Entrepreneurship

A N Bhattacharya

Professor & Chair, Marketing Leadership Program, School of Inspired Leadership, Gurgaon an.bhattacharya7@gmail.com

Definitions

Entrepreneurship is the process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risks, and receiving the resulting rewards of monetary and personal satisfaction of independence. Robert Hisrich

Entrepreneurship vs Intrapreneurship
Entrepreneurship is an act of initiative, drive, commitment, diligence, perseverance, organized effort, and achievement outlook, to undertake some specific functions of performing productive activities and the capacity to bear and associated with the investment.
Economic Policy Paper on Entrepreneurship Development

Intrapreneurship is entrepreneurship by employees in

existing organisations
Antoncic and Hirsh, 2003

Some Facts About India.

India is ninth in the Global Entrepreneurship Monitor (GEM) survey of entrepreneurial countries It is highest among 28 countries in Necessity based entrepreneurship, while 5th from the lowest in opportunity based entrepreneurship. Entrepreneurship in India is basically necessity based. Number of individuals taking entrepreneurship as a career choice is much lower as compared to forced entrepreneurs

38.8% of the Indian labour force is illiterate, 24.9% of the labour force has had schooling up to the primary level and the balance 36.3% has had schooling up to the middle and higher level. About 80% of the workforce in rural and urban areas does not possess any identifiable marketable skills.
No Indian University in the top100 universities of the world. US- 37, UK-17 and China-5 Universities in top 100 universities of the world IIT- Delhi: 154th position. IIT-B: 174th, IIT-K: 242nd, Delhi University: 274

ENTREPRENEURS VS MANAGERS
High

Inventor Creativity and Innovation Promoter

Entrepreneur

Manager, administrator

Low
High General management skills, business know-how, networks

Low

ENTREPRENEURIAL CAREER CHOICE: DETERMINANT FACTORS

WHAT IS ENTREPRENEURSHIP?
Economists tend to agree that entrepreneurs, associated with innovation, are the driving forces of economical development Psychologists, sociologists and anthropologists underline the entrepreneurs personal characteristics of creativity, risk-taking, need for achievement, internal locus of control Operations management specialists see entrepreneurs as good distributors and coordinators of resources

Finance specialists define entrepreneurs as people able to evaluate and calculate financial risks
Management specialists think that entrepreneurs develop visions to organize their activities and excel at organizing people and using resources

Marketing specialists define entrepreneurs as people who identify opportunities, differentiate themselves and adopt customer-oriented thinking.

What are the qualities of an entrepreneur?

Capacity to assume Dedication to work Shrewdness and wide knowledge Motivating attribute Vision and foresight Imagination, initiative Flexibility and sociability Personal responsibility Mobility and drive Creative thinking

Strong need for achievement

Capacity to marshal resource Independence

Innovation and rational judgment

Functions of entrepreneur
Organization:
An organizer mentally first of all decides certain things like what, how, and how much to produce. He estimates the demand for the commodity and initiates the production. He decides the location of the industry, scale of production and estimates the availability of raw materials, labor, capital etc. Then he co-ordinates the other factors like land, labor and capital in proper proportion, so that he can minimize the cost of production and reap more and more profit by producing more and more quantity at a cheaper price. He supervises the entire production activity. After production is over, he finds proper market for his product and sells them.

Functions of entrepreneur.contd.
Risk bearing:
An entrepreneur not only organizes the entire production process but also undertakes risks and uncertainties. An organizer starts production with an anticipation of demand for his product. But when he actually brings the product to market, there may or may not be demand for his product. This is a non-insurable risk he has to undertake. Thus a brave organizer has to shoulder certain insurable and non-insurable risks also.

Innovation:
An entrepreneur must be an innovator to survive in the market and to retain the same position for his product. Innovation means introducing new changes in production or technology or market for the product. Profit as a reward for innovation is not a stable one. It appears, disappears and reappears. Only the imaginative skillful few will remain in the industry for ever.

Role of entrepreneur
An innovator who combines technical innovations and financial finesses.

Important role in producing competitive products, processes, and services.

Generation of new employments.

Local and regional economic development.

Improved allocation of resources and transfer of technologies.

Who is manager?
A manager is someone whose primary activities are a part of the management process. In particular, a manager is someone who plans and makes decisions, organizes, leads, and controls human, financial, physical, and information resources. Managers in any organization are responsible for the performance of one or more of their subordinates. Managers must mobilize people and resources to accomplish tasks within their department and are also held accountable for the results of their department. Further, their goal is to help the organization achieve a high level of performance through management. Management involves the process of planning, organizing, leading, and controlling the use of resources.

Roles of a Manager
Interpersonal Role:
Figurehead-performs activities like greeting visitors, give awards to employees etc Leader- Lead and motivate subordinates Liaison- He is a link between organisation and outsiders.

Informational Role:
Monitoring- Collects information. Disseminator- Distributes information. Spokesperson- Represents his unit/organisation while interaction with outsiders.

Decisional Role:
Entrepreneur- Assumes risk in terms of results, due to dynamic factors of business. Disturbance Handler- Tries to control forces that tend to disturb smooth functioning of the organisation. Resource Allocator- Allocates human, financial and physical resources according to needs.

Difference between Entrepreneur and Manager

Motive: The main motive of an entrepreneur is to start a venture by setting up an enterprise for his personal gratification. The main motive of a manager is to render his services in an enterprise already set up by someone else. Status: An entrepreneur is the owner of the enterprise. A manager is the servant in the enterprise owned by the entrepreneur. Risk-bearing: An entrepreneur assumes all risks and uncertainty involved in running the enterprise. A manager as a servant does not bear any risk involved in the enterprise. Objectives: Entrepreneurs objective is to innovate and create and he acts as a change agent. A managers objective is to supervise and create routines. He implements the entrepreneurs plans and ideas.

Difference between Entrepreneur and Manager....contd.

Rewards: The rewards an entrepreneur gets for bearing risks involved in the enterprise is profit which is highly uncertain. A manager gets salary as rewards for the services rendered by him in the enterprise. Salary of a manager is certain and fixed. Fraudulent behavior: An entrepreneur is not induced to involve in fraudulent behavior where as a manger does. A manager may cheat by not working hard because his income is not tied up to the performance of the organization Innovation: Entrepreneur himself thinks over what and how to produce goods to meet the changing demands of the customers. He acts as an innovative change agent. Manager simply executes the plans prepared by the entrepreneur. Thus, a manager simply translates the entrepreneurs ideas into practice. Qualification: An entrepreneur possesses qualities and qualifications like high achievement motive, originality in thinking, risk-bearing ability and so on. A manager possesses distinct qualifications in terms of sound knowledge in management theory and practice.

Difference between Entrepreneur and Manager....contd.

An entrepreneur could be a manager but a manager cannot be an entrepreneur. An entrepreneur is intensely dedicated to develop business through constant innovation. He may employ a manager in order to perform some of his functions such as setting objectives, policies, rules etc. A manager cannot replace an entrepreneur in spite of performing the allotted duties because a manager has to work as per the guidelines laid down by the entrepreneur. On the downside, typical manager brings professionalism into working of an organization. They bring fresh perspectives, ideas and approach to trouble shooting which can be invaluable.

CATEGORIES OF ENTREPRENEURS

Why People Become Entrepreneurs

Potential drawbacks of entrepreneurship

Uncertain income

Risk of losing entire invested capital

Long hours hard work Low quality of life until business gets established High levels of stress Complete responsibility discouragement

THE ENVIRONMENT FOR ENTREPRENEURS:

Factors Supporting & Expanding Opportunities for Entrepreneurs

CHARACTERISTICS OF ENTREPRENEURS

Observed characteristics of entrepreneurs: The 10 Is model

Independence Interest Insight Ideas Invention

Inspiration Involvement Instigation Insistence I - will

Mapping the ten I characteristics

Plotting overall average scores for a sample of 20 successful entrepreneurs. Indicated by 1 2 3 4 5 6 7 8 9 10 Independence Interest Insight Ideas Invention Inspiration Involvement Instigation Insistence I will 10 9 0 8 7 1 2 3

4 6
5

Teaching, Learning & Assessment (TLA) framework 1

Context & Group Formation Self Awareness Idea/Concept Generation Idea/Concept Selection

Proposal

Project Management

Business plan and presentation

Teaching, Learning & Assessment (TLA) framework 2

Business strategy and risk Intellectual Property Rights Market and competitor analysis Marketing strategy

Business planning

Financial forecasting The management team

Operations and commercial strategy The pitch

Businesses as legal entities A classification

Unlimited liability Sole traders/Propreitors Partnerships (can also have Ltd. status) Limited liability (Incorporated) Private: Shares not traded in public. Have company name and suffix Pvt Ltd Public: Shares traded in public have company name and suffix Ltd

Co-operative
Owned and controlled by members, incorporated under the Cooperatives/Societies Act

What is a business plan?

A document that explains and justifies the business concept. It attempts to answer three questions: Where are we now? Where do we intend going? How do we get there?

Three basic objectives of business plans

To identify the nature and the context of the business opportunity why does the opportunity exist? To present the approach the entrepreneur will take to exploit the opportunity To recognise the factors that will determine whether the venture will be successful

Role of business planning in business success

1. It enables the entrepreneur to understand an opportunity and what it will take to exploit 2. It provides a framework for managing the business in the future 3. It will help recruit partners and management team 4. It should be capable of attracting new capital to the venture 5. It can refocus and rejuvenate a business after start up

Typical requirements of business plans :1

To clearly identify product, service and unique selling point (USP) Justify its competitive advantage through patent search data and competitor analysis Determine market attractiveness i.e. size and potential growth through identification of potential customers, market trends Determine route to commercialisation including technical development, patenting, licensing and marketing

Typical requirements of business plans: 2

Justify potential income and expenditure for products, IPR, licenses, human resources, patenting, equipment and running costs Demonstrate credibility of management team Demonstrate financial rewards and loan requirements for potential investors

Making a Business Plan

"In preparing for battle I have always found that plans are useless, but planning is indispensable." -Dwight Eisenhower

Those who fail to plan, plan to fail. -George Hewell

The Basic Steps of a Business Plan

Executive Summary Company Overview Market Environment

Marketing and Sales Strategy

Operations Financial Plan

What does your Business Plan say...

Discuss a particular market opportunity. Examine the markets that you will compete in, and explain who your customers will be. Describe the products or services that your company will provide. Your competition, and how you will defend against it. The operation that you will put in place in your company. The management team that will implement the plan. The size and profitability of your company.

Executive Summary

The written version of the 60 second pitch.

Many people who read your plan, will only read your Executive Summary...
...and then they may read your financials.

NOT an introduction, but a short version of the whole plan.

Company Overview Explanation of history, structure, and organization of your company. Strategic direction
Mission statement. Goals and objectives. Values and vision.

People
Relevant skills and expertise of management team. Directors. Relationships with experts in the field.

Market Environment
All factors of the market that are outside your direct control:

Market structure
Market trends Competition Opportunities/Threats

Marketing and Sales Strategy Products or services offered. Follow-on products. Intellectual property or other defendable positions. Market research. Marketing plan.
Product strategy. Brand strategy. Distribution strategy. Pricing strategy. Promotion.

Operations
Practical details required to meet the plan.

Facilities.
Manufacturing or out-sourcing. Personnel. Varies widely depending on type of business.

Financial Plan
Three key reports, in a five-year plan: Income statement. Balance sheet. Statement of cash flows.

Entrepreneurial Goals & Choice of Ventures

 Entrepreneurial motivations, goals, expectations and capabilities vary across individuals Likewise, opportunities also vary in their characteristics and critical success factors

Opportunities are to be screened for both viability and fit with the entrepreneurs before they are pursued

Entrepreneurial Strategy
Venture Characteristics *Typology of Ventures

Heuristics Iterative

Heuristics

Entrepreneurial Fit *Personal goals *Entrepreneurial Capacity

Heuristics

Strategy to Exploit *Research & Analysis *Process *Resources *Growth

Contributed by:K. Kumar, Faculty & Chair Person NSRCEL -IIM B, India

Types of New Ventures

Revolutionary ventures
Niche ventures Ventures that are propagators of new technology or innovations Hustle ventures Speculative (deal) ventures

Revolutionary Ventures Characteristics

A revolutionary idea, innovation or concept A new process or manufacturing technique Can shake up/create a matured/new industry

Critical Success Factors

Large investments spread over time with uncertain outcomes Building organizational capabilities and sustainability Requires a lot of creativity and exceptional managerial capabilities to execute

Entrepreneurial Fit
Suits those who want to win or lose on a grand scale New entrepreneurs can attempt but should be clear about their role in the future growth of the venture Entrepreneurs should have extraordinary organizing capabilities

Niche Ventures Characteristics

Need not be a radical concept or idea Serve segments with a unique need not served by mainstream offerings

Critical Success Factors

Existence of a niche that can be economically serviced Simple and easy to use product or service Modest managerial and leadership skills

Entrepreneurial Fit
Ideal for entrepreneurs with insightful knowledge of the larger market and the niche in particular Suits entrepreneurs with moderate growth/wealth ambitions and limited resources

Propagatory Ventures Characteristics

Propagate an emerging technology or a product

Critical Success Factors

Superior execution speed and efficiency Nimbleness rather than a great strategy Investment and Managerial capacity to attempt market dominance

Entrepreneurial Fit
Ideal for entrepreneurs with proven superior capability to execute Suits entrepreneurs with competence in deal making and fund raising to support growth Entrepreneurs should want be excited by high growth

Hustle Ventures Characteristics

Does not need an innovative approach No avenues to build proprietary assets Low capital requirements Limited exit options

Critical Success Factors

Extraordinary ability to execute Meticulous selection and grooming of resources Vision and values of the organization

Entrepreneurial Fit
Suits entrepreneurs with limited resources and modest growth ambitions Fits those who value professional satisfaction and do not seek high growth Ideal for entrepreneurs who seek a lifestyle business and satisfactory cash flow as against high growth and wealth creation

Speculative Ventures Characteristics

An opportunity to buy low and sell high Financial risks depend on the terms of the deal No staged commitments- fully exposed once the deal is made

Critical Success Factors

Risk Taking Ability Insight and Timing Speculative Instinct

Entrepreneurial Fit
Suits those who want quick profits Those who are willing to take commensurate risks Those who have the financial strength and staying power to go through the deal

Acquiring Resources

Acquiring resources for a new venture is a task of enlisting stakeholders

Customers Financiers Employees Suppliers

What Are the Challenges?

Uncertainty surrounding the venture

Downside risk perceived by the stakeholder (resource provider)

Desirable Attributes in Stakeholders

Customers Financiers Employees Suppliers

Well diversified Experienced and specialized Has excess capacity Demonstrated risk seeking disposition

Sources of Finance

Own funds Outside equity Debt Internal generation

Marketing Plan

SWOT Analysis

A basic marketing plan begins with SWOT analysis about your company and the SWOT should be :
A summary of the key elements in your business Brief, concise and interesting, without being too abbreviated Focused on the real issues facing your company Action-oriented, so that positive proposals can be envisaged

 Strengths- You can bank upon these. Weaknesses- Definitely need to be corrected Opportunities- Help you in setting the target where you want to reach. Threats- Make necessary contingency plan to combat threats which would automatically become a part of the marketing plan.

Scope of Marketing Research

Identifying Target Market Identifying Market Characteristics Measurement of Marketing Potential Competitors Analysis Sales Analysis Identify and forecast Business Trends Sales Forecasting New Product/Service Acceptance and Potential Long Range Forecasting of Marketing Mix Variables Pricing Strategies and Studies

Marketing Research Analyse Complexity of Buying Behaviour

SOCIOLOGICAL CULTURAL
BELIEFS & VALUES, LIFE STYLES
SOCIAL CLASS, STRUCTURE FAMILY/GROUP INFLUENCE,LIFE CYCLE, OPINION LEADERSHIP

ECONOMIC
PRICE, DELIVERY, PAYMENT TERMS, SALES SERVICE

INDIVIDUAL PSYCHOLOGICAL FACTORS

COGNITION, LEARNING PROCESSES, INTERPERSONAL RESPONSE, ATTITUDES MOTIVATION, PERSONALITY THEORIES

BUYING PROPOSITION PRODUCT OR SERVICE

Marketing Strategy to be Based on WHO MAKES THE BUYING DECISIONS DECIDER INFLUENCER BUYER USER

Understanding Consumer Characteristics

CHARACTERISTICS Innovators 2-3% PERSONAL Social, Income, Occupation, Education, Housing, Family Influence, Time orientation PSYCHOLOGICAL Nature of needs, Perceptions, Self-concept, Aspiration Groups, Reference Groups Early Adopters 12-15% Early Majority 33% Late Majority 34% Laggards 12-15%

Changing Priorities
Stage Priorities Major Purchases

Fledging : Teens & early 20s

Self,Socialising, Education

Appearance Products, Clothing, Automobiles, Recreation, Hobbies, Travel Furniture & Furnishing, Entertainment, Savings Home, Garden,,Baby Care products, insurnce

Courting :20s

Self & Other, Pair bonding,Career Babies & Career

Nest Building:20s &early 30s

Full Nest 30-50s

Children, Career, Midlife crisis

Children Food, clothing, education, transportation, life counseling Furniture, Entertainment, Travel, Hobbies, Luxury Automobiles, Investments
Health care , Diet, Security, Comfort, TV, Books, Long distance telephone services

Empty Nest 50-70

Self & others, relaxation

Sole survivor 70-90

Self, health,loneliness

Why some Plans fail ?

Lack of a real plan (particularly regarding goals & objectives) Inadequate situational analysis There is no point in deciding where you want to go if you do not know where you are? and where you have been? Lack of Goal Clarity and Unrealistic Goals This generally happens due to lack of understanding of the situation. Unexpected competitive moves, product deficiencies, Delay in Getting Finance, and acts of God.