Entrepreneurship

INTRODUCTION
"In general, entrepreneurs are risk-bearers, coordinators and organizers, gap-fillers, leaders, and innovators or creative imitators. Although this list of characteristics is by no means fully comprehensive, it can help explain why some people become entrepreneurs while others do not. Thus, by encouraging these qualities and abilities, governments can theoretically alter their country's supply of domestic entrepreneurship" - David C Burnett, technopreneurial.com

Do a search for 'entrepreneurial' on amazon.com and you'll be confronted by an impressive 81 choices when it comes to reference material, 48 choices when it comes to professional and technical books and 176 books on business and investing.

Yet, if becoming an entrepreneur is down to a mysterious 'X' factor, surely these volumes and tomes with case studies and lessons from business leaders serve no real purpose? Or, is it the case that an entrepreneurial tendency, like genius, is a case of 1 percent inspiration, 99 percent perspiration?

How to be an entrepreneur?
Will formal educational components or running classes help spawn a new generation of entrepreneurs?

Formal education isn't really that important, opines Chang, who thinks that 'spoonfeeding' may actually end up killing an individual's entrepreneurial spirit rather than encouraging it. While not disagreeing with the value of formal courses, Chang reckons lessons aren't that important since there's no rocket science behind becoming an entrepreneur: "All you need is a basic business sense of Revenue - cost = Profit!" he points out.

NetValue's Karamjit Singh on the other hand is all for making entrepreneurial studies a part of the educational curriculum but suggests it only be offered to those who show a keen interest in it.

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Bajaj and so on. to take the first step. Perhaps what truly makes an entrepreneur is not in education. As Thomas Alva Edison. founder of General Electric and inventor of the light bulb put it: " I have far more respect for the person with a single idea who gets there than for the person with a thousand ideas who does nothing." Let us now have a look at the quick start routes available to an entrepreneur. the business world is replete with examples of successful businessmen and heads of world-class companies that made it with sheepskins on the wall and without . 2 .look no further than the Ambani’s.Entrepreneurship Lesson or no lessons. but in a willingness to make the attempt. Tata’s. in socio-economic status or a mysterious 'x' factor.

Client companies obtain such services as hands-on help forming a business team. flexible space in which to grow. urban. and help communities develop more vibrant economies. In fact. and fiscal advice. legal. Therefore Jobs A business incubator provides business assistance to early-stage companies. Creating Businesses. marketing. has staff who deliver and coordinate business assistance services. 3 . and seminars on special topics. The aim of the incubator is to give these new entrepreneurs the help they need. What now? In hundreds of communities in the United States and thousands around the world. No two incubators accomplish the goals in the same way. The incubation process begins with an analysis of what a company needs and ends with that company "graduating" to become solid and independent. and no amount of effort can attract another firm to take its place. In between. access to financing.Entrepreneurship INCUBATION OF ENTREPRENEUR A researcher has a breakthrough in the lab but doesn't quite know how to commercialize the discovery as a lifesaving product. A town loses a major company. but the bank offers no encouragement and certainly no money. it is flexibility and ingenuity that have made incubators work in rural. A welfare mother has an idea for a business. help entrepreneurs achieve their dreams. and leads companies to become self-sufficient. which provide comprehensive support to companies in their startup stages. the company receives tailor-made services that point it toward success. and suburban communities. the answer to that question has been a business incubation program. Business incubation helps: • • • • • • Create new businesses Accelerate their growth Create more jobs Diversify the job base Make local economies more robust Build a business environment that supports new companies Business incubators.

Incubators also set policies about what a company must already have in place. help with intellectual property issues. they foster growth of new companies--but with particular challenges. every program should seek to turn out major leaguers. These might include marketing assistance. one-on-one mentoring. Increasing Company Success Incubators provide a whole menu of services to companies accepted into the program. help in getting ready for financing (or perhaps an in-house loan program). or a beta test site for their technology. for instance. Moving Ideas from the Lab to the Marketplace Technology incubators are the fastest growing segment of the industry and a diverse force covering every type of business from software to heart surgery. and "mom-and-pop" companies. as is the ability to finance 4 . Technology entrepreneurs may need access to specialized facilities. innovation assessment. it's evident that they're in no danger of becoming stereotyped. which is why incubation programs first assess incoming companies to determine their strengths and weaknesses. economic. venture capital forums." Is the client willing to invest some of his or her own assets in the venture? Does the client have a concrete understanding of the time and strain involved in launching a brand-new company? Working for all Types of Entrepreneurs Incubator companies come in all sizes and represent every industry imaginable.Entrepreneurship Adaptability is why business incubation has been effective for technology. use of lab space. ethnic. The entrepreneurial spirit cuts across every line: regional. What types of business assistance make a fledgling company strong? There is no one answer. When you look at the success stories of incubator graduates. Nor do incubator clients' origins predict how far they'll go. help with building a management team. Intellectual property protection is the key. such as a business plan. legal direction. As one incubator director puts it. Or they might look for tangible signs of a client's personal and financial readiness: Does someone in the client's household have a "day job. service. and much more. manufacturing. religions. ability----you name it. Like all incubators. Incubators that have brought every resource to bear have done just that. gender.

Bringing Special Focus The most common incubators are known as mixed-use or general incubators. and they sometimes take the lead. retail. Industry-specific incubators also make concrete business sense. These accept many types of companies. it's spawning more targeted programs. yet they are now raking in money from their businesses. As the industry matures. For example. wood products. Business incubation programs can be a viable part of strategies in those communities to rebuild the business substructure.Entrepreneurship very-early-stage product or process development---not something that conventional financiers care to do. software. multimedia. garment. The lesson? Do things right! Of course. to accept biotechnology companies. One of the most valuable assets business incubation gives to the community is a more diverse base of companies. STARTING WITH A SHOESTRING BUDGET Does starting a business with a small amount of money sound too good to be true? No! There are many entrepreneurs who have successfully started their own businesses with little money. If you have great idea and a viable business plan. environmental. Thus is born the arts. Revitalization Nothing rattles a community more than the loss of jobs due to Government cutbacks and corporate downsizing. Communities in transition that have developed strong incubation programs report gratifying returns on their investments. however. These may appear for practical purposes. A successful incubation program can help ensure a town will not be left hanging if one company moves out. Some as low as Rs. an incubation facility must be appropriately specialized. you can use Other People’s Money (OPM) to start your 5 . the ideal scenario is to start a business with enough money to enable you to move more aggressively and expand your business faster. or high technology incubator. that should not prevent you from starting your own business. But even if you do not have money. 5000. Some communities garner a competitive advantage by clustering related businesses.

you must be prepared to take on the right kind of debt. You do not need another bill to pay. If you really have to. A Corporation is expensive to set-up. if not the main paycheck. But sometimes. It would be ideal if you will not have to borrow money to start your business. Your choice of business will spell the difference between making your business a success on a shoestring budget or not. you want your own business to give you an additional source of income. set aside any thoughts of a fancy store or great office. like a wedding coordination business or a computer consulting business can be started on a thin budget. you may want to downsize your dreams first and start a business that you could afford to start. Remember. Other businesses. requires vast amounts of record-keeping. Start home-based and explore the advantages of working at home. Choose a business that can be started even with little capital. Not all debt is bad debt. Below are some of the rules that you need to follow to successfully launch a business with very little cash: • Think twice before borrowing. After all. If you have limited capital. and will tax you twice as an individual working for the business and as a corporation. You may consider renting at the mall only when you see money coming in. you better learn how to tighten your belt and bootstrap your fledging business. It 6 . You have to ensure that before taking on a debt. you still have to pay with something your time and energy. In terms of legal structure. Or if you do not have access to OPM. A major reason why many small businesses fail is inadequate capital. you must see a way to pay it back through your business. Some businesses. you really have to borrow money to keep going. require enormous capitalization. you can save tons of money by starting as a proprietorship.Entrepreneurship business. • Be lean and mean. rent a small section at a flea market or fair. Or if you must be “out there” selling your products. If your dream business requires a significant investment to start. while you may not be spending money. such as a file storage facility. • Choose your business carefully.

Looking big does not necessarily mean spending tons of money. you may even lose the very few resources that you have. The less cash outlay. Letting customers know that you a one-person home business may be the kiss of death for your fledging enterprise. as cheaply and efficiently as possible. Be sure that the business you are about to start can give the results that you desire. your track record as a businessperson can make it easier to borrow loans from banks. Many home business entrepreneurs are faced with the dilemma: “Should I tell my customers that I work solo from my kitchen". After all. qualities often associated with large businesses. • Look Big. learn how to start and run a business. you need to think ways to get things done. This will allow you to acquire the needed entrepreneurial skills. you can create one that looks just like one of the big boys. Your phones must be answered professionally as possible. your success hinges on how customers perceive your venture. Even if you are not able to save enough. 7 . • Make sure that there is demand for your business. If you have a web site. making sure that no dogs can be heard on the background. and save enough capital for your dream business. As you start your business. You can start with sharp looking business cards and stationery. or another business interest altogether. Customers prefer dealing with a business that shows professionalism and ability to deliver what it promises. you have little room for trial and error. Otherwise.Entrepreneurship may be a smaller version of your original vision.” Your business can only survive if it generates enough demand to sustain it. As Steven Krauss further advises: “Until you do get big and have some money I have two words of advice for you: fake it!” • Be creative. or “Should I pretend that I am running a well-oiled machine?” In most businesses. “Invest only in your best ideas. buying a top of the line laptop computer may leave you with nothing to market your business. the better. If you do not have enough resources. You will only survive as a bootstrapper if you are able to use your wit and creativity to extend the meager resources that you have. splurging on one aspect of your business say.

sewing. but you have to act smartly. and writing the press release to market the business. go to the public library. you need to rise above being a cash-dependent entrepreneur to a wit-dependent businessperson. • Your customers are your gold mine.Entrepreneurship You need to be creative and resourceful in finding ways of stretching your thin budget. 8 . really well. and more. It is what sets successful bootstrappers apart from other start-up entrepreneurs. In your clothing business. Need a business card? VistaPrint offers 250 cards for free. Passion will help you sustain your enthusiasm and energy to do what is required to get the business off and running. Starting a business is hard. borrow books on Web design. maximize your resources. Every business owner knows that the customer is king. doubly so if you have a limited capital. If you do not have the money to easily acquire new business. You have to force yourself to learn new things. you will have to do the designing. You may not have the resources to aggressively seek out new customers. But if you take care of your customers really. you tend to work harder and go that extra mile. Customers go back to businesses that offer them quality and timely service. You do not have the luxury of a 30-man Web design team. If you need a web site. or a battalion of sales people to sell your products. and go after your goal with a burning passion. you need to put in more time and effort to compensate for the lack of capital. you will make sure that you always roll out the red carpet for those that you already have. • Run your business with a passion. After all. you will not have the strength or the patience to do all these. It is like going to a battle full of heart but with little ammunition. One reality of having little cash is that you have little recourse in doing things. If you want to survive. and find ways to bring in the buck. finding and selling to buyers. for example. If you are passionate in what you do. help them make informed choices and make their lives easier. If you lack passion. then your customers will take care of you. It doesn’t mean that you can’t win. and begin learning how to create Web sites. Nor do you have the deep wallet to offer grandiose customer loyalty programs.

Entrepreneurship FRANCHISING Franchising may be defined as “an arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures. services and so on. process. the customers know him right from the start as credibility of Subway already exists. product. Advantages of franchising: (to the franchisee) One of the most important advantages of buying a franchise is that the entrepreneur does not have to incur all the risks associated with creating a new business. product or service.g. The Franchisee is the person who purchases the franchise and is given the opportunity to enter a new business with a better chance to succeed than if he/she were to start a new business from scratch. Management Expertise: Another important advantage to the franchisee is the managerial assistance provided by the franchisor. e. Franchising represents an opportunity for an entrepreneur to enter into business. The other advantages are as follows: Product Acceptance: The franchisee usually enters into a business that has accepted name. personnel management. That credibility already exists based on the years the mother franchise has existed. It is also an alternative means by which an entrepreneur may expand his/her business by having others pay for the use of the name. marketing and production.” Person offering franchise is known as the Franchisor. the entrepreneur is trained and supported in marketing by the franchisor and will be using a name that has an established image.: An entrepreneur who tries to start a sandwich shop would be unknown to the potential customers and would require significant effort and resources to build credibility and a reputation in the market. In Franchising. Each franchisee is given training on all aspects of operating the franchisee like training in accounting. 9 . Here the franchisee does not have to spend resources trying to establish the credibility of the business. Whereas if he becomes the franchisee of Subway.

g. The only initial capital required to purchase a franchise generally reflects a fee for the franchise. The franchise offers an opportunity to start a new venture with upfront support that could save the entrepreneur significant time and possibly capital. The capital required for this expansion is much less than it would be without franchising.Entrepreneurship e. where everyone takes classes in these areas. requires all of its franchisees to spend time at its school. particularly in food business identifies purveyor and suppliers that meet the quality standards established. This allows the franchisor to maintain low payrolls and minimizes personnel issues and problems. He can do so by authorizing and selling franchises in selected locations. thus achieving economies of scale that would not have been possible otherwise. Cost Advantages: The mere size of the franchised company offers many advantages to the franchisees. Capital Requirements: Starting a new venture can be costly in terms of both time and money. Knowledge of Market: The established franchise business offers the entrepreneur years of experience in the business and knowledge of the market. The franchisor can purchase supplies in large quantities. Also operating a franchised business requires fewer employees than a non-franchised business. In some instances. construction costs and the purchase of equipments. These controls are usually outlined in a manual supplied to the franchisee upon completion of the franchise deal. cash flow and personnel issues such as criteria of hiring/firing. Advantages of franchising: (to the franchisor) Expansion Risk: The most obvious advantage of franchising for an entrepreneur is that it allows the venture to expand quickly using little capital. for example. inventory. The franchisee is 10 .: MacDonald’s. Operating and Structural controls: the franchisor. scheduling and training to ensure consistent service to the customers. the suppliers are actually provided by the franchisor. The knowledge is usually reflected in a plan offered to the franchisee that details the profile of the target customer and the strategies that should be implemented once the operation has begun. Administrative controls usually involves financial decisions relating to costs.

Each franchisee usually contributes a percentage of sales (1 – 2 %) to an advertising pool. At time the franchisor may find it very difficult to find quality franchisees. in spite of all the training and controls. The disadvantages to the franchisee usually center on the inability of the franchisor to provide services. Disadvantages of franchising: Franchising is not always the best option for an entrepreneur. and trade associations. Otherwise if not franchised. This pooling of resources allows the franchisor to conduct advertising in major media across a wide geographic area. Poor management. advertising and location. Anyone investing in a franchise should investigate the opportunity thoroughly. When promises made in the franchise agreement are not kept. Also as the number of franchises increases. the franchisee may be left without any support in important areas. can cause individual franchise failure and therefore can reflect negatively on the entire franchise system. 11 . the company would have had to provide for the entire advertising budget.Entrepreneurship usually required to purchase these items as a part of the franchise agreement and they usually benefit from lower prices. This causes many franchises to fail and eventually go in losses and finally closedowns. The franchisee may also face the problem of a franchisor failing or being bought out by another company. Problems between the franchisor and franchisee are common and have recently begun to receive more attention from govt. the ability to maintain tight controls becomes more difficult. The other big cost advantage of franchising a business is the ability to commit larger sums of money to advertising. On the other hand franchisor also incurs certain risks in choosing this expansion alternative.

The most common type of franchise is the type that offers a name. 3. a form commonly found in the automobile industry. accounting and so on are still the franchisee’s responsibility. Answering the following questions can help one determine if it’s the correct decision: • • • • • • • Are you a self-starter? Do you enjoy working with other people? Do you have the ability to provide leadership to those who will work for you? Are you able to organize your time? Can you take risks and make good business decisions? Do you have the initiative to continue the business during it ups and downs? Are you in good health? If you answered “yes” or “maybe” to most of the above questions. These dealerships act as the retail stores for the manufacturers. The first type is the dealership. KFC and Holiday Inn. image and method of doing business like MacDonald’s. manufacturers use franchises to distribute their product lines. It requires efforts and long hours. like any other venture. buying.Entrepreneurship Types of franchises: There are 3 available types of franchises. Subway. as any business does. These include personnel agencies. The franchisee is benefited by the advertising and management support given by the franchisor. The third type of franchise offers services. The entrepreneur should conduct a self-evaluation to be sure that using a franchise venture is right. Franchising. These franchises have established names and reputations and methods of doing business. Here. In some instances. 2. income tax preparation companies. the franchisee has actually been operating a business and then applies to become a member of the franchise. such as real estates. 1. since duties such as hiring. 12 . chances are you are making the right decision to enter a new franchise venture. is not for the passive person. and real estate agencies. Investing in a franchise Franchising involves many risks to an entrepreneur. scheduling.

sub – assemblies. Advantages to large scale are in the form of: (a) Savings in investments. and supplying or rendering or proposing to supply or render 50% of their production or the total service as the case may be. sub – assemblies. (c) Employment of labor. (b) Inventories. Advantages to ancillary units (Small Scale Units) are: (a) Getting assured market for their products. and 13 . (d) Getting items of desired specifications. There are special facilities extended to ancillary industries: (a) Technical assistance through the ISI. sub – assemblies. or (b) The rendering of services. (c) Improved technology from the parent units. components. In legal framework Ancillary Industries are defined as: “Undertakings having investments in fixed assets in plants and machinery not exceeding Rs. The programme of ancillarisation includes motivation of public and private sector units to offload production of components. services etc. and tooling and supply to one or more large units assembling complete products. tools. (b) Supply of machinery under the Hire – Purchase Scheme of NSIC. which produce parts. The programme of ancillary development has specific advantages both for large as well as small industries and also for the total economy of the country. (b) Availability of technical assistance. intermediates. tooling or intermediates.Entrepreneurship ANCILLARISATION Ancillary Industries are units. to ancillary units. to other units for the production of other articles. 15 lakhs and engaged in – (a) The manufacture of parts. parts. components. While.

in this regard. These SCXs organise contacts between Buyers & Sellers by way of organising Vendor Development Programmes.Sellers Meet. The lists of some ancillary industries are as follows: (1) Industrial Machinery (2) Agricultural and Earth Moving machinery (3) Machine tools and small tools (4) Electrical and mechanical instruments 14 . Buyers & Sellers Meet and Exhibition.Entrepreneurship (c) Allotment of factories in Industrial Estates. State Level Ancillary Advisory committees have been set up in almost all the States to provide infrastructure facilities and to recommend measures for the promotion of ancillary industry in the State. Seminars. For providing advisory assistance. Constant liaison has been maintained with Administrative Ministries both at Central & State Levels. State Level Ancillary Advisory Meetings. Buyer. Plant Level Committee Meetings and PSUs and visit to public/private sector undertakings for the promotion of small ancillary & sub-contracting units. Thus. A great difficulty was being experienced by most of the ancillary units in getting timely payments from their parent units. Small Industry Development Organisation (SIDO) is a nodal agency of the Central Government and Ancillary Division at Headquarters continued its function for the promotion of ancillarisation programme in the country. The spare capacity for different facilities as available with the competent small scale units are registered with these SCXs. the programme helps in the overall improvement of the economy of the country. In order to provide help. public/private sector undertakings and other industrial developmental agencies through various programmed such as Vendor Development Programmes. These SCXs also obtain such items from large units which are required by them and can be manufactured in the small scale sector. Department of Public enterprises. etc. Sub-contracting exchanges are functioning as a part of major SISIs in the country at important cities for the promotion of fruitful and lasting contracts between large & medium undertakings and small scale ancillary units. an Act has been passed under which interest is payable on the delayed payments by large undertakings. Ancillary Exhibition. Workshops.

The owner may also be a large corporation desiring to divest itself of a subsidiary that is too small or that does not fit its long – term strategic plans. venture capitalists & insurance companies are the most active providers of debt needed by LBOs. Hence. LBOs usually involve a financially stable and sound company. 15 . This is important as he wants to raise as much of the capital needed as possible in the form of long – term debt. Banks. After a reasonable purchase price is determined. In most LBOs. Once that is determined. Most LBOs occur because the existing the entrepreneur purchasing the venture believes he or she could run the company more efficiently than the current owners. The current owner is frequently an entrepreneur or the other owner who wants to retire. etc. development of appropriate financial packages takes place. It must meet the need & objectives of the providers of the funds and the company & entrepreneur’s situation. 10:1. Since the issuance of additional equity as a means of funding is usually not possible.Entrepreneurship LEVERAGED BUYOUTS A leveraged Buyout {LBO} occurs when an entrepreneur uses borrowed funds to purchase an existing business venture for cash. competitiveness of the firm. stage in product life cycle. at times. Many subjective and quantitative techniques can be used. the debt capital exceeds the equity by 5:1. The purchaser needs a great amount of external funding since the personal financing resources needed to acquire the firm are limited. This helps in reducing the failure of an LBO. 2. a strong management team and a strong market share position. Determine whether the present owners’ asking price is reasonable. management abilities. How does an entrepreneur determine whether a specific company is a good candidate for LBO??? 1. viz. capital is acquired in the form of long term debt financing and the assets of the firm being acquired serve as collateral. he must assess the firm’s debt capacity. price to earnings {P/E} ratio. Most LBOs involve companies with a long track record of solid earnings.

but you can improve your odds by learning from the experiences of others. Reengineering is a common event. Here are "nine steps to success" that are based on many "real-life" lessons of successes and failures. people are seriously considering their own small or home business to avoid the dependence on an uncertain corporate world. • Plan: A major reason for business failure is lack of planning. Select a business legal structure (talk to your attorney) and develop an insurance program (talk with an independent insurance agent). Prepare a strategic plan for your business that clearly defines your mission. make certain you are insured and protected legally. Get assistance from as many sources as possible. and where you want to be in the next three to five years. your strategies. family and the competition. You will want a computer to take advantage of the Internet to send e-mail messages and search the World Wide Web for information. • Protect Yourself: Before you start operations. it is quite easy to use. • Hire Later: Delay hiring employees as long a possible. Don't lose sight of your goal— keep pushing. banker. • Persist: There will be good times and bad times. Be persistent and stubborn — view any failure as a learning experience and an opportunity for additional success. friends. Don't be overwhelmed at the apparent complexity of a computer." • Use Technology: Operating without a computer will put you at an immediate disadvantage. Talk to your attorney. It is simply too valuable as a time-saving tool. a new small business is started every 11 seconds throughout the U. A better option is to "outsource. Many fail.Entrepreneurship LESSONS LEARNED THAT ARE THE RECIPE FOR START-UP SUCCESS Large companies are downsizing.S. Once you begin. • • Visualize Success: Keep your goals in mind and expect that you will achieve them. • Get Smart! Get Advice! You cannot be an expert on everything. 16 . Act on a Good Idea: Even a great idea is worthless if you don't do something with it. Failing to plan is a plan for failing. In fact. The legal complexities of hiring and maintaining employees (even one!) can be daunting and take up a lot of time. your present situation. In response. accountant.

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