Entrepreneurshp Development

Entrepreneurship Development
Introduction
Prof DEBASISH DUTTA/Entrepreneurship

2
Development/SBS/2017
Historical Background

3
The Evolution of Entrepreneurship
• The word “entrepreneur” is derived from the French “entreprendre,” which means “to undertake.”
• Thus, it began as a concept to identify one who undertakes to organize, manage, and assume the
risks of business.
• The risk-bearing part dates back to the eighteenth century when French economist Richard
Cantillon matched it with the term “entrepreneur.”
• Economics and entrepreneurship remained closely tied through the years as noted economists
such as Jean-Baptiste Say (1803) and Joseph Schumpeter (1934) continued to write about
entrepreneurship and its impact on economic development.
• Over the years various definitions have been used in an attempt to describe entrepreneurship.
• The twentieth century has linked the term with free enterprise and capitalism, while three specific
activities have been recognized that entrepreneurs perform: serving as an agent for change;
providing creative innovative ideas for the enterprise; and helping business grow and become
profitable.
4
The Myths of Entrepreneurship
1) Entrepreneurs are born, not made.
•• The There recognition
are numerous of entrepreneurship
entrepreneurs as a
who
2) Entrepreneurs are doers, • not
Many books
thinkers. and articles have this
presented checklists
• discipline
They
encompassare has
often
allhelped
very
sorts to dispel
methodical
of profit-seeking myth.
people who
activity. plan
3) Entrepreneurs are always••• Some of
“Luck
Today people
characteristics
happens
inventors.the assume
whenof
entrepreneur entrepreneur
the successful
preparation
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meets be
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Having
their all disciplines,
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For example,money is
carefully.
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not
Kroc the only bulwark models,
Many
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These entrepreneurs
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and
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the
complete.
adage.
4) Entrepreneurs are academic• processes,
failure.
Today
food
before and the
they and
social case
misfits
emphasis
franchise, are but studies
is on
his
successful. thethat
innovative allow
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ofmadetopic
clear,
•• Identifying
entrepreneurship
Today
Prepared
No we
longer the
realize process.
strengths
that
entrepreneurs
a misfit, the and weaknesses
a entrepreneur
standard
who seize of a
entrepreneurial
theis now
5) Entrepreneurs must fit ••the • to be
Failure
complete studied
“profile.”
McDonald’s
They due
follow and
to a
business
the the
lack
adage traits
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plans.
largest properacquired.
fast-food
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6) All you need is money to be
The an
• contingencies
assumed
“lucky.” by
environment, for again.”
entrepreneur. entrepreneurs
handling
the problems
venture is distorted.
itself, and
and the
incompetence,
••• minimizing
In fact, failure canlack of
teach financial understanding,
7) All you need is luck to be While
What
an it
entrepreneur may
appears
entrepreneur. appear
thesehave
to be thatmany
problems anthrough
interactive
luck is lessons
entrepreneur
effects,
actually to
careful those
whichis result
preparation,
poor
willing investments,
to learn and poor
often planning,
leads to and
future the like.
8) Entrepreneurs are unstructured “gambling”
strategy
in manyand
determination on a wild
formulation
different
chaotic. typeschance,
are keythe
all profiles.
of fact isinthat the
factors
successes.entrepreneurship.
entrepreneur
successful is usually working on a moderate or
9) Entrepreneurs seek success but experience
“calculated” risk. high failure rates.
10) Entrepreneurs are extreme risk takers (gamblers).
5
The Entrepreneurial School of Thought Approach
• Holds that the group hinders a person
• from
The advancing
study of successful
or people
eliminates who
certain
• tend
Deals with the similar
externalcharacteristics
factors that
• factors
Dealsto exhibit
with
needed the search
to for
advance; seed
the capital Environmental School of Thought
affect
• individual
that
The
and a potential
would
search
growth increase
for entrepreneur’s
sources
capital successful
of ideas, the • Presents a broad array of factors that relate to
lifestyle is projected into
•• entrepreneurship
opportunities
development
Emphasizes
Views of
the
the entire concepts,
planning and
process
entrepreneurial the
in success or failure in contemporary
Macro in View
order to succeed Financial/Capital School of Thought
•• successful
Focuses
Four on
factors
implementation institutions,
usually
venture of values,
exhibited
venture
development byand entrepreneurial ventures
venture
• Three from a financial
major types of displacementmanagement
morals
• Four
successful
major entrepreneurs
opportunities
standpoint factors in considering the
1) Political displacement: Deals with Displacement School of Thought
• strategic
1) government’s
Views Achievement
creativity
formulation and market
policies awareness
and
as2)essentials
1) Creativity
Unique
regulations markets
• Deals
3) Cultural
2)
2) Determination
with the
Unique ability to recognize
people
displacement: new
Deals with Entrepreneurial
• Examines the factors Trait School
that of Thought
are specific to
4) social
ideas
3) Technological
and opportunities
Unique Product
groups knowledge
and from
precluded to entrepreneurship
• implement
Deals with the
4) professional
Unique the family
necessary
ressources
Micro View
fieldsdevelopment
steps of idea • Holds Venture
that theOpportunity
potentialSchool of Thought
entrepreneur has the
• Focuses
action
3) Economic ondisplacement:
the nurturing Deals
and withability or control to direct or adjust the outcome
support
economic that exists within
variations the homeof Strategic
of recession each major influence School of Thought
Formulation
atmosphere
and depression Prof DEBASISH DUTTA/Entrepreneurship
6
The Entrepreneurial School of Thought Approach
•Summary of schools of entrepreneurial

thought
• Knowledge and research available is in its
embryonic stage
• The field of entrepreneurship uses a number
of theories in its growth and development

7
Process Approach
• Process Approaches
• The integrative approach
• Focuses on and includes three factors
1) Inputs
2) Outputs
3) Entrepreneurial intensity
• Entrepreneurial assessment approach
• Focuses on the entrepreneur, the venture, and environment
• Assessments are made qualitatively, quantitatively, strategically, and
ethically
• Career stage - early, middle, or late, is also considered
8
The integrative Model of Entrepreneurial Inputs and Outcomes
Inputs Outcomes
Entrepreneurial • A going
opportunities The Entrepreneurial Entrepreneurial venture
Process Creation Intensity (EI) • Value
Entrepreneurial • New
individuals • Identify Number of events products,
opportunity and degree of services
An
entrepreneurship • Processes
organizational
context
• Assess and acquire • Technologies
necessary • Profits and /
or personal
Unique business resources
benefits
concept Innovation Risk Proactiveness • Employment,
• implementation Taking asset, and
revenue
Resources growth
9
Entrepreneurship and Economic Development
• The major roles •played

Entrepreneurs
by an act as catalyticinagent
entrepreneur
••• Entrepreneurs provide
the for change which results in
economic
large-scale employment to the
development of anchain
economy Entrepreneurs
Increase
can
reaction. in
be theare always
standard
discussed on
of
as the
living look
of
follows: out
the for
people is a
• Entrepreneurs help to remove regional disparities
unemployed.
• Entrepreneurs
• Once
1. Promotes Capital •••an
Formation Entrepreneurs
opportunities.
characteristic
Economic
enterprise
Entrepreneurs power
is help
feature
is
like
promote
inof
the
established, promoting
natural
toindustries
work and the capital
economic outcome
process
in anin
formation
adevelopment
country's
of
environment of by of the
export-
industrial
of and
•• Withthrough
trade,
They the
country.
and setting
mobilising
which
explore
business isin
and up
the of
anmotion. more
idle savings
important
exploit
activity. less
more
ingredient
opportunities, developed
units
of public.encourage by
of economic
industrialisation
2. Creates Large-Scale Employment
change isOpportunities
and settry to maximise profits by innovation.
••• entrepreneurs,
backward
It stimulates
• They
development. areas.
employ both
equitable on
their small and
redistribution
own as welllarge-scale
asofto wealth
borrowed numerous
and
• ThisRegional
3. Promotes Balanced unit
• effective
Entrepreneurs
Industrial
will
When resource
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Development
an enterprise play
demandmobilisation
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lead
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•• jobThe
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and
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their
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enterprises.
inalatest
large
develops these
scale areas
people
markets
innovationsfor the
for
in
required
4. Reduces Concentration ofby
the economic
it and
Economic
changing there
Power will
technology,inbe the so hands
many
it induces of
other few
units
backward individuals
which
and
and• Distribution
lead
As
and •time
purpose
growth
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apasses,
of large
geographic
Such
production type
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the number
these
areas,
of of
entrepreneurial
huge
economy.
of wide public
enterprises
thus
amount giving
variety benefits
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activities
foreign
goods like
providing
to
and leadroad
larger
exchange direct
to
services in
5. Wealth Creationrequire which output
forward in the
of thiswhich
linkages growth of monopolies.
unit. stimulate the process of
• andtransport,
from indirect
sectionsvalue of
export health,
employment
the
addition education,
insociety.
order and to creation
combat entertainment,
opportunities of
the wealth, to
import many etc.
which
dues more.
is in
• This
6. Increasing Gross National
leads In this
large
Product
order
to
economic way,
scale
to
overall they
that
and
redress help
too
Per
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development at
Capita
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7. Improvement indemand •• Setting
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• entrepreneurs
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as well up
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Entrepreneurial
enables of more
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ainmultiplier
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ofresults
the regions
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country.
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export thereby
in the
promotion country
• In this
8. Promotes Country's Export Increase
lower
reduceTrade
the prices
the gross
which national
concentration
entrepreneurs product
of
multiplyin thetheir
economic andentrepreneurial
per
improvement
power capita of their
amongst
and and promotes
in
ensure turn balanced
contributes
economic regional
intoaeconomicdevelopment. development of
9. Induces Backward activities,Forward
income
standard
the Linkages
of
population.
thus the
of
creating living.anindependence
people environment country, and
of adevelopment.
isenthusiasm
sign of economic
and
10. Facilitates Overall the
Development nation.
growth.
conveying an impetus for overall development of the area.
10
Self Employed vs Business
Owners vs Entrepreneur
Self Employed
• A self-employed person is defined as one who gets their income directly from a
consumer rather than being the employee of a business.
• Working for oneself as a freelancer or the owner of a business rather than for an
employer
• Think of a physiotherapist who operates as a solo practitioner, the income he or she
generates is directly related to how many clients he or she is able to work with.
• Self-employed people typically don’t have employees and their income is limited
because it depends on how many hours they personally can work in their
businesses.
• They enjoy providing a service or product and are content with the jobs they have
created for themselves.
12
Business Owner
• Business owner is someone who has a business entity and decision-making

ability toward growing profits.
• The owner of a kirana store would be a good example.
• They run businesses and have direct influence on them.
• They expect to generate an income from their businesses.
• They know their industries and products or services well.
• Business owners want to “feed the family,” not necessarily become
billionaires.
• They work in a business and generate income.
• They do something that others are doing.
13
Entrepreneur
• The entrepreneur is commonly seen as an innovator of new ideas and

business processes.
• Leadership, management ability and team building are essential qualities
for an entrepreneur.
• Steve Jobs of Apple started out with an idea and turned it into a leading
global company.
• Entrepreneurs are known for certain capabilities such as vision, optimism,
risk tolerance, drive and persistence, negotiation, critical and creative
thinking and recognizing opportunities.
• They are good at moving a business idea forward.
• Often, employees are called on to have more entrepreneurial thinking.
14
Cash Flow Quadrant
(Robert Kiyosaki)
Cash Flow Quadrant (Robert Kiyosaki)
• As Kiyosaki discusses in the book “The Cashflow Quadrant” a table is

divided into four areas.
• E and S quadrants are on the left side, and B and I quadrants on the right
side (as given in the diagram)
• One can be in all quadrants, but most people are not.
• The goal is to progress through the arrows and become more on the right
side of the table.
• E Employee (E) – Otherwise known as a job
• Self-Employed (S) – Small business owners or self employed (Doctors, and lawyers)
• Business Owner (B) – Big businesses (500 and more employees). Businesses that are
selling products and predefined services.
• Investor (I) – People like Warren Buffett
16
Poor Rich
Freedom

17
• Active Income
• On the left side of the table is active income
wherein one is trading time for money.
• In order to make money there is a need to
perform.
• Every day one start from zero.
• Passive Income
• On the right side, it is passive income wherein
one do not have to be present to generate
income.
• Things like real estate, stocks, bonds are
sources of passive income.
• One may literally make money while sleeping.
Prof DEBASISH DUTTA/Entrepreneurship 18
•The Four Quadrants

• Most individuals only live in this area.
•• A
Thisof
•• An is
business
Robert
where
individual a trulyforhave
work
implies a passive and
company
thatthan
income
thereanisemployee,his arises.
your
a system inbut
place.
This is one step better in
Kiyosaki Investments
time
reality
for
• Individual
generate
have
onean
like
money.
still
stocks,
isothers
annual
bonds,
working
trading
and real
formoney.
time for
cashflow.
him as
estate
• In order to earn more money, one must work
employees.
1) E – Employee •
•
Individual
more
One
areowns
Thesehours.
isn’t
his/her ownthat
the investments
selling one’s timethe
business, butone
will allow
forindividual.
in to
money, but rather
• reality
Another the business owns
retire. option is work for another company that
2) S – Self Employed • selling
The
It can
pays
a product
positive
also
better. be
or service.
benefit
things one
like have more personal
trademarks, and
copyrights,
• In other words,
financial freedom one don’t
than an have to be working for
employee.
and royalties.
3) B – Business Owner •
•
With
the this position
business
Things one
in the quadrant
to generate income. there is no
build once have a long (5-10 year+)
passive income.
4) I – Investor • Iftimespan
one don’t in work,
payouts.
one don’t make any money.

19
• As per Robert Kiyosaki:

• In the business world there are Es and E stands for employees.
• And the employees, you can always tell who they are by their core
values.
• An employee with the president, the generator of the company, will
always say the same words.
• The words are, "I'm looking for a safe, secure job with benefits." That's
what makes them employees because their core value is security.“
• The other one of the four is the S for the small business owner or the
self-employed and again their core values will cause them to use the
same words which are,
• "If you want it done right, do it by yourself."
• S means they are also solo. Generally one person act, they operate by
themselves. 20
Prof DEBASISH DUTTA/Entrepreneurship Development/SBS/2017
• As per Robert Kiyosaki (continued):

• On the right side of the Cash Flow Quadrant are the Bs.
• And "the B stood for big business, or like Bill Gates.
• For Bs define big business as 500 employees or more. And their words
are different.
• They'll say, "I'm looking for good system, good network, and the
smartest people I know to help run my business.
• "Unlike the S, they don't want to run the company by themselves.
• They want smart people run the company for them."
• And then, the fourth of the Cash Flow Quadrant is the I (investor).
• These are people who have money work hard for them.
• These people in the B Quadrant have people work hard for them.
• And these people in the E & S Quadrant are the people who work hard
for the rich here in the right side of the Cash Flow Quadrant, for the Bs
and Is.
21
Corporate
Entrepreneurship

22
Corporate Entrepreneurship
• Definition
• “Corporate entrepreneurship may be formal or informal activities aimed at
creating new businesses in established companies through product and
process innovations and market developments. These activities may take
place at the corporate, division (business), functional, or project levels, with
the unifying objective of improving a company's competitive position and
financial performance.”
• William D. Guth and Ari Ginsberg have stressed that corporate
entrepreneurship encompasses two major phenomena:
a) New venture creation within existing organizations
b) Transformation of organizations through strategic renewal

23
• Organizations can use the following methods to help

restructure corporate thinking and encourage an
entrepreneurial environment:
1) Early identification of potential innovator
2) Top management sponsorship of innovative projects
3) Creation of innovation goals in strategic activities
4) Promotion of entrepreneurial thinking through experimentation
5) Development of collaboration between innovators and the
organization at large

24
• Researchers Michael H. Morris, Donald F. Kuratko, and Jeffrey G. Covin

have cited two empirical phenomena as constituting the domain of
corporate entrepreneurship-namely, corporate venturing and strategic
entrepreneurship .
• Corporate venturing approaches have as their commonality the adding of
new businesses (or portions of new businesses via equity investments) to
the corporation. This can be accomplished through three implementation
modes: internal corporate venturing, cooperative corporate venturing, and
external corporate venturing.
• By contrast, strategic entrepreneurship approaches have as their
commonality the exhibition of large-scale or otherwise highly
consequential innovations that are adopted
25
Corporate
Entrepreneurship
Strategic Entrepreneurship
Corporate Venturing • Strategic renewal
• Internal corporate venturing • Sustained regeneration
• Cooperative corporate • Domain redefinition
venturing • Organizational rejuvenation
• External corporate venturing • Business model
reconstruction
26
Characteristics of
Entrepreneurial
Mindset
27
Characteristics of Entrepreneurial Mindset
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entrepreneur oraher
• They
their
own
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Setting
others willingly
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way.
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and
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creativity
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but
performance.
share a
a plan
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attainable
problem
inherent
that
themselves or
includes
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situations
enables
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where
they
focus
is can they
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• The computer would be deal
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than the a variouscan
McClelland's
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onmeasure constantly
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• •This •Small-business
isadverse
•clearest notvision
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and where
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joint
difficult the
entrepreneurs,• affect
firm
efforts
times, are
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isenergies,
of
they
in (or
the personally
outcome
make
should
founders
look
particular, forto all
be) responsible
ofandtheir
opportunity.
selectively
find these actions.
sort for
out the success
opportunities, oractively
failure
and of
to
financial
It would
of•headed,
the
and
decisions;
business
be an risks
integral•they
however,
In
with
part attempting
impeding
confront
This
them-for
ofattribute
do the
the
want
business
him the or
person's to
commitment
operation.
the is
• Self
make
example,
her.
1950s and
life in
consistent
these
operations by1960s.determinations,
Confidence
several
with
.
aways. and Optimism
high-achievement
they
personnel
Many
•two
persuading
Internal the personnel
and
of them
characteristics
partners
Locus produces
believe
and
of often
•that
crucial
•
Control to are
unique
seek
investorsthey
Successfulmore
outgoods
learn
know
success.
Although to• and
putqualified
and
more
when
entrepreneurs
use
up
entrepreneurs
High totosayare
services.
from
feedback.
money,
achievers early
“no”.
extremely
creditors
thrive
tend on
to be the persistent,
fluidity
moderate and
risk they
takersare.
authority
handle
in terms
the
failures to of
make learning
day-to-day
than fromthe and
important communicating.
implementation
their • early •
• They
motivational
ones.
successes
realistic
Feedback Their
in
• drive,
challenges.
goal
recognizing
is also
•orientation
Examples
like to Independence
take
the
central
include
the
desire
whatto also
they
their
a
initiativewillingness
tolearning
take
helps
can inpersonal
and solving
them
cannot
from
to
to
mortgage
aresponsibility,
problem
define
do
mistakes and and or
to offer
•• Tolerancespecial
This vision helped terms, and suppliers
makeexcitement
Apple to
ain•major advance
of their
They such merchandise.
an ambiguous
examine atake
situation, existence.
determine increase the
for Ambiguity and filling
self-confidence.
priorities a and
house,
• winning,
vacuum
Teamprovides where
Building a
them
cut
no in pay,
leadership
with
sacrifice
measures exists. family
of how
• where
setbacks.
Job they
security can
and get help to solve difficult but unavoidable
competitor in the microcomputer • tasks. well they
odds time, and reduce their standard of living. to
industry. retirement
of generally
and then are
push of no
ahead.concern
are performing.
them. Prof DEBASISH DUTTA/Entrepreneurship
• Development/SBS/2017
28
• •
Theories and
Types of
Entrepreneurship
29
Theories of
Entrepreneurship

30
Theory of Entrepreneurship
• Many theories about ‘entrepreneur’ and ‘entrepreneurship’ have been

developed in the past; and each of these theories emphasizes one or the
other particular aspect of entrepreneurship.
• The theories propounded by economists attempt to define:
1. Who is an entrepreneur?
2. What the role played an entrepreneur?
• The psychological theories describe the circumstances in which the quality
of entrepreneurship takes roots in the mind of the people.
• An analysis of the entrepreneurial theories propounded by different
experts provides an interesting study and will help understand the complex
nature of entrepreneurship.
31
• Schumpeter’s Theory of Innovation (1959)

• Schumpeter considered the entrepreneur as an innovator if he acts as a
catalyst by his innovative ideas and introduces dynamism in the economy.
• He would then bring about development by interrupting and altering the
stagnant circular flow of the economy.
• He considers that innovation can take the following forms:
• Introduction of a new product.
• Introduction of a new, improved technology for the production of an already existing
product.
• Opening up of a new market into which a specific product has not been introduced
so far.
• Discovery of new sources of supply of raw materials.
• Introduction of new form of organization.

32
• Schumpeter’s Theory of Innovation (1959)

• Schumpeter also makes a distinction between an inventor
and an innovator.
• While the inventor finds out new methods, techniques,
materials, product, the innovator uses such inventions
and discoveries to produce and offer new products to the
economy.
• He calls an entrepreneur as an innovator.

33
• McClelland’s Theory of Achievement (1961)

• David McClelland concerned himself with economic growth and
the factors that influence it.
• He wanted to find the ‘internal factors’, i.e. ‘human values and
motives that lead men to exploit opportunities and take
advantage of favourable trade conditions’.
• His theory on achievement motivation is regarded as the most
important psychological theories of entrepreneurship.
34

• According to McClelland, individuals whose need for achievement is high will have
the drive to excel and win.
• They will take personal responsibility for solving problems and will be high achievers.
• In view of the inner urge for personal achievement they will always try to be better
than others.
• He stressed that the need for achievement is the directly relevant factor for
explaining economic behaviour.
• People having high need for achievement are more likely to succeed as
entrepreneurs.
• McClelland explains that entrepreneur's interest in profit growth in terms of sales is
an expression of their need for an achievement.
35

• McClelland applies his n-achievement approach to study the
relationship that exists between n-achievement scores and
economic development.
• The n-achievement approach suggests promotion of achievement-
oriented ways of thinking to hasten the economic development in
underdeveloped countries.
• McClelland says that high level of n-factor will motivate an
entrepreneur to take on greater responsibility and also to take
bigger risks.
• They prefer to shoulder tasks that involve real challenges.
36
Types of
Entrepreneurial
Venture
37
Types of Entrepreneurial Venture
• Based on Functional Characteristics:

•• These
Fabian entrepreneurs
are
Innovating characterised are characterised
entrepreneursbyare readiness
one who
by very great
tointroduce
adopt new
caution and scepticisminaugurated
in experimenting any change
• Innovative entrepreneurs
• These
successful
goods,are
Social innovations
inaugurate
entrepreneurs
characterised
in their enterprises.
new method
drive
by asocial by innovating
ofinnovation
refusal production,
to adoptand
entrepreneurs.
discover new to
opportunities
transformation market
inmake and
various reorganise
changes
fields inincludingthe enterprise.
production education,
• Imitating entrepreneurs
•• formulae
They imitate
Imitative
health, human
even
only when itdobecomes
entrepreneurs
It is important to
at notecost
rights,
the not
thatofsuch
workers’ innovateperfectly
entrepreneurs
severely
rights, reduced
clear
the changes
environment can
returns
that failure to do so would result in a loss and
of the
• Fabian entrepreneursthemselves,
work
relative
and only when
enterprise
to other
relative position
they aonly imitate
certain
development.
like level
producers.
in theby
techniques
of
enterprise.
development is
• Such
technology
already innovated
achieved,
Theyentrepreneurs
undertake poverty and others.
people look forward
may alleviation
even suffer objectivesto with
from losses change
but
• Drone entrepreneurs
• The
• they
Such
andzeal
the
dictionary
types
improvement.
are not
of an
meaning
ofready
entrepreneurs
entrepreneur,
of the term ‘Fabian’
are particularly
to make changes
business inpractices
is ‘a
suitable
their existing
and
person seeking victory byregions delay rather than by a
• Social Entrepreneur
• for the
Example:
production
dare to underdeveloped
overcome
methods.
decisive battle’.
traditional for
practices bringing
and toa
• • dictionary
mushroom
The drive
Ratan Tata
innovate. of imitation
– Nano
meaning of theof new‘drone’
term combinations
is ‘a of
• Fabian entrepreneurs are those individuals who do
• • Mohammed
factors
person
Dr of production
Kishore
who Biyani
lives Yunus already
on– the
Organized
oflabor available
ofRetailing
Bangladesh
others’.in developed
who started
not show initiative in visualizing and implementing
• • Ambanis
regions.
They
GraminareBank –isMobile
die-hard a case phone
socialfor
conservatives.
of common man
entrepreneur.
new ideas and innovations.
• Based on the Type ofmanufacturing

•• They
The Business:
trading
do entrepreneurs
not entrepreneur manufacture
undertake
do manufacturing the trading
activities.
•• They
products.
Business
activities. entrepreneurs are individuals who conceive
• Business Entrepreneur
•••• They
The
They
an
serve
idea for
provide
individual
entrepreneurs
identify
procure a the
new needs
consumer.
who undertake
finished
product
services to of the
products
or service
customers
agricultural
customers
from
and and,
the
then then,
create
Retail
pursuits entrepreneurs
are called are spread
agricultural across the
entrepreneurs. country.
• Trading Entrepreneur explore
business
••• Examples:
Organized
They
the
manufacturers
cover
to resources
materialize
retail
a wide
and sell
today and
their
is
spectrum
technology
these idea
gainingto the
into
its
ofsatisfy
to be used to
customers
reality.
importance.
agricultural activities
manufacture
directly or the
through
• Transportations,
• like products
a to
retailer. the customers’
• Manufacturing/Industrial
Example:
• needs.
These
• serve
Centres,
Organized
BeautyofParlours,
Entrepreneur
cultivation, marketing
asRetail
the middlemen
Technical – Services
Star
agricultural
asBig
and
Bazar,
Airlines,
wholesalers,
soBazar,
on.
Call
produce,
irrigation, mechanization, and technology.
• Agricultural Entrepreneur
• In other
dealers, words,
and
Pantaloons, the manufacturing
retailers between
Central, Shoppers entrepreneurs
theStop,
manufacturers
D’Mart etc.and
convert
customers. raw materials
• Unorganized Retailinto finished stalls,
products.
• Retail Entrepreneur stores, Fruit shops, Grocery stores etc.
– Vegetable Medical
• Service Entrepreneur
•Based on the Use

•• The
Based of Technology:
on the use ofwho
entrepreneurs technology,
establishthe
andentrepreneurs
run science and
• Professional
who are not entrepreneur
technical entrepreneurs
is are
interested
calledareinnon-
establishing
•Technical Entrepreneur technology-based
aentrepreneurs.’
technical
industries
businessentrepreneurs.
‘technical
but has less interest in managing it.
•• They
The forte
sell out
of their
theirenterprises
running business
is not
thescience
and start
anda new
•Non-Technical Entrepreneur
Speaking
venture
technology.
who make
alternatively,
withusethe
these
of proceeds
science and
are
received.
entrepreneurs
technology in their
• They
•Professional Entrepreneur are dynamic
concerned
enterprises.
• alternative
imitative methods
Expectedly, projects.
they use
andwith
conceives
ofnew
the usenew
marketing
of alternative
ideas to develop
and distribution
and innovative
and
methods of
strategies toinmake
production their their business survive and thrive in
enterprises.
the competitive market.
•Based on Ownership
• A private entrepreneur is one who as an individual
• Private Entrepreneur
•• When
sets
When upathe trading
aprivate
business or industrialand
enterprise.
entrepreneur venture is undertaken
the Government
• State Entrepreneur
• by /the
He
jointly
State
sherun or the
it’sathe
entrepreneur.’
bears
soleGovernment,
business owner of theit
enterprise,
the entire risk involved in it.
is called ‘state
itenterprise and
is called ‘joint
entrepreneurs.’
• Joint Entrepreneurs
• Based on Gender:
• Women entrepreneurs are defined as the enterprises
• Men Entrepreneurs
• owned
When business enterprises
and controlled are owned,
by a woman managed,
or women anda
having
controlledfinancial
by men, interest
these are called ‘men
• Women Entrepreneurs
minimum
entrepreneurs.’
capital
of 51 per cent of the
and giving at least 51 per cent of employment
generated in the enterprises to women.
•Based on the Size of Enterprise

• Small-Scale Entrepreneur
•• An
The
• The
entrepreneur
entrepreneur
entrepreneur
who
who
who
has
has
has
made
made
made
investment
investment
investment
ininplant
in plant
plant
and
and machinery
machinery up to Rs
Rs1.00
1.00crore
croreisbut
called ‘small-
• Medium-Scale Entrepreneur
and
scale
crore
machinery
above
more
entrepreneur.’
is called
than Rs 5.00 crore
below
‘medium-scale entrepreneur.’
is called
Rs 5.00
‘large-scale entrepreneur.’
• Large-Scale entrepreneur
•Based on levels• of Motivation

A pure entrepreneur undertakes any economic
• Pure entrepreneur • endeavour
An inducedfor
satisfaction.
the sake of is
entrepreneur pure
theinterest
one whoand personalto
is induced
start business because he is attracted by the business
• Induced entrepreneur
• Itpolicy
is an of
urge on the individual
government and theto become an
assistance and
entrepreneur.
concessions provided the said government.
•• Example:
Liberalization, globalization and privatization has
• Jamshedji
induced manyTata
people to become an entrepreneur.
• GD Birla
• Dhirubhai Ambani
•Based on Area:
• An rural entrepreneur is the one who belongs to rural
• An urban entrepreneur is the one who belongs to
area.
•Urban entrepreneur
• urban area.
They set up enterprise in rural area for location
• They set up enterprise for location benefits.
•Rural entrepreneur
••
benefits.
They are generally
Government industrial
provides or assistance
financial corporate and other
entrepreneur.
additional benefits in order to develop rural areas.
• Generally they are agriculture or trading
entrepreneur.
•Based on Growth
•• A growth entrepreneur is the one who
onetake
whouptake
highup
•Growth entrepreneur
A super-growth
growth
enormousindustry.
entrepreneur
high growth industry.
is the
•• They
•Super-growth entrepreneur
chooseperformance
The growth
projects.
an industry which has substantial
is identified growth
by the liquidity
of funds, profitability and high capital gearing.
•Based on Entrepreneurial Activity

• A portfolio entrepreneur starts and runs number of
• Novice entrepreneur
•• AA seral entrepreneur
businesses.
novice is someone who
• entrepreneurial
one
He isventure
excited at
byaventure.
is someone
time but
variety
whohis/her
has started
of ultimately
is devoted
starts
opportunities.
first to
Hemany.
also
• Serial entrepreneur
•• Age
He sells
follows ahis
is not a established
strategy abusiness
matterofforspreading and starts a new
novice.risks.
• one.
He creates synergy between the ventures.
• Portfolio entrepreneur
Entrepreneurial
Motivation

48
Entrepreneurial Motivation
• Stephen P. Robbins (2010) defines motivation as “the willingness to

exert high levels of effort toward organizational goals, conditioned by
the effort and ability to satisfy some individual need.”
• Entrepreneurial motivation may be defined as the process that
activates and motivates the entrepreneur to exert higher level of
efforts for the achievement of his/her entrepreneurial goals. In other
words, the entrepreneurial motivation refers to the forces or drive
within an entrepreneur that affect the direction, intensity, and
persistence of his / her voluntary behaviour as entrepreneur.

49
Entrepreneurial Motivation
• Components of Entrepreneurial motivation:

• The need for approval
• The need for independence
• The need for personal development
• Welfare (philanthropic) consideration
• Perception of wealth
• Tax reduction and indirect benefits
• Following role models
50
51
Entrepreneurial Finance
• In order to compete effectively, the entrepreneur must allocate resources
efficiently.
• Three kinds of resources are available to the entrepreneur:
• Human
• Material
• Financial.
• Financial information pulls together all of the information presented in the other
segments of the business:
• Marketing,
• Distribution
• Manufacturing
• Management
• It also quantifies all of the assumptions and historical information concerning
business operations.
52
• A method of recording and allocating income and
• Financial Glossary for the Entrepreneur
costs for the period in which each is involved,
• Accrual system of accounting
• Asset regardless of the date of payment or collection.
•• Anything
• (1)itemized
An
For The amount
example,of value
if youinvested
statementthat
were is in athe
listing
owned
paid business
by
INR total
you
5,000 byinyour
assets
or the andfor
April
• Balance sheet • This
A method of accounting whereby revenue and
• Capital •
• An• proprietor(s)
liabilities
business
goods
The is
Property
interest of
schedule your
determined
you you
sold or
owninstockholders.
in property
of business
by
March,
that
your you at
subtracting
the a given
pledge
INR
or inreceipts
cash the moment.
5,000
a business,to value
the
and subjectthe
wouldof
lender be
toas
• • An (2)
It expired
expenses
is The
also cost;recorded
are
money
called any
a item
available
statement or
when
forclass
of ofthe
received
investmentcost
condition. ofor
and (or loss
paid,
money
• Cash flow ending
income
security
prior inventory
for
on
creditors.
disbursements. March
a loan from
until
under the
thean sum
loan of
accrual
is beginning
repaid.
system. (Accrual is
•• from)
Cash and
respectively,
Lost assets
carrying
usefulness; on that
without
expiredcan
an activity;be
regard easily
afor
utility; converted
present
the
the or past
period
diminution to
to cash,
which
of
• Cash system of accounting Aninvested.
••• expenditure
inventory
the
Collateral
opposite
owner's and
can
equitypurchases
of
be the
aincar,
cash
his made
home,
orsystem
her during
stocks,
of the period.
accounting.)
business bonds,
is the or
Debts
such
they asyou must
accounts
apply. pay
defraying within
receivable
a aand
present year (also
inventory.
operating called
cost short-
or
• Collateral service
•• difference
Gross yield
sales
equipment. from
less costa fixed
of asset
goods or
sold fixed
gives asset
you group
gross
term
Current between
liabilities).
assets should theexceed
value costof the
current company's
liabilities. assets
• Cost of goods sold representing
that cannot an
or irrecoverable
will not be restored or byloss; an
repairs item
or byof
profit.
and theexpenditures
debt owed by the company.
• Current assets capital
replacement of parts. written down or off; or a term
• For example, if youqualifying
borrow INR 15,00,000 to
• Current liabilities often used with some expression denoting
purchase assets for, or which
time,you payasaatoselling
of INR
• Depreciation function, organization such
• Equity 25,00,000, your equity is INRexpense.
10,00,000.
expense, fa expense, or monthly
• Expense
53
• Sales less the cost of goods sold.
• Financial Glossary for the •Entrepreneur
For example, (Continued)
if you sell INR 50,00,000 worth of
•• The A report
cost ofsummarizing
borrowing the financial condition of a
• Financial statement merchandise for whichmoney. you paid INR 40,00,000 your
• Gross profit •• It business.
is paid to profit
the
Also
gross
Money called
profit
you owelender
would and
to be
your and
loss
INR is usually expressed
statement
10,00,000.
creditors. . as an
• Income statement •• annual
AIt statement
normally includes
percentage of
summarizing athe
balance
loan.
the sheet
income and
of aan income
business
• Interest • To
When get
Liabilitiesnet
a profit,
business's
can be however,
in total
the form you
expenses
of would
a for
bank have
the to deduct
period
loan, are
accounts
• • Astatement.
Thatreport
is, summarizing
aifthan
youfor
borrow your
INR personal
5,000
less at financial
• Liability during
Total
other
greater
payable,income specific
expenses
and the
so period.
the
incurredperiod
income.
on. during the12%,
total youinpay
expenses
period 1%the
for
which
• Loss •• The
condition.
{.01
period.
(See
the
They XNet
sameINR
sales (See 5,000
as
were
represent equity
Gross
profit and= claim
made,
a INR 50}
profit.)
Grosssuch interest
profit.).
as rent,
against yourper month. and
insurance,
assets. Interest
• Net profit •• Costs
Same
Normally that
as varyofwith
income
includes the
statement.
a level
listing of of production
your assets, on sales,
liabilities,
•• The
is an
"Profit"expense
salesexcess usually
staff doing
refers assets
salaries. business.
to net profit.
• Net worth large monthly expenses, andover
such as directof current
labor, material and current
sales
sources liabilities.
ofcommissions.
income.
• Personal financial statement
• Profit
• Profit and loss statement Same as income statement .
• Variable cost
• Working capital
54
Balance Sheet and
Profit & Loss
Account
Prof DEBASISH DUTTA/Entrepreneurship Development/SBS/2017 55

Balance Sheet
• A balance sheet is a financial statement that reports a business 's

financial position at a specific time.
• Many accountants like to think of it as a picture taken at the close of
accounting period.
• The balance sheet is divided into two parts:
1) The financial resources owned by the firm (Assets)
2) The claims against these resources (Liabilities)
• The claims against the resources come from two groups:
1) Creditors - who have claims to the firm’s assets
2) Owners who have right to anything leftover after the creditor’s claims have
been paid
56
Balance Sheet
• Assets • Liabilities
• Current assets • Current Liabilities
• Cash • Accounts payable
• Accounts receivable (Less: Allowance • Notes payable
for uncollectible account) • Taxes payable
• Inventory • Loan payable
• Prepaid expenses • Bank Loan
• Fixed Assets • Owners equity
• Land • Contributed Capital
• Building (Less: accumulated • Common stock
depreciation of building) • Preferred Stock
• Equipment (Less: accumulated • Retained Earnings
depreciation of equipment)

57
Profit & Loss Account
• The profit & Loss Statement or the income statement is a financial

statement that shows the change that has occurred in a firm's position as a
result of its operations over a specific period.
• The profit and loss statement or “P&L”, reports the success (or failure) of
the business during the period.
• In essence, it shows whether revenues were greater than or less than
expenses .
• These revenues are the monies the business has received from the sale of
its goods and services.
• The expenses are the costs of the resources used to obtain the revenues.
• These costs range from the cost of materials used in the products the firm
makes to the salaries it pays its employees .
58
Profit & Loss Account
• Sales Revenue 8,75,00,000
• Less: Sales return and allowances 25,00,000
• Net sales ---------------- 8,50,00,000
• Cost of Goods Sold
• Inventory April 2016 75,00,000
• Purchases 5,25,00,000
• Goods available for sale 6,00,00,000
• Less Inventory March 2017 1,00,00,000
• Cost of goods sold 5,00,00,000
• Gross Margin 3,50,00,000
• Operating Expenses
• Selling expenses 75,00,000
• Administrative expenses 50,00,000
• Total Operating expenses 1,25,00,000
• Operating Income 2,25,00,000
• Financial Expenses (Interest on loan etc.) 10,00,000
• Income before Income tax 2,15,00,000
• Estimated Income Tax 86,00,000
• Net Profit/Loss 1,29,00,000

59
60
Financial Ratios
• Owners
Return on Investment (ROI) = Net Income/Average Owner’s Equity
1. • It measures the extent financial leverage is being used for or against the owner.
• It tells how well the company is doing as an investment
Return on Assets (ROA) = Net Income/Average Total Assets
2. • It measures how well assets have been employed by management

• It tells how well has management employed company assets

61
Financial Ratios
• Managers
Net Profit Margin = Net Income/Sales
1. • It measures the ability to create sufficient profit from operation activities

• It tells whether profits are high enough, given the level of sales
Assets Turnover = Sales/Average Total Assets
2. • It measures relative efficiency in using total to resources to product output

• It tells how well the assets being used to generate sales revenue
Return on Assets = Net income/Sales X Sales/ Total Assets
3. • It measures earning power on all assets.

• It tells how well the management employed company assets
Continued……………
62
Financial Ratios
• Managers ……………. Continued
Average Collection Period = Average Account Receivable/Annual credit SalesX365
4. • It measures the liquidity of receivables

• It tells are receivable coming in too slowly
Inventory Turnover = Cost of goods Sold Expense/Average Inventory
5. • It measures liquidity of inventory and number of times it turns over per year
• It tells whether too much cash is tied up in the inventory
Average age of payables = Average Accounts Payable/Net Purchases X 365
6. • It measures approximate length of time to pay for bills purchases

• It tells how quickly does a prospective customer pay its bills
63
Financial Ratios
• Short-Term Creditors
Working Capital = Current Assets – Current Liabilities
1. • It measures short term debt paying ability

• It tells the availability of sufficient cash or other liquid assets
Current Ratio = Current Assets/Current Liabilities
2. • It measures short term debt paying ability without liquidity of current assets
Quick Ratio = Cash + Marketable Securities + Accounts receivable/ Current Liabilities
3. • It measures short term debt paying ability without having to rely on inventory sales
64
Financial Ratios
• Long-Term Creditors
Debt to Equity Ratio = Total debt/Total Equity
1. • It measures the assets creditor provide for each rupee of asset the owner provide
• It tells is the company’s debt load excessive
Times Interest earned = Net Income + {(Interest + Taxes)/Interest Expense}
2. • It measures the ability to pay fixed charges for interest from operating profits
• It tells whether earning and cash flow are sufficient to pay principal and interest
Cash Flow to Liabilities = Operating Cash Flow/Total Liabilities
3. • It measures Total debt coverage and general debt paying ability

• It tells the availability of sufficient cash to cover interest and principle payments
65
Funding
• Funding is the act of providing financial resources, usually in

the form of money, or other values such as effort or time, to
finance a need, program, and project, usually by an
organisation.
• Generally, this word is used when a firm uses its internal
reserves to satisfy its necessity for cash, while the term
‘financing’ is used when the firms acquires capital from
external sources.
• Funds can be allocated for either short-term or long-term
purposes
67
Funding
IPOs
• Sources of Funding Private $5M & up
• The following diagram indicates typical Placements
financing for new venture $500K & up
Bank and Govt.
$5K & up
Venture Capital
$2-50M
Seed Capital
$500K-3M
Angels
$100K-2M
Family & Friends
$20-250K
Owner’s Money
$10-100K
Equity and Debts
• Debt Financing
• Many new venture find that the debt finance is necessary.
• Short term borrowing is required for working capital
• The most common source of debt financing are commercial banks
• There are multiple banks operates in the country.
• Banks provide unsecured short term loans besides secured loans
by receivables, inventories, or other assets.
• They also provide term loans for machinery, equipment and real
estate.

69
Funding
• Common Debt Sources

1) Trade Credit
2) Commercial Banks
3) Finance companies/FIs
4) Factors
5) Leasing companies
6) Mutual Funds
7) Insurance Companies
70
Funding
• Equity
• Equity financing is money invested in the venture
with no legal obligations for entrepreneurs to repay
the principal amount or pay interest on it.
• Sources of equity
• Public offering (Through initial or subsequent public
offer)
• Private placements (Friends, relatives or close
associates)
71
Sources of Funding
• Angel investors and venture capitalists

• New business owners can also raise capital from angel investors and venture
capitalists through equity financing.
• By investing in the equity of a business, angel investors and venture capitalists expect
a large return on investment in the form of an acquisition, IPO, or stock buy back in
the future.
• While this may not seem the most attractive, it is certainly an avenue to explore,
especially if all traditional routes to raise capital have been exhausted.
• One disadvantage of equity financing is that even though the new business owner
may be able to raise capital, they may have to give up some of their company’s
rights, since angel investors and venture capitalists often desire a large stake in the
company or executive board seat.
• For many entrepreneurs, angel investors and venture capitalists may be their only
resort to raise capital for their new businesses.

72
Sources of Funding
• Angel Investors
• Angel investors invest in small start-ups or entrepreneurs.
• Often, angel investors are among an entrepreneur's family and friends.
• The capital angel investors provide may be a one-time investment to help the
business propel or an ongoing injection of money to support and carry the company
through its difficult early stages.
• Angel investors are also called informal investors, angel funders, private investors,
seed investors or business angels.
• These are affluent individuals who inject capital for start-ups in exchange for
ownership equity or convertible debt.
• Some angel investors invest through crowdfunding platforms online or build angel
investor networks to pool in capital.
Sources of Funding
• Angel Investors
• An angel is an experienced industry-breed individual with high net
worth.
• Typically, an angel investor would:
1) Invest only his chosen field of technology
2) Take active participation in day-to-day running of the Company
3) Invest small sums in the range of USD 1 - 3 million
4) Not insist on detailed business plans
5) Sanction the investment in up to a month
6) Help Company for "second round" of funding

74
Sources of Funding
• Venture Capitalists
• Venture capital is one of the more popular forms of equity financing used to
finance high-risk, high-return businesses.
• The amount of equity a venture capitalist holds is a factor of the company's
stage of development when the investment occurs, the perceived risk, the
amount invested, and the relationship between the entrepreneur and the
venture capitalist.
• Venture capitalists usually invest in businesses of every kind.
• On the other hand, private venture capital partnerships and industrial venture
capitalists like to invest primarily in technology-related industries, especially
applications of existing technology such as computer-related
communications, electronics, genetic engineering, and medical or health-
related fields.
75
Sources of Funding
• Venture Capitalists
• Venture Capitalists (VCs) are organizations raising funds from numerous
investors and hiring experienced Professional mangers to deploy the same.
• They typically:
1) Invest at “second” stage
2) Invest over a spectrum over industries
3) Have hand-holding “mentor” approach
4) Insist on detailed business plans
5) Invest into proven ideas/businesses
6) Provide “brand” value to investee
7) Invest between USD 2 – 5 million
76
Legal Forms of Entrepreneurial
Organizations
77
Legal Form of Entrepreneurial Organization
• Business Enterprise
• The business enterprise is a work organization especially created
to produce goods and services for the community.
• It produces goods for the market and consumers, that yield profits
for owners or dividends for shareholders.
• It generates services for employees in terms of jobs, careers,
incomes, perks and welfare.
• It also pays revenue to the state in terms of taxes, duties etc.
• It also renders services to the community in terms of CSR.

78
• The following are various form of Entrepreneurial

Organization:
1) Proprietorship Firm
2) Partnership Firm
3) Limited Liability Partnership (LLP)
4) Company form of Organization (Limited Liability Company)
1) Private Limited Company
2) One Person Company
3) Public Limited Company

79
• The proprietary firm is the firm in which only one individual is the owner,
who is called as "proprietor“ and he is the direct owner of profits & losses.
• He has the right to take the decisions individually.
• Proprietary firm registration
• If the business is liable for GST registration, then there is need to obtain
GST registration.
• No separate income tax PAN is required.
• The PAN of the proprietor will be the PAN of the firm and proprietor
will have to file income tax return in his personal name.
• Shop act License need to be taken.
Continued…………….
80
• Proprietorship Firm
• Advantages:
• Proprietary firms are the most easiest & economical form of business to form and operate.
• The proprietor can act as Manager and he has right of freedom to take decisions.
• This is very suitable where the size of business is small.
• A proprietary firm does not require submitting more number of documents to the government.
• Disadvantages:
• A proprietary firm does not have any legal status.
• The proprietor might not be capable to invest further, when the business is in downfall or
complex stages.
• These are unlimited liability firms & the proprietor's property will always be at stake, if the
liability is more than assets.
• The proprietor needs to pay higher taxes, as he is the direct person, who is enjoying the profits.
Transferring of business is not easy.
81
• Partnership Firm
• Definition
• ‘the relation between persons who have agreed to share profits of the business
carried on by all or any of them acting for all’.
- Indian Partnership Act, 1932
• This definition gives three minimum requirements to constitute a partnership:
1) There must be an agreement entered into orally or in writing by the persons
who desire to form a partnership.
2) The object of the agreement must be to share the profits of business
intended to be carried on by the partnership, and
3) The business must be carried on by all the partners or by any of them acting
for all of them.
82
• Partnership Firm
• A partnership is easy to form, less legal formalities are involved.
• Registration not essential. However, non-registered firms may be deprived of certain legal
benefits.
• The minimum number of partners must be two, maximum number can be 10 for banking
business and 20 for other businesses.
• The firm has no separate legal existence of its own i.e., the firm and the partners are one and
the same in the eyes of law.
• In the absence of any agreement to the contrary, all partners have a right to participate in the
activities of the business.
• Ownership of property usually carries with it the right of management. Every partner, therefore,
has a right to share in the management of the business firm.
• Liability of the partners is unlimited. This means that if the assets and property of the firm is
insufficient to meet the debts of the firm, the creditors can recover their loans from the
personal property of the individual partners.
• Consent of all partners are mandatory for any transfer of interest.
• The firm has a limited span of life i.e. legally, the firm must be dissolved on the retirement,
lunacy, bankruptcy, or death of any partner.
83
• Limited Liability Partnership

• Limited Liability Partnership entities, the world wide recognized form of business
organization has been introduced in India by way of Limited Liability Partnership Act,
2008.
• A Limited Liability Partnership, popularly known as LLP combines the advantages of
both the Company and Partnership into a single form of organization.
• In an LLP one partner is not responsible or liable for another partner's misconduct or
negligence, this is an important difference from that of a unlimited partnership.
• In an LLP, all partners have a form of limited liability for each individual's protection
within the partnership, similar to that of the shareholders of a corporation.
• However, unlike corporate shareholders, the partners have the right to manage the
business directly.
• An LLP also limits the personal liability of a partner for the errors, omissions,
incompetence, or negligence of the LLP's employees or other agents.
84
• Limited Liability Partnership

• Limited Liability Partnership is managed as per the LLP Agreement, however in the
absence of such agreement the LLP would be governed by the framework provided
in Schedule 1 of Limited Liability Partnership Act, 2008 which describes the matters
relating to mutual rights and duties of partners of the LLP and of the limited liability
partnership and its partners.
• LLP has a separate legal entity, liable to the full extent of its assets, the liability of the
partners would be limited to their agreed contribution in the LLP.
• Further, no partner would be liable on account of the independent or un-authorized
actions of other partners, thus allowing individual partners to be shielded from joint
liability created by another partner’s wrongful business decisions or misconduct.
• Limited Liability Partnership Act, 2008 came into effect by way of notification dated
31st March 2009.
85
• Advantages of Limited Liability Partnership
• Renowned and accepted form of business worldwide in comparison to Company.
• Low cost of Formation, easy to establish, manage & run.
• No requirement of any minimum capital contribution.
• No restrictions as to maximum number of partners.
• LLP & its partners are distinct from each other and partners are not liable for Act of partners.
• Less Compliance level.
• No exposure to personal assets of the partners except in case of fraud.
• Less requirement as to maintenance of statutory records and less Government Intervention.
• Easy to dissolve or wind-up.
• Professionals can form Multi-disciplinary Professional LLP, which was not allowed earlier.
• Audit requirement only in case of contributions exceeding Rs. 25 lakh or turnover exceeding
Rs. 40 lakh.
Continued……………. 86
• Disadvantages of Limited Liability Partnership

• Any act of the partner without the other partner, may
bind the LLP.
• Under some cases, liability may extend to personal assets
of partners.
• Cannot raise money from public

87
• Company Form of Business

• A Joint Stock Company or simply a company is a voluntary association of
persons generally formed for undertaking some big business activity.
• It is established by law and can be dissolved by law.
• The company has a separate legal existence so that even if its members die,
the company remains in existence.
• Its members contribute money for some common purpose.
• The money so contributed constitutes the capital of the company.
• The capital of the company is divided into small units called shares.
• Since members invest their money by purchasing the shares of the company,
they are known as shareholders and the capital of the company is known as
share capital
88
• Private Limited Company

• A private company is the one which has a minimum paid up share capital of Rs. 100000 or such
higher capital as prescribed by the Companies Act.
• Its Article of association mentions that the company restricts the right to transfer its shares; limits
the number of its members from 2 to 50.
• Limits the number of its members to 50 which will not include:-
• a) Members who are employees of the company
• b) Members who are ex-employees of the company and were members while in such employment and who
have continued to be members after ceasing to be employees
• Prohibits any invitation to the public to subscribe for any shares or debentures of the company
• Prohibits any invitation or acceptance of deposits from persons other than its members, directors
or their relatives.
89
• Formation of a Private Limited Company

• Minimum of two shareholders are required.
• A minimum of two shareholders and a maximum of up to 20
• Must have a minimum of two Directors and can have up to a maximum of fifteen Directors.
• The Director needs to be over 18 years of age and must be a natural person.
• There are no limitations in terms of citizenship or residency.
• Minimum authorized capital of Indian Rupees 100,000 – no upper limit.
• An address in India where the registered office of the Company will be situated is required.
• Identity proof and address proof is for all the proposed Directors of the Company. PAN Card is
mandatory for Indian Nationals, NOC from Landowner,
• Memorandum of Association and Articles of Association and other documents.
• A Digital Signature establishes the identity of the sender or signee electronically while filing
documents through the Internet.
• Director Identification Number is a unique identification number assigned to all existing and
proposed Directors of a Company.

90
• Public Limited Company

• A Public Limited Company is a Company limited by shares in which there is no
restriction on the maximum number of shareholders, transfer of shares and
acceptance of public deposits.
• The liability of each shareholder is limited to the extent of the unpaid amount
of the shares face value and the premium thereon in respect of the shares
held by him.
• However, the liability of a Director / Manager of such a Company can at times
be unlimited.
• Basic requirements for registering a Public Limited Company are as follows:
• The minimum number of shareholders is 7.
• Minimum Directors 3
• Authorised Capital INR 5 lakhs
• Digital Signature 1
91
• One Person Company

• The concept of One Person Company [OPC] is a new vehicle/form of business,
introduced by The Companies Act, 2013 [No.18 of 2013], thereby enabling
Entrepreneur(s) carrying on the business in the Sole-Proprietor form of business to
enter into a Corporate Framework.
• One Person Company is a hybrid of Sole-Proprietor and Company form of business,
and has been provided with concessional/relaxed requirements under the Act.
• Only a natural person, who is an Indian citizen and resident in India shall be eligible
to incorporate a One Person Company.
• The Shareholder shall nominate another person who shall become the shareholders
in case of death/incapacity of the original shareholder.
• Such nominee shall give his/her consent and such consent for being appointed as the
Nominee for the sole Shareholder.
• Must have a minimum of One Director, the Sole Shareholder can himself be the Sole
Director.
• The Company may have a maximum number of 15 directors.
92
Intellectual Property
• The importance of intellectual property in India is well established at all levels-

statutory, administrative and judicial.
• India ratified the agreement establishing the World Trade Organisation (WTO).
• This Agreement, inter-alia, contains an Agreement on Trade Related Aspects of
Intellectual Property Rights (TRIPS) which came into force from 1st January 1995.
• It lays down minimum standards for protection and enforcement of intellectual
property rights in member countries which are required to promote effective and
adequate protection of intellectual property rights with a view to reducing
distortions and impediments to international trade.
• The obligations under the TRIPS Agreement relate to provision of minimum
standard of protection within the member countries legal systems and practices.
94
• The Agreement provides for norms and standards in

respect of following areas of intellectual property
• Patents
• Trade Marks
• Copyrights

95
• Patents
• A patent is an intellectual property right.
• A patent provides the owner with exclusive rights to hold, transfer, and license the
production and sale of product or process.
• The objective a patent is to provide the owner a temporary monopoly on his or her
innovation.
• Design patents lasts for 14 years and others last for 20 years.
• The TRIPS Agreement provides for a minimum term of protection of 20 years
counted from the date of filing.
• The following item qualify for patent protection
• Processes
• Machines
• Products
• Plants
• Chemical compounds etc.

96
• Patents
• India had already implemented its obligations under Articles 70.8 and 70.9 of
TRIP Agreement.
• Acts related to Patents
• The Patents Act, 1970
• The Patents (amendment) Act, 1999
• Rules pertaining to Patents
• The Patents Rules 2003
• The Patents (Amendment) Rules 2005
• The Patents (Amendment) Rules 2006
97
• Trade Marks
• Trade marks have been defined as any sign, or any combination of signs
capable of distinguishing the goods or services of one undertaking from those
of other undertakings.
• Such distinguishing marks constitute protectable subject matter under the
provisions of the TRIPS Agreement.
• The Agreement provides that initial registration and each renewal of
registration shall be for a term of not less than 7 years and the registration
shall be renewable indefinitely.
• Trade and Merchandise Marks Act, 1958 has been repealed and replaced by
Trademarks Act, 1999.

98
• A trademark performs the following functions:

• It identifies goods/services and their origin
• It guarantees their unchanged quality
• It advertises goods/services
• It creates an image for goods/services
• Indian law permit registration of following trademarks
• Product trademarks: affixed to identify goods
• Service trademarks: identify services of an entity- broadcasting, retail etc.
• Certification trademarks: certified by owner for quality, manufacturing
methods, origin, raw material or any specific features
• Collective trademarks: registered for a group, association etc.

99
• Copyright
• India’s copyright law, laid down in the Indian Copyright Act, 1957 as amended
by Copyright (Amendment) Act, 1999, fully reflects the Berne Convention on
Copyrights, to which India is a party.
• Additionally, India is party to the Geneva Convention for the Protection of
rights of Producers of Phonograms and to the Universal Copyright
Convention.
• India is also an active member of the World Intellectual Property Organisation
(WIPO), Geneva and UNESCO.
• The copyright law has been amended periodically to keep pace with changing
requirements.

100
• Copyright
• The general rule is that copyright lasts for 60 years.
• In case of original literary, dramatic, musical, and artistic works the 60 year
period is counted from the year following the death of the author.
• In the case of films, sound recordings, photographs, posthumous publications,
anonymous and pseudonymous publications, work of government and works
of international organization, the 60 year period is counted from the date of
publication.
• Owner of a copyright may:
• Reproduce the work
• Prepare derivative works based on it
• Distribute copies of the work by sale
• Perform the work publicly
• Display the work
101
Business Plan
• A business plan is the written document that details the proposed venture.
• It must describe current status, expected needs, and projected results of the new
business.
• Every aspect of the venture needs to be covered:
• The project
• Marketing
• Research and development
• Management
• Critical risks
• Financial projections
• Milestones or a timetable.
• A description of all of these facets of the proposed venture is necessary to
demonstrate a clear picture of what that venture is, where it is projected to go,
and how the entrepreneur proposes it will get there .
• The business plan is the entrepreneur's road map for a successful enterprise.
103
Business Plan
• In some professional areas, the business plan is referred to as a

venture plan, a loan proposal, or an investment prospectus.
• Whatever the name, the business plan is the minimum document
required by any financial source.
• The business plan allows the entrepreneur entrance into the
investment process.
• Although it should be used as a working document once the venture
is established, the major thrust of the business plan is to encapsulate
the strategic development of the project in a comprehensive
document for outside investors to read and understand.
104
Business Plan
• The business plan describes to investors and financial sources all of the
events that may affect the proposed venture.
• Details are needed for various projected actions of the venture, with
associated revenues and costs outlined.
• It is vital to explicitly state the assumptions on which the plan is based.
• For example, increases/decreases in the market or upswings/downswings
in the economy during the start-up period of the new venture should be
stated.
• The emphasis of the business plan always should be the final
implementation of the venture
• It’s not just the writing of an effective plan that is important but also the
translation of that plan into a successful enterprise
105
Business Plan
• Pitfalls to avoid in Planning

• Pitfall 1: No Realistic Goals
• Set up timetable of specific steps to be accomplished during specific period.
• Pitfall 2: Failure to anticipate roadblocks
• List out (1) the possible obstacles that may arise and (2) the alternatives that state what
might have to be done to overcome the obstacles.
• Pitfall 3: No Commitment or Dedication
• Follow up all professional appointments, demonstrate financial commitment to the venture,
avoid procrastination.
• Pitfall 4: Lack of demonstrated experience
• If the entrepreneur lacks technical or business experience for the new venture he should
obtain assistance from those who possess these knowledge or skills.
• Pitfall 5: No Market Niche (Segment)
• Entrepreneurs must have a market segment targeted and to demonstrate why and how the
specific product or service will meet the needs or desire of target group.
106
Business Plan
• Benefit of a Business Plan

• Formal business plan force the entrepreneur to view the venture critically and
objectively.
• The competitive, economic, and financial analyses subject the entrepreneur
to close scrutiny of his or her assumptions about the venture's success.
• The entrepreneur develops and examines operating strategies
• It provides measurable benchmarks for comparing forecasts with actual
results.
• The plan provides the entrepreneur with a communication tool for outside
financial sources as well as an operational tool for guiding the venture toward
success.

107
Business Plan
• The financial sources that read the plan derive the following benefits from
the business plan:
• The business plan provides the details of the market potential and plans for securing
a share of that market.
• Through prospective financial statements, the business plan illustrates the venture’s
ability to service debt or provide an adequate return on equity.
• The plan identifies critical risks and crucial events with a discussion of contingency
plans that provide opportunity for the venture’s success.
• By providing a comprehensive overview of the entire operation, the business plan
gives financial sources a clear, concise document that contains the necessary
information for a thorough business and financial evaluation.
• For a financial source with no prior knowledge of the entrepreneur or the venture,
the business plan provides a useful guide for assessing the individual entrepreneur’s
planning and managerial ability.

108
Business Plan
• Steps in typical Business Plan reading process by venture capitalists:

• Step 1: Determine the characteristics of the venture and its industry.
• Step 2: Determine the financial structure of the plan (amount of debt or
equity investment required).
• Step 3: Read the latest balance sheet (to determine liquidity, net worth, and
debt/equity).
• Step 4: Determine the quality of entrepreneurs in the venture (sometimes the
most important step).
• Step 5: Establish the unique feature in this venture (find out what is different).
• Step 6: Read over the entire plan lightly (this is when the entire package is
paged through for a casual look at graphs, charts, exhibits, and other plan
components).

109
Business Plan
• Format issues • A business plan should not be more than 50 page.

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110
Business Plan
• Guidelines for successful business plan development

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team ofparts
to action
manage the venture.
• Do not overdiversify ••• Use successfully
the the title
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page
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research one
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• Identify the target marketcapture
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segment and create
has been a desire to
identified.
• Keep the plan written in the readthird
more. person
• Capture the reader’s interest
111
Business Plan
• Elements of a Business Plan

• A detailed business plan usually includes eight to ten
sections (depending on the industry and idea).
• The ideal length of a plan is 25 pages, although-depending
on the need for detail-the overall plan can range from 25
to more than 40 pages if an appendix is included.

112
Business Plan
•Complete outline of a Business Plan

• Section I: Executive Summary
• Section II: Business Description
A General description of the business
B Industry background
C Uniqueness of product or service
Continued ………
113
Business Plan
• Complete outline of a Business Plan - continued

• Section III: Marketing
A Research and analysis
1. Target market (Customers) identified
2. Market size and trends
3. Competition
4. Estimated market share
B Marketing Plan
1. Market strategy – Sales and distribution
2. Pricing
3. Advertising and promotions Continued ………
114
Business Plan

• Section IV: Operations
A Identify location: advantages
B specific operational procedures
C Personnel needs and uses
D Proximity to supplies
• Section V: Management
A Management team – key personnel
B Legal structure – stock agreements employment agreements
ownership
C Board of Directors, advisors, consultants
Continued ………
115
Business Plan

• Section VI: Financial
A Financial forecast
1. Profit and loss
2. Cash flow
3. Break even analysis
4. cost controls
5. Budgeting plans
• Section VII: Critical risks
A Potential problems
B Obstacles and risks
C Alternative courses of action
Continued ………
116
Business Plan

• Section VIII: Harvest Strategy
A Liquidity event
B Continuity of business strategy
C Identify successor
• Section IX: Milestone Schedule
A Timing and objectives
B Deadline and milestones
C Relations and events
• Section X: Appendix or Bibliography
Continued ………
117
Idea to Market
Germination
1. Idea Generation
(Recognition)
Preparation
(Rationalization)
Incubation
(Fantasising)
Feasibility Study
2.
Illumination Verification
(Realization) (validation)
119
Idea to Market
• Step 1. - Idea Generation:

• To generate an idea, the entrepreneurial process
• Once three
has to pass through the seedstages:
of interest curiosity has taken the shape
• This is like seeding process, not like planting seed. It is
• This
of a focused idea, creative people start a search for
more islike
a stage
the where the
natural entrepreneurial process enters
seeding.
1) Germination: answers to the problems.
• the
Most sub-conscious
creative ideasintellectualization.
can be linked to an individual’s
2) Preparation:• Inventors
The
interest
will go on for setting
sub-conscious
or curiositymind
aboutjoins up unrelated
the laboratories;
a specific
designers
problemideas so as
or area of
willfind
think of engineering new product ideas and
3) Incubation: tostudy. a resolution.
marketers will study consumer buying habits.

120
Idea to Market
• Step 2. Feasibility study:

• Feasibility study is done to see if the idea can be
commercially viable.
•• After
This isthe
thegeneration
last thing to
of verify the isidea
idea, this theas realistic
stage whenand
the
• It passes throughideatwo
useful steps:
for application.
is thought of as a realistic creation.
• Illumination: •• The
Verification
stage of is concerned
idea about
blossoming practicality
is critical to implement
because ideas by
an idea andhave
themselves explore its usefulness to the society and the
no meaning.
• Verification: entrepreneur.

121
Idea to Market
• Ten steps from Idea to Market

• Step 1: Idea Conception and Evaluation
• Step 2: Determine Your Target Market
• Step 3: Do Meaningful Market Research
• Step 4: Make a Looks-Like, Acts-Like Prototype
• Step 5: Intellectual Property Protection
• Step 6: Choose your Business Model
• Step 7: Create a Business Plan and Market Introduction Plan
• Step 8: Create a Logo, Sales Materials and Packaging
• Step 9: Manufacturing
• Step 10: Find Sales Agents/Distribution and Start Selling.
122
People and Partnership
• People problems
• Entrepreneurs must depend on and work with partners,
employees, customers, bankers, and professionals.
• Many experience frustration, disappointment, and aggravation in
their experiences with these people.
• Successful entrepreneurs are to some extent perfectionists and
know how they want things done; often they spend a lot of time
trying to get lethargic employees to meet their strict performance
standards.
• Frequently, because of irreconcilable conflict, partnerships are
dissolved.
124
125
Sales and Marketing
• The marketing concept for entrepreneurs includes knowing what a market

consists of, the understanding of marketing research , the development of a
marketing plan, and the proper approach to a pricing strategy.
• A market is a group of consumers (potential customers) who have purchasing
power and unsatisfied needs.
• A new venture will survive only if a market exists for its product or service.
• This is so obvious that it would seem every entrepreneur would prepare
thoroughly the market analysis needed to establish a target market.
• However, many entrepreneurs know very little about their market, and some
even attempt to launch new ventures without identifying any market.
• A number of techniques and strategies can assist entrepreneurs to effectively
analyze a potential market.
• Effective marketing analysis also can help a new venture position itself and make
changes that will result in increased sales.
126
Sales and Marketing
• Common Elements in the Marketing Skills of Entrepreneurs

• They possess unique environmental insight, which they use to spot
opportunities that others overlook or view as problems.
• They develop new marketing strategies that draw on their unique insights.
They view the status quo and conventional wisdom as something to be
challenged.
• They take risks that others, lacking their vision, consider foolish.
• They live in fear of being preempted in the market.
• They are fiercely competitive.
• They think through the implications of any proposed strategy, screening it
against t heir knowledge of how the marketplace functions. They identify and
solve problems that others do not even recognize .
Prof DEBASISH DUTTA/Entrepreneurship Continued………
Sales and Marketing
• Common Elements in the Marketing Skills of Entrepreneurs - continued

• They are meticulous about details and are always in search of new competitive
advantages in quality and cost reduction, however small.
• They lead from the front, executing their management strategies enthusiastically and
autocratically. They maintain close information control when they delegate.
• They drive themselves and their subordinates .
• They a re prepared to adapt their strategies quickly and to keep adapting them until
they work .
• They persevere long after others have given up.
• They have clear visions of what they want to achieve next. They can see further
down the road than the average manager can see.
128
Sales and Marketing
• Marketing Research
• Marketing research involves the gathering of information
about a particular market, followed by analysis of that
information.
• A knowledge and understanding of the procedures
involved in marketing research can be very helpful to the
entrepreneur in gathering, processing, and interpreting
market information.

129
Sales and Marketing
• Defining the Research Purpose and Objectives

• The first step in marketing research is to define precisely the informational requirements of the
decision to be made.
• Although this may seem too obvious to mention, the fact is that; needs are too often identified
without sufficient probing.
• Gathering Secondary Data
• Secondary data may be internal or external.
• Internal secondary data consist of information that exists within the venture.
• The records of the business may contain useful information.
• External secondary data are available in periodicals, trade association literature, and government
publications.
• Gathering Primary Data
• Techniques used to accumulate primary data are observational methods and questioning
methods.
• Observational methods avoid contact with respondents, is used very economically, and they
avoid a potential bias that can result from a respondents.

130
Sales and Marketing
• Developing a Marketing Concept

• Effective marketing is based on three key elements:
• Marketing philosophy
• Market segmentation
• Consumer behavior
• A new venture must integrate all three elements when developing
its marketing concept and its approach to the market.
• This approach helps set the stage for how the firm will seek to
market its goods and services

131
Sales and Marketing
• Marketing Philosophy
• Three distinct types of marketing philosophies exist
among new ventures:
• Production driven
• Sales driven
• Consumer driven

132
Sales and Marketing
• The production-driven philosophy
• The production-driven philosophy is based on the belief
"produce efficiently and worry about sales later."
• Production is the main emphasis; sales follow in the wake of
production.
• New ventures that produce high-tech, state-of-the-art output
sometimes use a production-driven philosophy.

133
Sales and Marketing
• Sales-driven philosophy
• A sales-driven philosophy focuses on personal selling and
advertising to persuade customers to buy the company 's
output.
• This philosophy often surfaces when an overabundance of
supply occurs in the market.
• New auto dealers, for example, rely heavily on a sales-driven
philosophy.

134
Sales and Marketing
• Consumer-driven philosophy
• A consumer-driven philosophy relies on research to discover
consumer preferences, desires, and needs before production
actually begins.
• This philosophy stresses the need for marketing research to
better understand where or who a market is and to develop a
strategy targeted toward that group.
• Of the three philosophies, a consumer-driven orientation is
often most effective, although many ventures do not adopt it.
135
Sales and Marketing
• Three major factors influence the choice of a

• The intensity of the competition will many times
marketing philosophy:
• dictate
Sometimes
The range ofa skills
a new sales-driven
venture's philosophy
and abilities
philosophy. may be possess
entrepreneurs
• For
• Competitive pressurepreferred
varies
example,duestrong
greatly. to a short-term
competition focus
willon "moving
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• entrepreneurs
merchandise"
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tohave
develop
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• Entrepreneur 's background.
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over competitors.
production and (which is
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soon ignores
orientation in customer
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that what is and
philosophy. contributes
produced will beto
long-range dissatisfaction
sold.

136
Sales and Marketing
• Market Segmentation
• Market segmentation is the process of identifying a specific set of
characteristics that differentiates one group of consumers from
the rest.
• For example, although many people eat ice cream, the market for ice
cream can be segmented based on taste and price.
• Some individuals prefer high-quality ice cream made with real sugar and
cream because of its taste; many others cannot tell the difference
between high-quality and average-quality ingredients and, based solely on
taste, are indifferent between the two types.

137
Sales and Marketing
• Consumer Behaviour
• Consumer behavior is defined by the many types and patterns of
consumer characteristics.
• However, entrepreneurs can focus their attention on only two
considerations:
• Personal characteristics
• Social class, income, occupation, education, housing, family influence, time orientation.
• Psychological characteristics.
• Nature of needs, perceptions, self concept, aspiration groups, reference groups.
• These characteristics are tied to the five types of consumers:
• ( 1) innovators, (2) early adopters, (3) early majority, (4) late majority, and (5)
laggards

138
Sales and Marketing
• Entrepreneurs should be aware of five major consumer classifications:

• Convenience goods-
• Staple goods (foods), impulse goods (checkout counter items), or emergency goods and
services, consumers will want these goods and services but will not be willing to spend
time shopping for them.
• Shopping goods-
• products consumer s will take time to examine carefully and compare for quality and
price.
• Specialty goods-
• Products or services consumers make a special effort to find and purchase.
• Unsought goods-
• Items consumers do not currently need or seek. Common examples are life insurance,
encyclopedias. These products require explanation or demonstration.
• New products-
• Items that are unknown due to lack of advertising or are new products that take time to
be understood. When microcomputers were first introduced, for example, they fell into
this category.
139
Sales and Marketing
• Developing a Marketing Plan

• A marketing plan is the process of determining a clear, comprehensive approach
to the creation of customers .
• The following elements are critical for developing this plan:
• Current marketing research: determining who the customers are, what they want,
and how they buy.
• Current sales analysis: promoting and distributing products according to marketing
research findings
• Marketing information system: collecting, screening, analyzing , storing, retrieving,
and disseminating marketing information on which to base plans, decisions, and
actions
FIN
7/3/18 • Sales forecasting: coordinating personal judgment with reliable market information
• Evaluation: identifying and assessing deviations from marketing plans.
140
141
Manging Growth
• Entrepreneurs are typically restless people, which is why they are suited to the
highs and lows of trying to build a successful enterprise.
• Myriad personal and strategic obstacles must be surmounted and tough decisions
made as they strive to turn ambition into reality.
• The typical challenges that many entrepreneurs face are the development,
design, execution and scaling of their product for an increasing customer base.
• For the inexperienced, this can lead to grave losses in time and money.
• On the other hand, a well-planned and developed strategy for growth can
exponentially increase opportunities.
142
Manging Growth
• Managing entrepreneurial growth may be the most critical

tactic for the future success of business enterprises.
• After initiation of a new venture, the entrepreneur needs to
develop an understanding of management change.
• Survival and growth of a new venture requires that the
entrepreneur possesses both strategic and tactical skills and
abilities.

143
Strategic Planning
• Strategic planning is the formulation of long range plans for the

effective management of environmental opportunities and threats in
light of organization’s strength and weaknesses.
• It includes defining the venture’s mission, vision and specifying
achievable objectives, developing strategies and setting policy
guidelines.
• The strategic planning is the primary step in determining the future
direction of a business.
• An effective strategic actions are prerequisite to achieving the desired
outcomes of strategic competitiveness and above average returns.
145
Strategic Planning
• Steps in Strategic Planning

1) Examine the internal and external environment (SWOT
Analysis).
2) Formulate venture’s long and short range strategies
(Mission, Vision, Objectives, Strategies, Policies).
3) Implement the Strategic Plan (Programs, Budgets,
Procedures).
4) Evaluate the Performance of the Strategy
5) Thake follow-up action through continuous feedback.

146
The External
Strategic Outcomes Strategic Actions Strategic Inputs
Environment
Strategic Intent
The Internal Strategic Mission
Environment
Strategy Formulation Strategy Implementation

Competitive Organizational
Business Level Corporate Corporate
Rivalry and Structure and
Strategy Level Strategy Governance
Dynamics Control
Acquisition Strategic
International Cooperative Strategic
and Entrepreneurs
Strategy Strategy Leadership
Restructuring hip
Strategic Competitiveness
Above-Average Returns
Feedback
Entrepreneurial versus Managerial Mindsets
Entrepreneur Manager
He will perceive an opportunity, assemble team, locate Joins after the business is established. The job begins only
resources, raise capital and start the business after the entrepreneur has done the ground work.
Concerned with the launching and sustainability of a Concerned with the effective and efficient operation of an
business in the face of uncertainty on-going business.
They need to know a little about everything They are specialists; management specialist to be precise
They learn by trial and error, they learn from their own Managers are thoroughly trained in school in the area of
mistakes and the business mistakes of others business management
Financial freedom, freedom to live and to make choice Job Security, pay check, pension , promotions, etc.
The reward come in the form of capital gains, asset Reward come in form of salaries, pay offs, promotion, job
acquisition, cash flow, and dividend title, bonus and incentives
They thrive on risk and uncertainty They are conservative and detest risk; they simply avoid it.
They learn more from their business mistakes Managers avoid mistakes because it will cost them their job
They form a team They form a union
Motivated by the need to build a business that solves a Motivated by the next pay check, bonus, incentive, pay off,
problem or provide a need job title and promotion
148
Committed to the business from its inception till the Development/SBS/2017
goal Committed till the next pay check
Valuation
• Book Value
• In accounting, book value is the value of an asset according to
its balance sheet account balance.
• For assets, the value is based on the original cost of the asset less
any depreciation, amortization or impairment costs made against
the asset.
• Traditionally, a company's book value is its total assets minus
intangible assets and liabilities

149
Valuation
• Earning Multiple
• The most common measure of how expensive a stock is.
• The earnings multiple is equal to a stock's market capitalization divided by its after-tax earnings
over a 12-month period, usually the trailing period but occasionally the current
or forward period.
• The value is the same whether the calculation is done for the whole company or on a per-share
basis.
• The higher the earnings multiple, the more the market is willing to pay for
each dollar of annual earnings.
• The last year's earnings multiple would be actual, while current year and forward year earnings
multiple would be estimates, but in each case, the "P" in the equation is the current price.
• Companies that are not currently profitable (that is, ones which have negative earnings) don't
have a earnings multiple at all.
• Earning Multiple is also called price/earnings ratio (P/E ratio).

150
Valuation
• P/E Ratio
• The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that
measures its current share price relative to its per-share earnings.
• The price-earnings ratio can be calculated as:
• Market Value per Share / Earnings per Share
• For example
• Suppose that a company is currently trading at $43 a share and its earnings over the
last 12 months were $1.95 per share. The P/E ratio for the stock could then be
calculated as 43/1.95, or 22.05.

151
Valuation
• Discounted Cash Flow

• A discounted cash flow (DCF) is a valuation method used to estimate
the attractiveness of an investment opportunity.
• DCF analysis uses future free cash flow projections and discounts them
to arrive at a present value estimate, which is used to evaluate the
potential for investment.
• If the value arrived at through DCF analysis is higher than the current
cost of the investment, the opportunity may be a good one.

152
Merger and Acquisition
• Mergers and acquisitions (M&A) are defined as consolidation of

companies.
• Mergers is the combination of two companies to form one.
• Acquisitions is one company taken over by the other.
• M&A is one of the major aspects of corporate finance world.
• The reasoning behind M&A generally given is that two separate
companies together create more value compared to being on an
individual stand.
• With the objective of wealth maximization, companies keep
evaluating different opportunities through the route of merger or
acquisition.
153
• From a legal point of view, a merger is a legal consolidation of two entities

into one entity,
• Whereas an acquisition occurs when one entity takes ownership of another
entity's stock, equity interests or assets.
• From a commercial and economic point of view, both types of transactions
generally result in the consolidation of assets and liabilities under one
entity, and the distinction between a "merger" and an "acquisition" is less
clear.
• A transaction legally structured as an acquisition may have the effect of
placing one party's business under the indirect ownership of the other
party's shareholders.
• While a transaction legally structured as a merger may give each party's
shareholders partial ownership and control of the combined enterprise.
154
• Mergers & Acquisitions can take place:

• by purchasing assets
• by purchasing common shares
• by exchange of shares for assets
• by exchanging shares for shares

155
• Reasons for Mergers and Acquisitions:

• Financial synergy for lower cost of capital
• Improving company's performance and accelerate growth
• Economies of scale
• Diversification for higher growth products or markets
• To increase market share and positioning giving broader market access
• Strategic realignment and technological change
• Tax considerations
• Under valued target
• Diversification of risk
SYS
7/2/18
156
Exiting a Business
• All business owners will eventually exit their business by:

• Closing down or Liquidation
• Selling it as a going concern
• Transferring it to a family or staff member.
• There are number of obligations when exiting a business,
such as tax and legal requirements, employee entitlements
and notifying other parties.

157
Exiting a Business
• Liquidation or closing down

• This is the close-up shop and sell all the assets exit strategy.
• For small businesses, especially those that are dependent on the performance
of a single individual, liquidation is sometimes the only option as there's really
nothing else to sell.
• The Entrepreneur may want to spend some time retooling the business so
that it could be operated by someone else –making it a business someone
might want to buy.

158
Exiting a Business
• Liquidation or closing down

• Advantages
• Simplicity;
• The business can be wound up very quickly (depending on the sale of assets).
• Disadvantages
• Liquidation has the lowest return on investment to the owner(s) - the only money from a
liquidation sale is from the disposal of assets, such as land, equipment, or inventory - any
goodwill value from client lists or other business relationships (which may be substantial)
is lost.
• Second hand business asset values for items such as machinery and equipment can be
very low, even in a non-depressed market.
• Creditors (if any) have first claim on funds from asset sales.

159
Exiting a Business

• This is the most popular option for small businesses.
• At a certain point in time, often when the entrepreneur is ready to
retire, the small business owner puts the business up for sale for a
certain price - and hopefully walks away with the amount of
money he wanted to get for it.

160
Exiting a Business

• Advantages
• A profitable business should be attractive to buyers and sell quickly.
• Assets and goodwill can be incorporated when valuing the business for
sale, maximizing the return to the owner(s).
• Disadvantages
• A marginally profitable business can be very difficult to sell.
• Finding a buyer on the open market can be a long process.
• Businesses can be difficult to value and the selling price may be much
lower than expected.

161
Exiting a Business
• Transferring it to a family or staff member

• Keeping your business in the family ensures that your legacy lives
on and provides a living for your heirs.
• Current employees and/or managers may be interested in buying
your business

162
Exiting a Business
• Transferring it to a family or staff member

• Advantages
• Can make for a smooth transition by grooming a family successor.
• The business can thrive as employees will get an established business that they are
familiar with and are enthusiastic about.
• Arranging a long-term buyout by employees can increase loyalty and greatly motivate
staff to work hard to make the business succeed.
• Disadvantages
• Developing a family succession plan can be enormously difficult and lead to infighting
among family members over ownership and/or participation in the business.
• Family members / employees may not have the skills (or interest) to take over the
business.
• Clients may not approve of new management or changes in company direction.

163
Entrepreneurial Process
Effectuation
Effectuation
• What is effectuation?
• Entrepreneurs constantly make decisions and take action.
Are there any universal

How do they do that? methods or principles
they use?
To answer these questions, Dr. Saras Sarasvathy, a cognitive scientist,

conducted a study of expert entrepreneurs.
The result? Effectuation
165
Effectuation
Develop Specialized
Mental Framework
• Definition
• A logic of thinking that uniquely
serves entrepreneurs in starting
businesses
• Provides a way to control a future
that is inherently unpredictable
The Expert
Entrepreneur
166
Effectuation
• What Does Effectuation Do?

• Ideas - Effectuation advances ideas toward sellable
products and services with proven customers.
• Stakeholder Commitments - Using effectuation, the

entrepreneur interacts in search of self-selecting
partners to co-create the venture with.
• Decisions - Experts entrepreneurs use a set of

techniques that serve as the foundation for making
decisions about what to do next.
167
Effectuation
You need them to start your

EFFECTUAL LOGIC IS business but eventually you
LIKE 1ST & 2ND GEAR shift away from effectual logic.
Effectuation Is Effectuation Is Not

A thinking framework a system to tell you what to do
a set of heuristics an algorithm
doing the do-able “not planning”
how to get the sellable products and a way to launch an entire business
services established
168
Effectuation
• Heuristic vs. Algorithm

• Algorithm
• An algorithm is a step-by-step procedure with a finite number of steps
that seeks a specific outcome.
• It’s recursive.
• Heuristic
• A heuristic is a problem-solving technique that involves creating a
speculative formulation and self-led investigation to reach some desired
outcome.
• The most quintessential heuristic is “trial and error.”

169
Effectuation
• Principles of Effectuation
• Expert entrepreneurs have learned the hard way that the
most interesting ventures are built in a space in which the
future is not only unknown, but unknowable.
• Still yet, entrepreneurs do shape this unpredictable future.
• They use techniques which minimize the use of prediction and
allows them to shape the future.
• The five principles, listed hereinafter, make up effectual logic.
170
1. Effectuation
• Bird-in-hand {start with your means}

• When expert entrepreneurs set out to
build a new venture, they start with
their means: who I am, what I know,
and whom I know.
• Then, the entrepreneurs imagine
possibilities that originate from their
means.
• Contrasts with...
• Pre-set goals or opportunities
• Causal reasoning works inversely by assembling means after a goal is set.
2. Effectuation
• Affordable Loss {focus on the downside risk }

• Expert entrepreneurs limit risk by
understanding what they can afford to lose at
each step, instead of seeking large all-or
nothing opportunities.
• They choose goals and actions where there is
upside even if the downside ends up
happening.
• Expected return
• Causal reasoning first targets a return, then works to minimize associated risk.
3. Effectuation
• Lemonade { leverage contingencies }

• Expert entrepreneurs invite the surprise
factor.
• Instead of making “what-if” scenarios
to deal with worst-case scenarios,
experts interpret “bad” news and
surprises as potential clues to create
new markets.
• Avoiding surprises
• Causal reasoning works to minimize the probability of unexpected outcomes.
173
4. Effectuation
• Patchwork Quilt {form partnerships }

• Expert entrepreneurs build partnerships
with self-selecting stakeholders.
• By obtaining pre-commitments from these
key partners early on in the venture,
experts reduce uncertainty and co-create
the new market with its interested
participants.
• Competitive analysis
• Causal reasoning presumes that competitors are rivals to contend with.
5. Effectuation
• Pilot-in-the-plane { control v. predict}

• By focusing on activities within their
control, expert entrepreneurs know their
actions will result in the desired
outcomes.
• An effectual worldview is rooted in the
belief that the future is neither found nor
predicted, but rather made.
• Inevitable trends
• Causal reasoning accepts that established market forces will cause the future
unfold.
175
Effectuation
• The Effectual Cycle

• Overview of Effectuation in Action
• Effectual logic happens in mind of an individual, where it provides a way
of thinking about making decisions when non-predictive control is
required.
• The effectual cycle represents the thinking process in a form used in
creating products, markets, and ventures.
• It’s not a prescriptive “do this, do that” algorithm, but rather a set of
heuristics that uniquely and universally apply to the challenges that
entrepreneurs are bound to face.

176
Effectuation
The cycle always starts here Next, interact with people
to gather stakeholder commitments
Who am I
What am I Gather
Whom I know What can I do Stakeholders
Interact with
other people Commitment
MEANS GOALS
• The individual begins with an inventory of his/her INTERACTIONS COMMITMENT
means, from which s/he imagines goals. • Next, interactions drive the process of enlisting
• The goals s/he chooses to pursue are within others to join in co-creating the new venture.
his/her affordable loss. • Committed stakeholders will influence the
• Goal construction and goal achievement are entrepreneur by morphing and appending the
different sides to the same coin. original idea into one that a whole network
• The cycle continues as the effectual entrepreneur
grows closer and of stakeholders are committed to.
177
Effectuation
• Putting it all together...

• The cycle continues as the effectual entrepreneur grows closer and closer to a
defined, sellable product(s), complete with committed customers and
stakeholders comprising the new market.

178
Effectuation

179
Social Entrepreneurship

• Social entrepreneurship is
• About applying practical, innovative and sustainable approaches to benefit
society in general, with an emphasis on those who are marginalized and poor.
• A term that captures a unique approach to economic and social problems, an
approach that cuts across sectors and disciplines grounded in certain values
and processes that are common to each social entrepreneur, independent of
whether his/ her area of focus has been education, health, welfare reform,
human rights, workers' rights, environment, economic development,
agriculture, etc., or whether the organizations they set up are non-profit or
for-profit entities.
• It is this approach that sets the social entrepreneur apart from the rest of the
crowd of well-meaning people and organizations who dedicate their lives to
social improvement.

181
• Social entrepreneurship is a new form of entrepreneurship

that exhibits characteristics of nonprofits, governments, and
businesses.
• It applies traditional (private-sector) entrepreneurship's
focus on innovation, risk taking, and large-scale
transformation to social problem solving.
• The social entrepreneurship process begins with a perceived
social opportunity that is translated into an enterprise
concept; resources are then ascertained and acquired to exe-
cute the enterprise's goals.
182
• This new movement of social entrepreneurship has garnered attention in a

number of ways in recent years :
• Muhammad Yunus and his organization, the Grameen Bank
• Ajay Chaturvedi and his organization HarVa became one of India's first rural business
process outsourcing operation.
• Founded in 1980 by Bill Drayton, Ashoka is leading a profound transformation in
society
• Graam Vaani is a social development organization based in India, building open-
source technologies for community media in rural areas. Its flagship product is a
radio automation system called GRINS.
• The National HRD Network set up in 1986 by a group of professionals from liMA and
XLRI.
• The Academy of HRD India, started in 1990, develops HRD professionals through its
various programs
183
• The activities that characterize the social

entrepreneur:
• Adoption of a mission to create and sustain social value
(beyond personal value)
• Recognition and relentless pursuit of opportunities for
social value
• Engagement in continuous innovation and learning
• Action beyond the limited resources at hand
• Heightened sense of accountability
184
• “Social entrepreneurship, we believe, is as vital to the

progress of societies as is entrepreneur ship to the progress
of economies, and it merits more rigorous, serious attention
than it has attracted so far.”
- Stanford Social Innovation Review
• “Social entrepreneurs are not content just to give a fish or
teach how to fish. They will not rest until they have
revolutionized the fishing industry.”
-Ashoka founder Bill Drayton
185
• The nature of Social Enterprise

•• Promotion
Employmentof and
employee health and
advancement safety and
of women
• Environment •• Donations
Employee
Conservation
minorities training
of cash, and
of energy development
in production
products, andemployee
services, or marketing
•• Pollution
Remedial
operationscontrol
education programs for disadvantaged
• Energy • Employment
time
Enhancement
•• employees
Restoration
Efforts to
individuals
and
of
increase
• Sponsorship of public
advancement
product
or protection
(disabled, the
safety
energy
Veterans,
health
of disadvantaged
of environment
efficiency of products
ex-offenders,
projects Support former
of
•• Alcohol product safety education programs
• Fair Business Practices
Conservation
education
•• Reduction
Recycling
andand
Otheraddicts,
drug of
of natural
drug
energy-saving
mentally
the arts
polluting
efforts
resources
counseling
programsprograms
retarded,
potential
(for
and
of
example,
hard-core
products
• Career counseling
company-sponsored
unemployed) carpools)
• Human Resources Support of
Improvement
•• Child day-care
Support for
Cooperation
community
in
facilities
minority-owned
in community
recreation
nutritional value
for working
programs
of products
parents
businesses
projects (recycling
• Improvement in packaging and labeling
• Employee
• Community Involvement physicalassistance,
fitness and stress management
centers, disaster and urban renewal)
programs
• Products
186
• Hawken and McDonough recommended initiatives for sustainable future:

• Eliminate the concept of waste, and seek newer methods of production and
recycling.
• Restore accountability and encourage consumer involvement in making companies
accountable.
• Make prices reflect costs, thereby reconstruct the system to incorporate a “green
fee” where taxes are added to energy, raw materials, and services to encourage
conservation .
• Promote diversity thereby continue researching the needed compatibility of our ever
evolving products and inventions.
• Make conservation profitable. Rather than demanding “low prices” to encourage
production shortcuts, allow new costs for environmental stewardship.
• Insist on accountability of nations. Develop a plan for every trading nation of
sustainable development enforced by tariffs.
187
Peter Drucker 4 Pitfalls
• The four entrepreneurial pitfalls

• Many businesses start out extremely well and then suddenly are
up to their ears in trouble. If they survive at all, they are forever
stunted.
• Are there typical mistakes entrepreneurs make?
• Peter Drucker pointed out in his book, Managing in the Next
Society, that there are four entrepreneurial pitfalls where the new
and growing business typically gets into trouble.

189
• The first pitfall

• The first pitfall is that it is often entrepreneurs reject success.
• The majority of successful new product or service does not
succeed in the market the founder-entrepreneur thought it would
be.
• But it succeeds 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.

190
• The second pitfall

• The second pitfall is that entrepreneurs do not pay enough
attention to cash flow.
• Entrepreneurs 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.
191
• The third pitfall

• The third pitfall is that the entrepreneur outgrows his management base
when business grows rapidly beyond expectations.
• Starting out, the typical founder does everything himself.
• When business grows, the entrepreneur begins running around like the
proverbial one-armed paperhanger.
• Unfortunately, the entrepreneur 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 out of bed. Customers don’t pay.
• Deliveries are missed.
• The business is eventually hid hard by manage crunch.
192
• The fourth pitfall

• The fourth pitfall is the entrepreneur begins to put himself and his
needs before his business when the business is a success.
• He has worked eighteen hours a day for fourteen years.
• He does not enjoy it anymore.
• He knows he’s not concentrating on the right things.
• But it is difficult for him to face up the harsh reality and start
asking “What doe the business need at this stage?” and “Do I have
those qualities?”
• He does not realize that it is time to bring in an outsider. He ends
up killing himself and the business.
193

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Prof DEBASISH DUTTA/Entrepreneurship

Prof DEBASISH DUTTA/Entrepreneurship

•Summary of schools of entrepreneurial

Prof DEBASISH DUTTA/Entrepreneurship

• The major roles •played

• Business owner is someone who has a business entity and decision-making

• The entrepreneur is commonly seen as an innovator of new ideas and

• As Kiyosaki discusses in the book “The Cashflow Quadrant” a table is

Prof DEBASISH DUTTA/Entrepreneurship

•The Four Quadrants

Prof DEBASISH DUTTA/Entrepreneurship

• As per Robert Kiyosaki:

• As per Robert Kiyosaki (continued):

Prof DEBASISH DUTTA/Entrepreneurship

Prof DEBASISH DUTTA/Entrepreneurship

• Organizations can use the following methods to help

Prof DEBASISH DUTTA/Entrepreneurship

• Researchers Michael H. Morris, Donald F. Kuratko, and Jeffrey G. Covin

Prof DEBASISH DUTTA/Entrepreneurship

• Many theories about ‘entrepreneur’ and ‘entrepreneurship’ have been

• Schumpeter’s Theory of Innovation (1959)

Prof DEBASISH DUTTA/Entrepreneurship

• Schumpeter’s Theory of Innovation (1959)

Prof DEBASISH DUTTA/Entrepreneurship

• McClelland’s Theory of Achievement (1961)

• McClelland’s Theory of Achievement (1961)

• McClelland’s Theory of Achievement (1961)

• Based on Functional Characteristics:

• Based on the Type ofmanufacturing

•Based on the Use

•Based on the Size of Enterprise

•Based on levels• of Motivation

•Based on Entrepreneurial Activity

Prof DEBASISH DUTTA/Entrepreneurship

• Stephen P. Robbins (2010) defines motivation as “the willingness to

Prof DEBASISH DUTTA/Entrepreneurship

• Components of Entrepreneurial motivation:

Prof DEBASISH DUTTA/Entrepreneurship Development/SBS/2017 55

• A balance sheet is a financial statement that reports a business 's

Prof DEBASISH DUTTA/Entrepreneurship

• The profit & Loss Statement or the income statement is a financial

Prof DEBASISH DUTTA/Entrepreneurship

Return on Assets (ROA) = Net Income/Average Total Assets

2. • It measures how well assets have been employed by management

Prof DEBASISH DUTTA/Entrepreneurship

1. • It measures the ability to create sufficient profit from operation activities

Assets Turnover = Sales/Average Total Assets

2. • It measures relative efficiency in using total to resources to product output

Return on Assets = Net income/Sales X Sales/ Total Assets

3. • It measures earning power on all assets.

4. • It measures the liquidity of receivables

Inventory Turnover = Cost of goods Sold Expense/Average Inventory

Average age of payables = Average Accounts Payable/Net Purchases X 365

6. • It measures approximate length of time to pay for bills purchases

1. • It measures short term debt paying ability

Current Ratio = Current Assets/Current Liabilities

Quick Ratio = Cash + Marketable Securities + Accounts receivable/ Current Liabilities

Times Interest earned = Net Income + {(Interest + Taxes)/Interest Expense}

Cash Flow to Liabilities = Operating Cash Flow/Total Liabilities

3. • It measures Total debt coverage and general debt paying ability

• Funding is the act of providing financial resources, usually in

Prof DEBASISH DUTTA/Entrepreneurship