statement of financing needed Statement of confidentiality of report

(ii)

(iii)
(i)

Executive Summary Industry Analysis

(ii) (iii) (iv)

Future Outlook and Trend Analysis of competitors Market Segmentation Industry & Market Forecasts Products / Services / Size of business / Office Equipment & Personnel / Background of Entrepreneurs

(iv)
(i)

Description of Venture

Cont.

Production Plan

Operational Plan

Manufacturing Process / Physical Plant / Machinery & Equipment / Name of suppliers of raw materials Desc of Company operation / flow of orders / technology utilization Pricing / Distribution / Promotion / Product Forecasts / controls Form of ownership / identification of partners /authority of principals / Roles and Responsibility

Marketing Plan

Organizational Plan

Cont

Assessment of Risk

Evaluate weakness of business / new technologies / contingency plan Income statement / cash flow projections / pro forma balance sheet /Break Even / Sources and application of funds Letters / Market research data / Leases or contracts / price lists from suppliers

Financial Plan

Appendix

Marketing Plan

Industry Analysis

Competitor Analysis

Marketing Research for the New Venture

Step One: Defining the purpose or objectives Step Two: Gathering Data from Secondary Sources Step Three: Gathering Information from Primary Sources Step Four: Analyzing and Interpreting the results

Understanding the Marketing Plan

Where have we been? Where do we want to go? How do we get there?

Characteristics of Marketing Plan

Marketing Plan & Marketing System

The Marketing Mix

Steps in Preparing the Marketing Plan

Defining the Business Situation Defining the target market / opportunities and Threats Market Segmentation

Production / Operational Plan

Plant Location Plant Layout Production System Capacity Planning Inventory Management Quality Management Systems Budgeting

Organizational Plan

Forms of Ownership

Proprietorship Partnership Company Cooperative Designs & Forms of Organizational Structure Manpower Planning Recruitment & Selection T&D

Building Successful Organization Structure

Financial Plan
Operating and Capital Budgets Pro forma income statement Pro forma Cash Flow Pro Forma Balance Sheet Break Even Analysis Pro Forma Sources & Application of Funds Ratio Analysis

ENTREPRENEURIAL VENTURE ENVIRONMENT IN INDIA

Macro Environment
Govt. Legal Framework Infrastructure

Micro Environment
Private Owned Companies Government Agents Boards NGOs

E-business challenges facing Entrepreneurial venture in India

Financing the New Venture

Sources of Capital

Debt or Equity Financing

Debt- obtaining borrowed funds from the company Obtaining funds for the company in exchange for ownership

Internal or External Funds

Internal profits, sale of assets, reduction in working capital, extended payment terms and accounts receivable

External Funds
Personal Funds Family and Friends Commercial Banks

Type of Bank Loans (assets base loans)

Accounts

Receivable Loans Inventory Loans Equipment Loans Real Estate Loans

Cash Flow financing (conventional)

Installment

Loans Straight Commercial Loans

External Funds

cont

Government Loans Programs R & D Limited Partnerships

Money given to a firm for developing a technology that involves a tax shelter Limited Partner A party in a partnership agreement that usually supplies money and has a few responsibilities General Partner The overall coordinating party in a partnership agreement

Government Grants

Cont
Venture Capital Private Equity Placement Public Equity offerings Other Govt. programs

Informal Risk Capital & Venture Capital

Financing the Business

Early Stage Financing One of the first financing obtained by the company
Seed Capital Relatively small amounts to prove concepts and finance feasibility studies Startup Product development and initial marketing, but with no commercial sales yet; funding to actually get company operations started

Expansion or Development Financing

Second Stage Working capital for initial growth phase, but no clear profitability or cash flow yet. Third Stage Major expansion for company with rapid sales growth, at breakeven or positive profit levels but still private company Fourth Stage Bridge financing to prepare company for public offering

Acquisition and Leveraged Buyout financing

Traditional Acquisitions Assuming ownership and control of another company Leveraged Buyouts Management of a company acquiring company control by buying out the present owners Going private Some of the owners / managers of a company buying all the outstanding stock, making the company privately held again.

Risk Capital Markets

Market providing debt and equity to non-secure financing situations

Informal Risk Capital Market area of risk capital markets consisting mainly of individuals Venture capital market one of the risk capital markets consisting of formal firms Public Equity market one of the risk capital markets consisting of publicly owned stocks of companies

Venture Capital
Equity Pool Money raised by venture capitalists to invest Equity Participation Taking an ownership position Type

Private venture capital firms a type of venture capital firm having general and limited partners State sponsored venture capital fund a fund containing state government money that invests in company mostly in the state

Cont
Small business investment company Industry sponsored

Banks and other financial institutions Non-financial companies

University Sponsored

V-C Process
1. 2. 3.

4.

The decision procedure of a venture capital firm Preliminary Screening Initial evaluation of a deal Agreement on principal terms Basic understanding on the principal terms Due Diligence Detailed review of the company Final Approval a comprehensive, internal investment memorandum is prepared.

Location Venture Capitalist Approaching a Venture Capitalist Valuing your company

Factors in valuation
Financial

Ratios control mechanisms to test financial strength of new venture General Valuation approaches

PV of future cash flow Earnings approach Factor approach

Accessing Resources for Growth from External Sources

Franchising

An arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights to local distribution to independent retailers in return to their payment of royalties and conformance to standardized operating procedures

Advantages to the Franchisee

Product Acceptance Management Expertise Capital Requirements Knowledge of the market Operating and structural controls

Advantages to the Franchiser

Expansion Risk

Cost Advantages

Types of Franchises
1. 2.

3.

Dealership commonly found in the automobile industry Offers a name, image and methods of doing business, such as McDonalds, Subway, KFC, etc. Offer Services real estate agencies, Tax preparation, etc.

Investing in a Franchisee
1. 2.

Unproven Vs Proven Franchise Financial stability of franchise

1. 2.

How many franchise are in Org? How successful?

3.
4.

Potential market for new franchise Profit potential for new franchise

Joint Venture (JV)

Two or more companies forming a new company. Types of JV

Industry University Agreements International Joint Ventures

Factors in JV Success
Accurate assessment of parties Degree of symmetry between partners Expectation of the results Timing

Acquisitions

Purchasing all or part of a company. Advantages of Acquisitions

Established business Location Established market structure Cost Existing employees More opportunity to be creative Marginal Success Record Overconfidence in ability Key employee loss overvaluated

Disadvantages

Others
Synergy Mergers Joining two or more companies Leveraged Buyouts Purchasing an existing venture by an employee group

Women Entrepreneurship

Women Entrepreneurship

E the dynamic need E in a developing economy Research on women in western and other countries Research on women entrepreneurs: Indian Studies

Employment Generation National Production Dispersal of economic power Balance regional development Harnessing youth vigour

Promotional Efforts supporting women entrepreneurs in India

1.

Policy framework support women entrepreneurs

1. 2. 3.

National policy for the empowerment of women: 2001 Women component plan and gender focal points National commission for women
1. 2.

Parivarik Mahila Lok Adalats Dahej mukt abhiyan

Programs supporting women entrepreneurship

1. 2. 3.

4.
5. 6.

SWA-SHAKTI Project IFAD Rural Women Development and empowerment project Indira Mahila Yojana Support to training and employment programs for women (STEP) Employment and Income Generation cum-production units (NORAID) Rashtriya Mahila Kosh (RMK)

Institutional Support
1. The federation of Indian Women Entrepreneurs (FIWE)

Institutions Supporting Entrepreneurs

Small Industry Financing In developing countries

The main financial problems of small industries may be categorized as follows a) Insufficiency of ownership capital b) Very limited possibilities for obtaining short term loans c) Difficulty in obtaining long term loans

Brief note of the development of Financial Institutions in India

1.

2.

3.

4.
5. 6.

7.
8. 9.

SIDBI (Promotion, Finance, Development, and Coordination) NABARD (Kisan Credit Card Scheme, Rural Infrastructure Development Fund, SHG Bank Linkage programe. Khadi and Village Industries Commission (KVIC) The National Institute for Entrepreneurship and small business development. Uttar Pradesh Financial Corporation, HFC UPSIDC, HSIDC IDBI NIC EDI Entrepreneurship development Institute

SSI

SSI
Conceptual Framework Definition of Small Scale Industry Procedure of SSI Registration

Registering SSI Unit Benefits of Registering Objectives of the registration Scheme Features of the scheme Certificate of Registration De-registration

Strength of Small Business

1. 2.

3.
4. 5. 6. 7. 8. 9.

10.
11. 12. 13.

Innovative and Techno-managerial skills The enterprising spirit Employment generation Distribution of economic power Exports potentiality Adjustability & Adaptability Decentralization of industry Investment and capital oriented Mobilization of resources Variety in the product offered Social Equilibrium Optimum use of capital Dependence of big business on small scale

Sickness in SSI

SSI in India: An Overview

Small Scale Industries Production Employment Export Opportunity Status classification of SSI

Detecting Sickness in SSI

Frequent operating statements Operation of accounts Financial Statements Comparative study of balance sheets Ratio Analysis Fund Flow Analysis

Causes of Sickness in SSI

Mismanagement Marketing Implementation Lacunae Poor Information system Energy problem Improper technology Overtrading Psychological Melodrama Lack of financial control Competition and Cost of production and raw material Improper HRM Work Culture

Ending the Venture

Entrepreneurship in India
North East West South India India India India High Average to Low High Average High Average

Marwari, Sindhi, Gujrati, Punjabi, Muslim Andhrite,Tamil, Maharashtrian

Malayali

Poor

Warning....

Entrepreneurs can lose their money... They can even lose all they have... .......house.....car......the lot. But thats not all..... .................In certain circumstances they can wind up in prison. Not good news.... ..............................not good news at all.

.......

Entrepreneurs can also earn a lot of money... ....sometimes even a fortune... ........they can live as they like..... ...........luxurious houses....fast cars....yachts in the Caribbean.... Very nice....
..........................very, very nice.

Its easy to start a company, but its hard to start a business Company = people, idea, name, logo, capital, product Business = sales, sales growth, profitability growth, ROE During turbulent times, businesses last while mere companies crash

Ref:
1. 2.

Mahurima Lall, Shikha Sahai, Entrepreneurship Excel Books Robert, Michael, Dean, Entrepreneurship McGraw Hill