Definitions : Entrepreneur

Enterprende – to undertake

An entrepreneur is a person who is responsible

for setting up an enterprise. He is one who has the
initiative, skill for innovation and who looks for high
achievements. He is a catalytic agent of change and
works for the good of people. He puts up new
Greenfield projects that actually creates wealth, opens
up employment opportunities and fosters other sectors.

The entrepreneur is a critical factor in the socio-

economic change. He is the key man who envisages
new opportunities, new techniques, new line of
production, new products and co-ordinates all other
activities.

1. J. B. Say

An entrepreneur is the economic agent who

unites all means of production, the labour force of the
one and the capital or land of others and who finds in
the value of the products which results from their
employment, the reconstitution of the entire capital that
he utilises and the value of the wages, the interest and
the rent which he pays as well as profit belonging to
himself.

2. The New Encyclopaedia defines an Entrepreneur as

An individual who bears the risk of operating a

business in the face of uncertainty about the future
conditions.

3. Joseph A. Schumpeter
 The entrepreneur in an advanced economy is an
individual who introduces something new in the
economy – a method of production not yet tested by
experience in the branch of manufacture concerned, a
product with which consumers are not yet familiar, new
source of raw material or of new markets and the like.

The function of an entrepreneur is to reform or

revolutionise the pattern of production by exploiting an
invention or more generally an untried technological
possibility for producing a new commodity.

4. Peter Drucker defines

An entrepreneur as one who always searches for

change, responds to it, and exploits it as an opportunity.
Entrepreneurs innovate.

‘Innovation is the specific tool of entrepreneurs,

the means by which they exploit changes as an
opportunity for a different business or a different
service. It is capable of being presented as a discipline,
capable of being learned, capable of being practised.
Entrepreneurs need to search purposefully for the
sources of innovation, the changes and their symptoms
that indicate opportunities for successful innovation.
And they need to know and to apply the principles of
successful innovation.’

(Systematic innovation consists in the purposeful

and organised search for changes and in the systematic
analysis of the opportunities such changes might offer
scope for economic and social innovation.)
5. Francis walker

The true entrepreneur is one who is endowed

with more than a average capacities in the task of
organising and coordinating the various other factors of
production. He should be a pioneer, a captain of
industry.

6.
A good entrepreneur is one who is capable of
inspiring confidence in people, and has the ability to
motivate them to work with him in fulfilling the
economic goals set by him.
New Concept of Entrepreneur :

The term ‘entrepreneur’ has been defined as one

who detects and evaluates a new situation in his
environment and directs the making of such
adjustments in the economic systems, as he deems
necessary. He conceives of an industrial enterprise for
the purpose, displays considerable initiative, grit and
determination in bringing his project to fruition, and in
this process, performs one or more of the following:

a. Perceives opportunities for profitable

investments,
b. Explores the prospects of starting such a
manufacturing enterprise,
c. Obtains necessary industrial licenses,
d. Arranges initial capital,
e. Provides personal guarantees to the financial
institutions,
f. Promises to meet the shortfalls in the capital,
and
g. Supplies technical know-how.

Not entrepreneur in strict sense:

• Copy
• Imitation

Not entrepreneur

• Drug peddler
• Bootlegger
• Black marketer
• Brothel keeper
Definition – Entrepreneurship

It refers to a process of action an entrepreneur

undertakes to establish his/her enterprise. It is a creative
and innovative response to the environment.

Difference :

Entrepreneur Entrepreneurship
Refers to a person: Refers to a process:
• Visualiser • Vision
• Creator • Creation
• Organiser • Organization
• Innovator • Innovation
• Technician • Technology
• Initiator • Initiative
• Decision-maker • Decision
• Planner • Planning
• Leader • Leadership
• Motivator • Motivation
• Programmer • Action
• Risk-taker • Risk-taking
• Communicator • Communication
• Administrator • Administration
Entrepreneur v/s Professional Manager

According to the Sachar Committee on Company Law

“ A Professional Manager is an individual who
a. Belongs to the profession of law, accountancy,
medicine, engineering or architecture, or
b. Is a member of a recognised professional body
or institutional body or institution exercising
supervisory jurisdiction over its members, or
c. Is a holder of a degree or diploma in
management from any recognised university and
possesses not less than five years’ experience in
an executive capacity in a company, corporation
or a body corporate or in the government, or
possess minimum of ten years’ experience in an
executive capacity in a company, corporation or
a body corporate or in the government.

Professional Manager Entrepreneur

A Professional Manager is one
who specialises in the work of
planning, organising, leading
and controlling the efforts of
others. He does so through
systematic use of classified
knowledge and principles. He
subscribes to the standards of
practice and code of ethics
established by a recognised
body.
An entrepreneur has great
motivation to manage his
business successfully. He is
keenly devoted to develop
business through innovation
and is satisfied when his
efforts give him positive
results. He is the investor,
risk-bearer, manager and
controller. The entrepreneur
may appoint a manager and
delegate some of his
functions.
The entrepreneur lays down
broad policy for business,
assumes risk and makes the
business a going concern.

The entrepreneur may be a manager but a paid manager

cannot acquire the position of an entrepreneur.
Entrepreneurial Environment

a. Political
b. Economic
c. Social
d. Technological
e. Legal
f. Cultural

a. Political
i. Political Atmosphere
ii. Quality of Leadership
b. Economic
i. Economic Policies
ii. Labour
iii. Trade
iv. Tariffs
v. Incentives
vi. Subsidies
c. Social
i. Consumer
ii. Labour
iii. Attitudes
iv. Opinions
v. Motives

d. Technological
i. Competition & Risk
ii. Efficiency
iii. Productivity
iv. Profitability
e. Legal
i. Rules & Regulations

f. Cultural
i. Structure
ii. Aspirations & Values
Environment for Entrepreneurship

Entrepreneurs appear to have been motivated by

a combination and interaction of the following factors
of environment:

1. Socio-economic environment
2. Family background
3. Standard of education and technical
knowledge
4. Financial Stability
5. Political stability and government’s policy
6. Caste and religious affiliation
7. Availability of supporting facilities
8. Achievement motivation, and
9. Personality and personal skill

The environmental factors may be summarised as

follows:

1. Entrepreneurship is not influenced by a single

factor but is the outcome of the interaction and
combination of various environmental factors.
2. By changing the environment, society can be
recreated.
3. It is the ‘desire to make money’ that drives one
to start an industry rather than the amount one
owns.
4. Encouraging government policy and social
recognition influence a person to become an
entrepreneur.
5. Modify the educational system so as to produce
more job-creators rather than job-seekers.
Classification of Industries

Indicators
• Capital Invested
• Output Volume
• No. of Employees employed
• Raw Material Consumption
• Production Capacity

Home Industries Cottage Industries

Small Scale Industries Tiny Industries

Medium Scale Industries Large Scale Industries

Cottage Industry:

Manufacturing activity is carried out by the

owner himself along with his family members &
relatives or at the most with a maximum of 9
employees.
Small Scale Industry Large Scale Industry

Low Capital High Capital

Low financial resources High financial resources
Small Scale operations Large Scale operations
Traditionally managed Professionally managed
Sole Company form
proprietorship/Partnership
Limited local coverage Wide area coverage
Labour intensive Capital intensive
Autocratic leadership Participative leadership
Less Legal formalities Complex Legal
formalities
Flexible structure Rigid structure
High Government Normal Government
assistance assistance
Low output volume High output volume
Low managerial skills High managerial skills

Advantages:

Small Scale Industry Large Scale Industry

Provide employment High bargaining power,

opportunities low ordering cost, High
Discount, bulk purchase
Promoting local talent, Expertise knowledge
resources and local self back up
sufficiency
Removes regional Wide distribution
discrepancies channels
Integration with large Integration with
sector Technical, financial,
marketing and
managerial economies
 Facets of Project Analysis

• Market Analysis
• Technical Analysis
• Financial Analysis
• Economic Analysis
• Ecological Analysis

Market Analysis:

Is concerned primarily with two questions:

• What would be the aggregate demand of the
proposed product/service in future?
• What would be the market share the project
under appraisal?

The kind of information required are :

• Consumption trends in the past and the
present consumption level
• Past and present supply position
• Production possibilities and constraints
• Imports and exports
• Structure of competition
• Cost structure
• Elasticity of demand
• Consumer behaviour, intentions, motivations,
attitudes, preferences, and requirements
• Distribution channels and marketing policies
in use
• Administrative, technical, and legal
constraints
Technical Analysis:

The questions raised in technical analysis are:

• Whether the preliminary tests and studies
have been done or provided for?
• Whether the availability of raw materials,
power and other inputs has been established?
• Whether the selected scale of operation is
optimal?
• Whether the production process chosen is
suitable?
• Whether the equipment and machines chosen
are appropriate?
• Whether the auxiliary equipments and
supplementary engineering works have been
proved for?
• Whether provision has been made for the
treatment of effluents?
• Whether the proposed layout of the site,
buildings, and plant is sound?
• Whether work schedule have been
realistically drawn up?
• Whether the technology proposed to be
employed is appropriate from the social point of
view?

Financial Analysis:

The aspects, which have to be looked into, are:

• Investment outlay and cost of project
• Cost of capital
• Projected profitability
• Break-even point
• Cash flows of the project
• Investment worthwhile ness judged in terms
of various criteria of merit
• Projected financial position
 • Level of risk

Economic Analysis:

Also referred to as social cost benefit analysis, is

concerned with judging a project from the larger social
point of view. The questions sought to be answered are:

• What are the direct economic benefits and

costs of the project measured in terms of
shadow (efficiency) prices and not in terms of
market prices?
• What would be the impact f the project on the
distribution of income in the society?
• What would be the impact of the project on
the level of savings and investment in the
society?
• What would be the contribution of the project
towards the fulfilment of certain merit wants
like self-sufficiency, employment, and social
order?

Ecological Analysis:

Ecological analysis should be done particularly

for major projects, which have significant ecological
implications like power plants and irrigation schemes,
and environmental – polluting industries (like bulk
drugs, chemicals, and leather processing). The key
questions raised in ecological analysis are :

• What is the likely damage caused by the

project to the environment?
• What is the cost of restoration measures
required to ensure that the damage to the
environment is contained within acceptable
limits?
Project:

A Project is a specific activity on which money is

spent in expectation of returns.
Specific starting point
Specific end point
Specific Objectives

A project has a specific geographic location and

would serve a group of population.

Every project has three basic attributes.

1. The Input: What project will consume.

Raw Materials, Energy, Manpower, Financial

Resources, Organisational Set-up

2. The Out put: What project will generate.

Production of Goods, Services, Financial Output

3. The Social Cost Benefit Characteristics.

The sacrifice, which the society will be called

upon to make and the benefits, which will accrue
to the society.
Scouting for Project Ideas:

1. Analyse the Performance of Existing Industries

2. Examine the Inputs & Outputs of Various
Industries
3. Review Imports & Exports
4. Study Plan Outlays and Government Guidelines
5. Guidelines to Industries
6. Look at the Suggestions of Financial Institutions
and Developmental Agencies
7. Investigate Local Materials & Resources
8. Analyse Economic and Social Trends
9. Study New Technological Developments
10.Draw Clues from Consumption Abroad
11.Explore the Possibility of Reviving Sick Units
12.Identify Unfulfilled Psychological Needs
13.Attend Trade Fairs
14.Stimulate Creativity for Generating New Product
Ideas.
Market & Demand Analysis

Key Steps:

1. Situational Analysis and Specification of

objectives
2. Collection of Secondary information
3. Conduct of market survey
4. Characterisation of the market
5. Demand Forecasting
6. Market Planning

1. Situational Analysis and Specification of

objectives

To get a “feel” for the relationship between the

product and its market.

2. Collection of Secondary information

General Sources of Secondary Information:

a. Census of India
b. National sample survey reports
c. Plan Reports
d. Statistical Abstract of the Indian Union
e. India Year Book
f. Statistical Year Book
g. Economic Survey
h. Annual Survey of Industries
i. Guidelines to Industries
j. Annual Reports of the Development Wing,
Ministry of Commerce and Industry
k. Annual Bulletin of Statistics of Exports
and Imports
l. Techno-Economic Survey
m. Industry Potential Surveys
n. The Stock Exchange Directory
 o. Monthly Studies of Production of Selected
Industries
p. Monthly Bulletin of Reserve Bank of India
q. Publications of Advertising Agencies
r. Other Publications

3. Conduct of Market Survey

The information sought may relate to one or
more of the following.
• Total Demand and rate of growth of demand
• Demand in different segments of the market
• Income and price elasticity of demand
• Motives for buying
• Purchasing plans and intentions
• Satisfaction with existing products
• Unsatisfied needs
• Attitudes toward various products
• Distributive trade practices & preferences
• Socio –economic characteristics of buyers

4. Characterisation of the Market

• Effective demand in the past & present
• Breakdown of demand
• Price
• Methods of distribution and sales promotion
• Consumers
• Supply and Competition
• Government Policy

5. Demand Forecasting

6. Market Planning
• Pricing
• Distribution
• Promotion
• Service
Technical Analysis

Technical Analysis is concerned primarily with:

• Material inputs and utilities

• Manufacturing process / technology
• Product Mix
• Plant Capacity
• Location and site
• Machineries and equipments
• Structures and civil works
• Project charts and layouts
• Work schedule

1. Material inputs and Utilities

May be classified into four broad categories;

a. Raw Materials
I. Agricultural products
II. Mineral Products
III. Livestock and forest products
IV. Marine products

b. Processed Industrial Materials and components

Base metals, semi-processed materials,

manufactured parts, components, sub-assemblies
c. Auxiliary materials and factory supplies

Chemicals, additives, packaging materials,

paints, varnishes, oils, grease, cleaning materials
etc.

d. Utilities – Power, water, steam, fuel etc.

2. Manufacturing Process / Technology

a. Choice of Technology

• Plant Capacity
• Principal Inputs
• Investment outlay and production cost
• Use by other units
• Product mix
• Latest developments
• Ease of operation

b. Acquiring Technology
• Technology licensing
• Outright purchase
• Joint venture arrangement

c. Appropriateness of Technology

3. Product Mix
4. Plant Capacity

• Technology requirement
• Input Constraints
• Investment Cost
• Market Conditions
• Resources of the firm
• Government policy

5. Location and Site

• Proximity to Raw materials and markets

• Availability of infrastructure
• Government Policy
• Other Factors
6. Machineries and Equipments

a. Plant (Process) Equipments

b. Mechanical
c. Electrical
d. Instruments
e. Controls
f. Internal Transportation System
g. Others

• Constraints in selecting M / E
• Procurement of Plant & Machinery

7. Structures and Civil Works

• Site Preparation and Development

• Buildings and Structures
• Outdoor Works

8. Project Charts & Layouts

a. General Functional Layout

b. Material Flow Diagram
c. Production Line Diagram
d. Transport Layout
e. Utility Consumption layout
f. Communication Layout
g. Organisational Layout
h. Plant Layout

9. Work Schedule

Reflects the plan of work concerning installation

as well as initial operation.

• To anticipate problems
• To establish the phasing of investments
• To develop a plan of operations
Financial Analysis

• Cost of Project
• Means of Financing
• Estimates of sales & production
• Cost of production
• Working capital requirement and its financing
• Estimates of working results
• Break-even point
• Projected cash flow statements
• Projected balance sheets

1. Cost of project

• Land and site development

• Building and civil works
• Plant and machinery
• Technical know-how and engineering fees
• Expenses on foreign technicians and training
of Indian technicians abroad
• Miscellaneous fixed assets
• Preliminary and capital issue expenses
• Pre-operative expenses
• Provision for contingencies
• Margin money for working capital
• Initial cash losses

2. Means of finance

3. Estimates of Sales & Production

4. Cost of Production
• Material Cost
• Utilities Cost
• Labour Cost
• Factory overhead cost
5. Working capital requirements & its financing

6. Profitability Projections

a. Cost of Production
b. Total administrative expenses
c. Total sales expenses
d. Royalty and know-how payable
e. Total cost of production (a+b+c+d)
f. Expected sales
g. Gross profit before interest
h. Total financial expenses
i. Depreciation
j. Operating profit (g-h-i)
k. Other income
l. Preliminary expenses written off
m. Profit /loss before taxation (j+k-l)
n. Provision for taxation
o. Profit after tax (m-n)
Less dividend on - Preference capital
- Equity capital
p. Retained profit
q. Net cash accrual (p+i+l)

7. Break even point

8. Projected cash flow statements

9. Projected Balance sheets

 Classification of Industries

a. Use Based Classification :

i. Basic Industries

Which provide essential input for the

development of the other industries
and the economy. E.g. iron & steel
industry forms a basis for the
development of the engineering
industry. Fertilizer for agriculture,
coal, oil & electricity, cement etc.

ii. Capital Goods Industries

Which produce machinery, equipment

or tools. A capital good is one which is
instrumental in producing other goods
& services. Capital goods do not
directly serve any consumption
requirement. They are used to produce
consumer goods and service.
e.g.
Hand tools and machine tools
Specialized equipments
Electric Motors
Heavy Vehicles etc.

iii. Intermediate Goods Industries

Those which manufacture goods that

have already undergone manufacturing
process but which form input for other
industries as material for further
processing, part or component.
e.g.
Cotton Spinning
Tyers & Tubes
Manmade fibers
Bolts, nuts, screws, spring
 Metal etc

iv. Consumer Goods Industries

The output of which serve the final

consumption requirement.

a. Consumer Durable
-Serve the consumer
over a relatively long
periods.

b. Consumer Non-durable
-Goods which are
used up at once or
within a relatively
short periods.

b. Based on Ownership

i. Central Government
ii. State Government
iii. Statutory Corporations
iv. Government Departments
v. Private Sector
vi. Joint Sector

c. Size of Industries

i. Tiny - 5 lakh
ii. Small - 5-100 lakh
iii. Medium - 100 –500 lakh
iv. Large - 5 – 100 Crore
v. Very Large - Over 100 Crore

d. Input Based Classification

i. Agro-based
 -Which uses agricultural product as the
major input, like sugar, jute textiles
etc.,

ii. Forest-based

- Which use forest products as their

major inputs, like plywood, paper
industry

iii. Marine-based

- Which depend mostly on marine

products like fish etc.,

iv. Metal-based

- Which are based on metals like,

engineering industries

v. Chemical-base

- Industries like fertilizers, pesticides,

paints and varnishes, drugs &
medicines etc. –as chemicals are their
major or basic inputs.

• Cottage Industries :

o Those industries and crafts which are

carried on, in the home of the artisan.
o Assisted by family members.
o No power is used.
o Tools and instruments used are simple.
o E.g. hand-spinning, handloom-weaving,
toy-making, rope-making, wood-work
etc.
 • Small Scale Industries :

o Factory-type industries having

investment in plant & Machinery does
not exceed Rs. 100 lakh.
o Mostly use power and small machines
o Employ small number of workers.
o Include Ancillary Industries having
investment in plant & machinery does
not exceed Rs. 75 lakh.
o Manufactures parts, components,
intermediate products, render services
like repairs etc.
o Also includes Tiny Industries in which
investment in plant and machinery is
worth below Rs. 5 lakh regardless of
the location.

Traditional Small Industries:

Khadi and other village industries,

Handloom industry
Sericulture
Handicrafts etc.

Modern small Industries :

Using power and employing labour and with
investment in plant & machinery not exceeding Rs. 60
lakhs.

Village Industries
Any industry with a capital investment up to Rs.
15000 per artisan and located in a village with a
population below 10000 and produces any goods or
renders any services with or without the use of power
and in which the fixed capital investment in plant &
machinery, land and building per artisan or worker does
not exceed Rs. 15,000.

Investment Limits :

The definitions of small scale industries has

undergone changes over the years in terms of
investment limits in the following manner:

Year Investment limit Additional

(Rs.) conditions
1950 Up to Rs. 5 lakh in <50 persons
fixed assets with power
<100 without
power
1960 Up to Rs. 5 lakh in No condition
plant & machinery
1966 7.5 “
1975 10 “
1980 20 “
1985 35 “
1991 60 “
1997 100 “