NOTES

Unit-4
Entrepreneurial Leadership
209-Startup and New Venture Management

Introduction:

Today, having just leadership or entrepreneurship qualities by business managers is

not enough for success of enterprises. Managers need to have both leadership and
entrepreneurship qualities in order to be successful. At this point, the concept of
entrepreneurial leadership emerges. Entrepreneurial leadership is a new and
modern type of leadership that is a combination of leadership qualities and spirit of
entrepreneurship. In addition, entrepreneurial leadership is creating new products,
new processes and expansion opportunities in existing businesses, working in
social institutions and dealing with ignored social issues, participating in social and
political movements, contributing to the change of current services and policies
implemented by civil society organizations and governments.

Actually the entrepreneurial leader takes responsibility for their actions and those
actions must be more proactive than reactive. The leader must have ability to learn
fast and within environments of indistinctness and change, while providing clarity
and rationality for those around them.

Some of the most notable people that are considered “naturally-born”

entrepreneurial leaders are Steve Jobs, Bill Gates, Mark Zuckerburg and Richard
Branson. Many companies also tried to inculcate this concept of leadership into
their business model. Some of them were successful and this changed their whole
business outlook.

Definition:

Entrepreneurial leadership is a new and modern type of leadership that is a

combination of leadership qualities and spirit of entrepreneurship.

OR
Entrepreneurial leadership can be defined as "organizing a group of people to
achieve a common goal using proactive entrepreneurial behavior by optimizing
risk, innovating to take advantage of opportunities, taking personal responsibility
and managing change within a dynamic environment.

Building and managing the founder team

Founders – the idea

A Founder is the one with the original idea, scientific discovery, technical
breakthrough, insight, problem description, passion, etc. A founder typically
recruits co-founders and then becomes part of the founding team involved in day-
to-day company operations.

Founding Team – the rock on which to build the company

The founding team includes the founder and a few other co-founders with
complementary skills to the founder. This is the group who will build the company.
Its goal is to take the original idea and search for a repeatable and scalable business
model– first by finding product/market fit, then by testing all the parts of the
business model (pricing, channel, acquisition/activation, partners, costs, etc.)

Founder, Founding team, Founding CEO all have word “founder” in them but have
different roles

• Founder has the initial idea. May or may not be on the founding team or
have a leadership role
• Founding team – complementary skills – builds the company
• Founding CEO – reality distortion field and comfort in chaos – leads the
company
There’s no magic number about the “right” number of founders for a founding
team, but two to four seems to be the sweet spot. One of the biggest mistakes in
assembling a founding team is not thinking through the need for skills but instead
settling for who’s around.

Key attributes of an entrepreneur on a founding team are passion, determination,

resilience, tenacity, agility and curiosity. It helps if the team has had a history of
working together, but what is essential is mutual respect. You also need to be able
to trust your co-founders to perform.

Attracting and retaining the right people

Hiring is hard, but hiring for startups can be even harder. As a young company
with limited cash flow, hiring the wrong employee can potentially break your
startup. Therefore, you have to be very careful with your decisions and do your
best to hire top talent.

A strong team of core employees is a critical requirement for building a successful

startup. Indeed, venture capitalist Mark Suster once said that as much as 70% of
his decision to invest in a company is based on the quality of the early team. The
core of this team does not have to be a large group of people, but they should be
dependable for the long-term i.e. those who will stick with you when times get
rough and are able to take different roles as the needs to your organization evolve.
So having the right people with the right skills is vital to every business.

Cost of Poor Hires

Bad hiring decisions cost you in many ways

Companies that hire mismatched, emotionally immature or otherwise inadequate

employees risk high staff turnover rates. High turnover is one of the most insidious
costs for a startup; it hurts the organization in multiple ways:

• Cost of hiring a replacement

• Lost productivity as the new person will not be immediately efficient at the
new job
• Disengagement and lost productivity in other employees due to departure of
colleagues
 • Impact on customer service and errors by to the loss of organizational
knowledge lost with the departed employee
• Accumulated training cost invested in the departed employee
• Cost of training a new person
• Cultural and morale impact

Financial cost

When an employee quits or is fired, the resources invested into recruitment,

training, and payroll are lost. Worse still, your business will in all probability have
to fork out these costs a second time in order to hire and train a new candidate. If
the departing employee is a senior member of your team, he or she might be in a
position to negotiate a severance package at your expense. Turnover seems to vary
by wage and role of employee.

Time cost

Most startups are in a race against time to find, perfect and execute a sustainable
business model. Every hour spent advertising jobs, interviewing candidates and
training them on the job is an hour that could be spent on the core activities of the
business. When an employee leaves, the time you have invested into recruiting,
training and nurturing them is wasted. If the employee joins a competitor, it will be
doubly costly for you as you would have effectively paid for the hiring and training
costs of your adversary. Your organization will also waste time since the new
employee will not be as productive on the job initially. It could take months until
the new hire is competent in the role.

Morale cost

The departure of a key team member can sap the momentum of a startup. It can
sow doubts about the direction and viability of the business in the remaining
employees. This is particularly so if the reasons for the departure are not explained
to the staff. If the person has a significant role in the organization, several group
projects may be put entirely on hold. All of these actions will hurt the
organization’s momentum which is so crucial for group morale.

Reputation cost
If your salesperson changes frequently, it will be hard to do business credibly in
industries that rely heavily on ongoing relationships with clients. Additionally, in
today’s world of transparency, it’s easier than ever for jobseekers to spot a
company that has a poor working environment. High turnover can be visible on
sites like Glassdoor.com. It can rapidly make or break a business’ reputation with
employees and customers. If people keep quitting because the middle manager you
hired is abusive, word will spread, and the good talent will steer clear of your
business

Your Core Team

Select the inner core team of your startup very carefully
Difference between a core team member and a typical employee
Someone who makes a good employee might not necessarily be cut out to work in
the core team of a startup. Entrepreneurs should be able to identify this distinction
and hire appropriately. In general, the earlier the hire, the more entrepreneurial the
employee needs to be. He or she should be prepared to play multiple roles within
the growing business. For example, a limited budget might mean that the lead
developer has to do some project management or sales every now and then. To find
persons who can see what to do and take the initiative to do it, even if it is outside
their area of expertise, business owners should look for evidence of being a self-
starter when hiring core team members. Prior experience as a founder or evidence
of off the beaten path experiences are good predictors of this trait.
How to hire a great team?
1. Know who you’re looking for: Before you start advertising for the
position, think not only about the tasks the new hire will have to perform,
but also the type of person you want to work with. Once you know the type
of person you are looking for, your expectations should be clearly
communicated to all applicants to avoid disappointment on both sides.
2. Assess talent carefully: After you’ve reviewed the candidate’s resume,
skills and character, as well as interviewed them personally, consider asking
your co-founder or another senior staff member to interview the applicant as
well. After the interviews, follow up with the candidate in a timely fashion
to avoid looking unprofessional or disrespectful one. You should check
references for the shortlisted candidates.
 3. Mind the Mechanics of hiring: Once a suitable candidate has been found,
he or she should be welcomed into the fold with a contract and professional
offer letter. draw up standard contracts and use them consistently for all new
hires. As your business expands, it will be necessary to create an HR
handbook explaining company policies.

How to retain a great team?

In most cases, the longer an employee stays with an organization, the more
valuable she becomes. In other words, long employment creates value in and of
itself for an organization through accumulated institutional knowledge, training,
and high productivity. Therefore, the objective of your retention policies should be
to attract the “right people” and move them up the value curve through the
following:
• Attractive compensation
• A good job, fit with the skills and interests of the employee
• Opportunities for career advancement and growth
• Pleasant and professional work environment
• Provide a respectful working environment
Intelligent people with healthy self-esteem will not stay at a company that does not
treat them with respect. This means that all communication should be professional
and assertive but always non-violent; any aggression or passive-aggression should
be nipped in the bud immediately. Criticism should be constructive and specific,
rather than personal verbal attacks. Do not treat your employees as pawns on a
chessboard. While work and play should generally be kept distinct from each
other. Rather than adopting a top-down, authoritarian management style,
encourage employees to speak up if they have creative ideas or concerns, and listen
actively in both cases.

Additionally, consider group activities like days out or even simple trips to resort
to create a team spirit.
The Team - Board/Governance

 Team/Board governance is a action or manner of governing the organization.

 Three areas of responsibility for a governing body and how they
interconnect:
Fiduciary responsibility: Legal responsibilities of the Board in guiding the
organization
Strategic responsibility: Decisions about the use of resources, programs, and
services
Generative responsibility: Development of new ideas in line with the core values

Board members who are involved in operating activities wear two hats – a
“governance hat” and a “volunteer hat.” Learning how to balance the two is an
important part of a board member’s job. Board members might wear their
“volunteer hat” when reporting to the Board on the activities of a volunteer
committee on which they serve. The rest of the Board would then wear their
“governance hats” while considering questions or debating motions raised by this
report.

Differentiating between various models of governance

The three most common models of governance are advisory boards, policy
governing boards, and administrative boards.
Advisory boards do not have formal authority to govern an organization. It is a
collection of individuals such as former board members and community leaders
whose unique knowledge and skills allow them to work with the formal board to
govern more effectively.
Policy governing boards are responsible for governance functions. It sets policy
for management and delegates the responsibility for implementation of the policy
to an Executive Director.
Administrative boards are responsible for governance functions. It sets policy
for management and assigns the responsibility for implementation of the policy to
Board Committees and their members.
Recognizing key components of board structure
Every successful board shares several key components.
Distinguishing between owners (members, stakeholders) and customers ·
Board members must understand owners’ views and know how to represent them
in order to make successful policy decisions. The Board, not staff, should
communicate policy decisions to the owners.
Committees
The Board organizes and completes its work through the effective use of
committees.
Committees perform different functions within an organization. ·
• Board Committees report to the Board and assist with governance functions.
They perform tasks such as developing and reviewing policy, conducting
research, and support improved governance.
• · Committees involved in organizational operations are formed and directed
by staff or service volunteers.
Committee appointments should be made while considering the goals of the group
and the skills the Committee requires. Members can be appointed from within the
Board, the organization, and the community at large, offering the chance to bring
new blood into the Board. These appointments can help promote the organization
within the community as well as increase the Board’s effectiveness. Letting outside
members sit on committees can also serve as a tool for recruitment to the Board,
allowing new members to “test drive” the Board while older members evaluate the
potential of the new recruits.
The Role of a successful Board
The board's key purpose "is to ensure the company's prosperity by collectively
directing the company's affairs, while meeting the appropriate interests of its
shareholders and relevant stakeholders".
Tasks of the board and indicators of good practice

Establish vision, mission and values

 • Determine the company's vision and mission to guide and set the pace for its
current operations and future development.
• Determine the values to be promoted throughout the company.
• Determine and review company goals.
• Determine company policies.

Set strategy and structure

• Review and evaluate present and future opportunities, threats and risks in the
external environment; and current and future strengths, weaknesses and risks
relating to the company.
• Determine strategic options, select those to be pursued, and decide the
means to implement and support them.
• Determine the business strategies and plans that underpin the corporate
strategy.
• Ensure that the company's organisational structure and capability are
appropriate for implementing the chosen strategies.
• Determine the company's appetite for risk and to engage in the process of
backing a robust risk management programme focused in the company’s
business and the area(s) of its activities.

Delegate to management

• Delegate authority to management, and monitor and evaluate the

implementation of policies, strategies and business plans.
• Determine monitoring criteria to be used by the board.
• Ensure that internal controls are effective.
• Communicate with senior management.

Exercise accountability to shareholders and be responsible to relevant

stakeholders

• Ensure that communications both to and from shareholders and relevant

stakeholders are effective.
• Understand and take into account the interests of shareholders and relevant
stakeholders.
• Monitor relations with shareholders and relevant stakeholders by the
gathering and evaluation of appropriate information.
• Promote the goodwill and support of shareholders and relevant stakeholders.
Different board models for different ventures
Establish a formal board of directors as soon as possible. Ensure that the bylaws
are complete. It is wise to call for professional assistance when creating this
document, and to check these by-laws regularly to ensure that compliance is in
place.
Forms of board governance models include:

• Operational boards: This board does the work of the organization; it

manages it as well as governs it. This is typical of a board in the startup
phase of a venture.
• Management boards: This type of board actively manages the operations—
finances, personnel and service delivery. It is expected that as the venture
matures, the functions of management and governance will be formally
separated.
• For-profit boards: For-profit boards are structured around proven forms of
governance and regulations. Their members are a combination of friends of
the CEO, experts from similar businesses, and specialists in matters such as
human resources, marketing, audits, lending, and growth techniques.
• NPO boards: These boards may be responsible for the governance of a
share-capital corporation and be guided by its Articles of Incorporation, or,
more commonly, they may govern non-share organizations and be guided by
its Letters of Patent. NPOs may be incorporated provincially or federally.
Their boards are made up of individuals with a variety of backgrounds but
with a strong common desire to serve their community in a responsible way
that is compatible with the organization’s goals and mission. They also have
a responsibility to ensure that funds are provided to meet the NPO’s needs
on an ongoing basis. Board members are often chosen for this key reason
only. They meet the criteria known as: “give, get, or get off!”
• Social enterprise boards: These boards have the dual responsibility of
ensuring that the venture is properly funded until the surpluses from its
business venture are available for its social purpose. Even then, they watch
 over the balance between the source of funds from operations and the need
for funding from donors, businesses, foundations or governments.

Informal Board

In the rush to get the venture up and running, setting up a proper board seems
like a heavy task, one that might get in the way of building the venture. Two
alternate forms of governance are outlined below; they provide the
owner/operator with a team of people who are available to help grow the
venture without the formal structure of a board of directors. Often, after a
proper board has been established, one of these advisory forms of governance
may be kept in place because of the unique nature of the venture.

Family council: Often, family members act as the early advisors and form a
family council. This council often includes the accountant of the firm, the
lawyer, interested family members, and the founder. It is wise to keep the group
small, with three to five members. This council is not used with NPOs because
they are rarely family ventures.

Usually, compensation is not paid to family council members. By avoiding the

formality of a board of directors, the need for directors’ liability is avoided.
Later on, when a formal board of directors is set up, this council can become the
board or remain as a family support group. Regardless of this extended role, it
is essential that the individuals chosen support the mission and values with
experience and objectivity.

Advisory council: Similar to family councils, this form of governance is often

voluntary. NPOs often create advisory councils to obtain the help of key
individuals in the community who are proven specialists in the venture’s field
of endeavour, such as medical doctors who support an NPO health charity.
Similar to family councils, advisors are available for advice and consultation on
an informal basis and they may be called to meet on an as-required or regular
schedule. Do not expect councils to provide capital or to raise funds; their role
is background support.

How to assemble a board of advisors

An advisory board is a rare species in the small-business ecology, yet assembling
such a board may be one of the most important steps a CEO can take to assure an
enterprise's success.

Unlike a board of directors, which has formal legal authority over a company and a
fiduciary duty to its shareholders, an advisory board won't make decisions for you
and has no obligation to the owners or liability for the company's actions. Besides
offering credibility and contacts, advisers working together provide guidance
sharpened by boardroom debate, something individual mentors can't match.
Building a Better Board

1. Whom Do You Want?

These should be the people who have already experienced what you're about
to experience in your startup.
They must have right level of experience-The advisory board should be at
the level you want to go to, rather than the level you're at.
The Right Number-A board should be made up of three to five outsiders.
Two people "are always trying to find mutual agreement. With three, an
adviser "can afford to take chances." And "a group of more than five tends to
dramatically reduce productivity.
Whom to Avoid: You want somebody who's not making a living from your
business." And a board generally shouldn't include friends, family, or
anyone with an emotional interest in the business.
2. How to Get Them Aboard:
Solicit candidates with a two-page prospectus describing the business.
Explain why you want a board and what you're looking for. Then detail how
it will operate, including compensation. Describe your initial discussion with
prospective members as exploratory, because even as you solicit them you
should be evaluating them. Make sure that they're sharp and experienced but
also willing to share.
 It can be uncomfortable to kick someone off a board, so as a fail-safe,
institute short terms of service. Typically ask for one year at a time. Those
you want to keep renew their service; those you don't, their terms expire.
The Pay: Formula is to calculate your base hourly or daily salary (excluding
bonuses) and pay your board members for their time at that rate.
3. How to Run the Meetings:
Board should meet two to four times a year. Try mightily to maintain the
board's strategic focus. Meetings should seldom last more than three hours.
Structuring the Conversation:
At each meeting, focus the board's attention on a few core strategic matters.
In any case, put the agenda in writing, and state clearly what you expect the
board to contribute to each item. Help your advisers prepare by sending a
week in advance the information they need to digest. Keep it short,
thoughtful, and processed -- don't send raw data. Between meetings, keep
them updated on any developments.

Separating leadership from management

"Leadership" is different from "management"; many just know it intuitively but
have not been able to understand this difference clearly. These are two entirely
different functions based on their underlying philosophies, functions, and
outcomes. Similarly, leaders and managers are not the same people. They apply
different conceptualizations and approaches to work, exercise different ways of
problem solving, undertake different functions in the organizations, and exhibit
different behaviors owing to their different intrinsic and extrinsic motivations.
Although discretely different, the terms "manager" and "leader" are often confused
and used interchangeably. This paper attempts to address this issue at various
levels, including etymological, development, conceptual distinctions, definitional
complexities, functional divergence, and behavioral differences. In order to be
competitive, future organizations need to develop as many leaders as possible, but
that these leaders should also have sufficient management knowledge and
capabilities. Organizations also need effective managers who possess adequate
leadership skills for better problem solving and overall functioning in the teams.
Legal Matters:-

Legal consideration in startups

1. Organizational form(Company Incorporation)
2. Compliances and License
3. Contracts
4. IPR
5. Funding
6. Tax
7. Legal expenses
Often, in the quest for growth and scalability of a business idea, founders (of
startups) miss out on researching, forming and implementing key legal
documents, which ensure a smooth journey for a startup in the long run. The
absence of a legal framework can create a dent in the business or slowed its
pace of growth. Keeping this in kind founder should have a clear legal
framework and strategy right from the early days of startup.

1. Company Incorporation

 The very first issue encountered by the entrepreneur is the structure of the
startup. Structure of the entity decides the liabilities of the directors, tax
implications, benefits, and statutory compliances required under the said
structure and also the ability to raise funds.

 In India, one can register as a private limited company, sole

proprietorship, partnership, LLP or public limited company. E very
structure has its own pro and cons.
 While deciding the structure of the entity one has to also look into the
target market and the nature of product and services offered.
 Even the location where you incorporate your company matters and
expert opinion becomes crucial in all these matters.
2. Compliances and License
 Every business and industry has different compliances to be followed.
Make sure to comply with all the statutory and legal compliances and
keep it documented. Some of the compliances are listed below.

3. Contracts
Contracts form an essential part of a business. A Contract defines the
understanding between the parties, stating their roles & responsibilities,
mitigates risks and defines liability of each party. It’s important to have all
the agreements in place and work under the same.
Contract can be made for commercializing startup, Human Resource,
Transactional and operational function and IPR of the startups.
4. IPR
For any venture like tangible assets, intangible assets are also highly
valuable. Therefore, maintaining and protecting the IP of the company is
very important and needs to be done since the inception of the company.
To differentiate business from the competitors, IPR plays vital role for any
startup.
 5. Funding
Following sources can be accessed for funding the startup:
 Equity Financing: Equity financing means exchanging a portion of the
ownership of the business for a financial investment in the business.
 Venture Capital: Venture capital refers to financing that comes from
companies or individuals in the business of investing in young, privately
held businesses.
 Angel Investors: Angel investors are individuals and businesses that are
interested in helping small businesses survive is the relationship of the
market price of the stock to the purchase price (warrant price) of the
stock.
 Debt Financing: Debt financing involves borrowing funds from creditors
with the stipulation of repaying the borrowed funds plus interest at a
specified future time.
 Friends and Relatives: Founders of start-up businesses may look to
private sources such as family and friends when starting a business.
 Personal Savings: Personal resources can include profit sharing or early
retirement funds, real estate equity loans, or cash value insurance policies.
It is also called bootstrapping.
 Government Grants: Federal and state governments often have
financial assistance in the form of grants and/or tax credits for start-up or
expanding businesses.
 Equity Offerings: In this situation, the business sells stock directly to the
public.
 Initial Public Offerings: Initial Public Offerings (IPOs) are used when
companies have profit table operations, management stability, and strong
demand for their products or services.
 Banks and Other Commercial: Lenders Banks and other commercial
lenders are popular sources of business financing. Most lenders require a
solid business plan, positive track record, and plenty of collateral.
 Lease: A lease is a method of obtaining the use of assets for the business
without using debt or equity financing.
TAX

Taxes are levied by governments on their citizens to generate income for

undertaking projects to boost the economy of the country and to raise the
standard of living of its citizens.

Types of Taxes
Taxes are of two distinct types, direct and indirect taxes. The difference comes
in the way these taxes are implemented. Some are paid directly by you, such as
the dreaded income tax, wealth tax, corporate tax etc. while others are indirect
taxes, such as the value added tax, service tax, sales tax, etc.
• Direct Taxes
Direct tax, as stated earlier, are taxes that are paid directly by you. These taxes
are levied directly on an entity or an individual and cannot be transferred onto
anyone else. One of the bodies that overlooks these direct taxes is the Central
Board of Direct Taxes (CBDT) which is a part of the Department of Revenue.
It has, to help it with its duties, the support of various acts that govern various
aspects of direct taxes.
• Indirect Taxes
By definition, indirect taxes are those taxes that are levied on goods or services.
They differ from direct taxes because they are not levied on a person who pays
them directly to the government; they are instead levied on products and are
collected by an intermediary, the person selling the product. The most common
examples of indirect tax Indirect tax can be VAT (Value Added Tax), Taxes
on Imported Goods, Sales Tax, etc. These taxes are levied by adding them to
the price of the service or product which tends to push the cost of the product
up.
Do startups have to pay tax?
To make things easier for startups, a brand new section known as Section 54
EE has been added to the Income Tax Act. Under this section, startups are
exempt from long-term capital gains tax. ... If the investor ends up withdrawing
the amount before the 3 years are up, then the amount becomes taxable.

To promote growth and help Indian economy, many benefits are being given to
entrepreneurs establishing startups.
1. Simple process
Government of India has launched a mobile app and a website for easy
registration for startups.
2. Reduction in cost
Startups enjoy 80% reduction in cost of filing patents that too at fast
examination of patent.
3. Easy access to Funds
 The government is also giving guarantee to the lenders to encourage
banks and other financial institutions for providing venture capital.
4. Tax holiday for 3 Years
Startups will be exempted from income tax for 3 years provided they get a
certification from Inter-Ministerial Board
5. Apply for tenders
Startups can apply for government tenders. They are exempted from the
“prior experience/turnover” criteria applicable for normal companies
answering to government tenders.
6. R&D facilities
Seven new Research Parks will be set up to provide facilities to startups
in the R&D sector
7. No time-consuming compliances
Various compliances have been simplified for startups to save time and
money.
8. Tax saving for investors
People investing their capital gains in the venture funds setup by
government will get exemption from capital gains. This will help startups
to attract more investors.
9. Easy exit
In case of exit – A startup can close its business within 90 days from the
date of application of winding up
10. Meet other entrepreneurs
Government has proposed to hold 2 startup fests annually both nationally
and internationally to enable the various stakeholders of a startup to meet.

Tax exemptions
• 3 year tax holiday in a block of 7 years.
• Exemption from tax on long-term capital gains.
• Tax exemptions on investments above the fair market value
• Tax exemptions to individual/HUF on long-term capital gains from equity
shares
 Legal expenses
Business (or commercial) legal expenses is typically designed to help you to get
expert legal advice with problems such as employment tribunals or commercial
contract disputes, it could also provide cover for legal representation and
expenses in the event of a claim.

Typically, a business legal expense is a cover for legal representation or

unforeseen legal costs relating to your property, employment, or contract
disputes.

Legal expenses also depended on attorneys’ fees for a lawyer’s work,

Registration fees for incorporation, registration of IPR, number of investors and
complexities of documents
.
Types of ownership/incorporation
Sole Proprietorship 1 Person Venture

Partnership More than 1 person operating jointly

LLP Limited Liability Partnership

Private Limited Company Corporate Structure

Public Company Established Stage

1) Sole Proprietorship:
 A sole proprietorship, also known as the sole trader, individual
entrepreneurship or proprietorship, is a type of enterprise that is owned and
run by one person and in which there is no legal distinction between
the owner and the business entity.
The sole proprietorship is not a legal entity.

It simply refers to a person who owns the business and is personally responsible
for its debts. A sole proprietorship can operate under the name of its owner
or it can do business under a fictitious name

Pros:
 You are in business quickly and easily.
 There are hardly any restrictions and very few forms to fill out.
 As a sole proprietor, you control all of the money made by the business.
 You make all business operation calls.
 You are management and, thus, can respond more quickly to day-to-day
changes and decisions.
 You experience less government control and taxation. You don’t have to
keep incorporation records and annual corporate records.
 You don’t have to do a separate tax return for the business and you don’t
have to prepare a balance sheet for the business.

Cons:
 As a sole proprietor, you are responsible for 100 percent of all business
debts and obligations.
 This liability covers all of the proprietor’s assets, including his or her house
and car. Additional insurance coverage may be needed to cover personal
injury or physical loss that may hamper the continuity of the business.
 The death, physical impairment, or mental incapacitation of the owner can
result in the termination of the business.
 It is typically more difficult for sole proprietors to raise operating cash or
arrange long-term financing because they have fewer assets.
 All the decision-making power rests with one individual.
 A sole proprietorship appears less professional than a corporation or an
LLC.
2) Partnership:
A partnership is an arrangement between two or more people to oversee
business operations and share its profits and liabilities.
In a general partnership company, all members share both profits and
liabilities. Professionals like doctors and lawyers often form a
limited partnership.
Pros:
 Shared cost of start-up.
 Shared responsibilities and work.
 Shared business risks and expenses.
 Complementary skills and additional contacts of each partner can lead to the
achievement of greater financial results together than would be possible
apart.
 Mutual support and motivation.

Cons:
 Partners in a general partnership are jointly and individually liable for the
business activities of the other. But if your partner skips town, you'll be
liable for all the debts, not just half of them.
 Shared profits.
 You do not have total control over the business. Decisions are shared, and
differences of opinion can lead to disagreements, a "falling out," or even one
partner buying out the other.
 A friendship may not survive a partnership.

3) Limited Liability Partnership

A limited liability partnership (LLP) is a partnership in which some or all
partners (depending on the jurisdiction) have limited liabilities.
It therefore can exhibit elements of partnerships and corporations.
In a LLP, each partner is not responsible or liable for
another partner's misconduct or negligence.
Pros:
 Capital Amount is Quite Generous
 Limited Partner Faces Limited Liability for Losses
 Shared Responsibility of Work
 The partners of a LLP are not personally liable for the liabilities of the LLP.
 It is not mandatory to conduct annual statutory meetings

Cons:
 The LLP’s income and losses are passed through to the partners, who then
report it on their personal tax return. The LP’s income is not taxed at the
business level.
 LLPs are limited by state regulations due to which they are not given due
recognition in every state as a business structure.
 An NRI/Foreign national who wants to incorporate an LLP in India shall
have at least one partner who is an Indian citizen. Two foreign partners
cannot form an LLP without having one resident Indian partner along with
them.
 If a partner wants to transfer his/her ownership rights then he/she has to
obtain the consent of all the partners.

4) Private Limited Company

A private limited company, or LTD, is a type of privately held small
business entity, in which owner liability is limited to their shares, the firm
is limited to having 50 or fewer shareholders, and shares are prohibited from
being publicly traded. A company becomes an independent legal structure
when it incorporates.
Pros:
 Liability is Limited
 Costs of setting up are not high.
 Scalable form of business organization.
 Payment Gateways and few others require the business to be a Company.
 Investors are willing to fund on companies because shares are relatively easy
to transfer and trade.
 A corporate veil separates the actions of the company from the actions of the
owners.
 People may come and people may go, but the company goes on forever. It
outlasts the founders!
 Cons
 Governance required to be done is sizeable
 Statutory Audit is required from Day 1.
 Corporate rate of tax is 30%.
 Cost of running a company is sizeable.
 There are a lot of legal restrictions that are to be complied with.

5) Public Company
A public company is a company that has sold all or a portion of itself to
the public via an initial public offering.
Public companies are publicly traded within the open market, and a variety
of investors buy the shares.
Ex. Bharat Petroleum Corporation Ltd, Coal India Ltd, Oil and Natural
Gas Corporation Ltd (ONGC ) etc
Pros:
 Able to raise capital for expansion by selling additional shares
 Higher status than a public limited company so will benefit from more
publicity.
 Share prices listed on the stock exchange so shareholders ca work out the
value of their shares. They can buy or sell shares.
 Limited liability for shareholders.

Cons:
 Original owners lose control and ownership of the business.
 Professional directors and manager appointed to run the business may have
different aims to those of the shareholders.
 Must disclose all main accounts to the public. These are often greatly
publicized by the media.
 Company can be taken over if a majority of shareholders agree to bid.

Recruiting, Selecting and Hiring

People are the most important part of a startup. People make
massive difference to build the startup. Therefore, hiring is the
most important thing founder do.

A startup faces challenges of finding experienced

professionals who can fit into the needs and
requirements of the company, completely. The cost
level that the business may be looking to hire
at, may not match with the required skills.
A startup requires resources who are quick to
understand the business and take the
responsibility head on.
Founders spend >25% of their time on hiring. So they must spend
it wisely.

Reasons for Hiring the service provider (Recruitment Agency)

By bringing on own full-time recruiter, early in the growth of
startup, will get total focus on its functions.
1. Time Saver:
Very first and important reason is time saving
2. Sector expertise
Recruitment consultants are experts at screening, filtering
and profiling candidates. Your in-house team might not
have the same level of expertise. Again this leads to time
and cost efficiencies in the long run.
3. Salary benchmarking
If founder got a role and he is unsure what the correct salary
is for the position, the recruitment agency is ideally placed
 to give you an accurate market rate using salary data and
local market knowledge.
4. Specificity
Sometimes, requirements might be very specific. It might
be so tight, that founder may need an expert who
understands the candidates in niche and has a database of
them.

There is a 4-step process for choosing perfect recruitment agency:

1. Define your hiring needs
The first step in choosing the best recruitment agency is to clearly define
your hiring needs. Defining your hiring needs and specifying all the
details about the position(s) you are looking to fill is
a necessary prerequisite for choosing the right recruitment agency.

2. Choose the right recruitment agency type

This will help you narrow down a pool of possible recruitment agencies
to consider. If you need to hire temporary staff, your best choice
is staffing recruitment agency. If you need to hire high-level executives,
you should go for executive recruitment agencies. For everything else,
your best choice will probably be a general recruiting agency.

3. Check affordability
Compare and bargain with the services, terms and price of the
recruiting agencies. Check affordability on listed terms.

4. Check the expertise

If the previous steps are followed, one should be able to list down top 3
recruitment agencies of appropriate type that can be afford. To choose
a final winning recruitment agency, compare the quality of top
competitors’ work. Do your research!

Recruiting, Selection and Hiring

Initially, starting a new company often requires wearing a lot of different

hats. However, once a startup starts to grow, making it successful
becomes a team effort.
Hiring the right people for a new startup is just as essential as having a
great product or idea. At the end of the day, it’s people that make a
company successful.
Therefore, it’s essential for the entrepreneur to understand and frame
efficient recruitment, selection and hiring process for startups.

Lets understand recruitment first:

Recruitment is attracting pool of candidates. To stand out in competition

startup should follow following recruitment process.
1. Attracting Top Talent:
• Provide gratification:

Start-ups should not shy away from selling themselves and offer
employees the satisfaction of making a difference.
• Treat you startup as a perk

Startups usually have distinctively different environment unlike

traditional corporations which, for many employees, is actually a perk.
• Hiring process should reflect your culture

For startups it’s important to focus on values like passion, respect,

individual responsibility, and desire to grow.
 • Go ahead on with the fear of failure:
You are a startup with no track record or guarantee of success, so it’s no
doubt that applicants will be worried about that.
2. Prepare position description and salary range
To build a strong job posting, defines the title, responsibilities and
qualifications for the position include some information about your
company and how to apply.
Before posting, determine the value of the position and create
a salary range

3. Define process for collecting application

Based on your understanding of the job and labour market, determine

the best methods for sourcing qualified candidates.

Use the most appropriate process to collect applications. If possible,

limit your recruitment to online submissions.

Selection
The selection process is about screening candidates to determine the
right fit for the startup
1. Candidate Pre-screening:
Review all resumes received, and screen out candidates who do not meet
your minimum requirements
2. Assess and interview candidate:
In order to check the mental ability and skill set of an individual, several
tests are conducted. These tests are conducted to judge the suitability of
the candidate for the job. Evaluate the shortlisted candidates to identify
the leading candidate(s). At this point, you are ready to conduct face-to-
face interviews. Interview helps to understand the expectation, attitude
and behavior of candidate.
3. Checking References:
It is strongly recommended that to conduct reference checks prior to
extending an offer of employment from the candidate’s previous
employer.

Hiring
1. Notify candidate of Hiring
However, once decided like to extend an offer to a candidate, act
fast. When it comes to hiring great employees, it’s often the early
bird that gets the worm.
2. Initiate Pre-Employment Checks
Upon finalizing the employment offer, make the employment offer
contingent upon the candidate successfully completing several pre-
employment checks.
3. Send Job Offer Letter
After the candidate accepts the employment offer, the startup should
send an “Offer Letter” to the candidate in writing. This letter should
outline the details of the offer including salary, start date, and pre-
employment drug/background testing requirements.
4. Complete New Hire Paperwork
Before the candidate begins employment, various forms must be
completed and submitted to the startup. A candidate may not begin
working until these forms have been completed.

With this recruiting, selecting and hiring ends for the startup.
Hiring the first employee
Though entrepreneur understands the whole process of hiring employee,
it’s curial even to know keys to hire first employee for the startup. :-)
Let’s explore the keys to hire first employee

1. The Sooner, the Better (If You Can Afford It)

Hire someone as soon as you know that you need them and can afford
them, even if it’s tight at first.
2. Hire for Potential, Not (Just) Track Record
One key trait of a skilled hiring leader is the ability to see potential, not
just evidence of past success. Look for someone who has a strong
interest or passion for causes or missions that are similar to startup and
separately it’s evidence that the person is really good at what he or she
has done before (even if that’s a variety of different things).
3. Have Applicants Demonstrate Skill or Aptitude
Candidates can easily fool in interviews. So easy way to identify good
candidates is by asking them to give demonstrations of their skills and
aptitude.
4. Have Everyone on the Team Interview the Stars
With more numbers of co-founders with quite differing personalities and
work styles, it is important that each of them to work well with our first
hire. So have everyone on team for interview.
5. Invite Them, Truly, to be Part of the Team
Founder must consider the new hire as a member of the team who has
chosen to dedicate his/her time to making founder vision a reality,
including learning alongside and experiencing the ups and downs of
startup and venture.
 6. Design an On-boarding Process
Comfort the new hire into the startup/venture environment, culture and
various formal processes by on-boarding him/her right from the first
day.

7. Have Your Legal Ducks in a Row

One should make legal contract for the new hire which should include
all the terms and condition clearly stated in it. Knowing that everything
is officially taken care of means that founder can focus on what matters
most.
.

First hire is a huge step in the life of the company. Take the time to do
things the right way, and it’s e sure that the first employee will be there
for the long haul—and be one of the greatest things to happen to the
startup/venture in its early days.

With this we end with the unit 4

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