BBA510 – ENTREPRENEURSHIP MANAGEMENT

Q1. Who is an Entrepreneur? What is the role of entrepreneurship in Economic

Development?

Answer:

Entrepreneur

The word entrepreneur is derived from the French verb ‘entreprendre’, which means to attempt,
to undertake, to contract for, to try in hand, or, to adventure. In the general sense, the word
applies to any person who enters into a new project or tries a new opportunity and takes from it
the profits or the losses. The definition of an entrepreneur as given in the American Heritage
Dictionary and Webster’s New World Dictionary are similar and reflects this behaviour: ‘A
person who organizes, operates, and assumes the risk for business ventures.’ The distinction
between a small businessperson and an entrepreneur is subtle. The reason is that the term
‘entrepreneur’ is understood to mean people who come up with new ideas, start enterprises based
on those ideas, and provide added value to society based on their independent initiative.

Role of entrepreneurship in Economic Development

According to Peter Drucker (1970), entrepreneurship deals with risk-taking. The behaviour of the
entrepreneur is reflective of the type of individual prepared to stake his or her financial security
as well as career in the name of an idea, and spend a lot of capital and time on uncertain
ventures. Uncertainties have been classified by Drucker as follows:

• Risk that can be statistically measured (e.g., the probability that a blue pen will be drawn from
a box which contains five blue and five black pens).

• Ambiguity, or that which cannot be easily measured in statistical terms (e.g., the probability
that a blue pen will be drawn from a box which contains five blue pens, but an unknown number
of black pens).
• True Uncertainty or Knightian Uncertainty, which cannot be estimated or statistically predicted
(e.g., the probability that a blue pen will be drawn from a box which contains an unknown
number of blue pens and other coloured pens). Drucker has also aptly observed that ‘Innovation
is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity
for a different business or a different service. It is capable of being presented as a discipline,
capable of being learned and practiced. Entrepreneurs need to search purposefully for the sources
of innovation, the changes and their symptoms that indicate opportunities for successful
innovation. And they need to know and to apply the principles of successful innovation.’

Systematic innovation, according to him, has to do with searching for changes in an organized
and purposeful manner and systematically analysing the opportunities offered by such changes in
terms of social and economic innovation. This in turn leads to economic development.

Q2 What are the contents of a Business Plan? Explain with suitable example.

Answer:

Contents of a Business Plan

(i) Description of venture: For an existing business, the details like date of establishment,
journey over time with significant milestones, employee data, sales and profit data over time (if
history is too long then selected period of say, five years’ data would be enough), organization
structure, operating philosophy, vision and mission statements, and details of enabling factors are
important.

(ii) Production plan: In case of manufacturing activity, the details of technology and its
constraints, success factors, realistic assumptions regarding utilization of plant capacity
supported with evidences from other businesses, processes, manpower requirement (skilled,
semi-skilled and unskilled) as well as their availability, sources of material and several other
details that can have an impact on production would become an essential part of production plan.
Finally, year-wise production plan in units as well as rupee terms must be presented. In case of
services, similar information but with different components would become relevant in production
plan. Equipment needed, trained manpower availability, office space, necessary hardware and
software, marketing assumptions in terms of demand for services and such other information is
used for preparing production plan for a service organization. This plan perhaps can be renamed
as ‘service plan’.

(iii) Operations plan: Several operations have to be carried out with a view to succeed in
providing products and services. The business activity must be clearly broken down into the
discreet operations and details must be provided how those operations will be performed given
the resources. If the operations plan fail then production plan would also automatically fail.

(iv) Marketing plan: A business needs to define a market in terms of geographical area or
demographic details of potential customers or consumers. Market feasibility report would help in
identifying the scope of business opportunity, and from that canvass, a businessman has to
determine the right segment of market wherein he would like to do business. Promotion plan,
distribution network and other marketing policies are useful in evaluating the potential market
for the goods and services offered by the business.

(v) Organizational plan: In the absence of strong organizational backing the most lucrative
business can also fail measurably. Business operates in a very dynamic environment, whether
internal or external. A business organization must develop capability of capturing information
regarding the changing external variable that may affect the current business or future
opportunities of the business. Internal competency of deciphering the signal picked from the
market and responding to it in time is critical for converting plans into a profitable action.

(vi) Assessment of risks: The production and marketing plans are usually prepared on the most
realistic scenario. If actual scenario turns out to be better than anticipated (sales price is higher,
sales quality is higher, expenses are lower, among others), then there is a positive surplus profit.
But what if things do not turn out as good as estimates and cost of project goes up, cost of capital
is higher, enough capital is not available, sales price remain low, sales quantity is less, expenses
are higher, skilled people are not available, among others. The assessment of down-side impact
of risk must be assessed, if not upside reward of risk.
(vii) Financial plan: The contents of the business plan are now converted into the financial
numbers to present the financial plan. The financial plan gives income statements and balance-
sheets for the projected period, depreciation schedule, interest payment schedule, working capital
schedule, taxability schedule, cash flow statements, working capital financing schedule and
schedule of funds to be raised and serviced. The financial plan also includes calculation of
several ratios that are useful in the evaluation of funding options. Cost of capital is calculated,
net present value is calculated, internal rate of return is calculated and in some cases other
needed aspects like pay-back-period and accounting rate of returns are also presented in the
financial plan.

Q3 Define the term growth. What are the characteristics of a high growth firm?

Answer:

Growth:

Growth of a company is occasionally understood with reference to change in quantity sales,

rupee sales, gross or net investment in asset, profit or profitability. The term ‘growth’ is also
used to indicate change in market share or earning per share or market price of share. Stanford
Research Institute, an applied research centre in Menlo Park, California, (Young, 1961) had
conducted a fundamental study and developed a formula for growth ranking of firms. They had
included three growth measures: the percentage increase in sales (growth in size), in net profits,
and in the price of the company’s common stock

Characteristics of a high growth firm:

The high growth opportunity arises out of four factors (quadrants) combining with each other,
namely, (i) Characteristics of an entrepreneur (ii) Characteristics of business (iii) Business
practices of the enterprise (iv) Human resources

(i) Characteristics of an entrepreneur

An entrepreneur who possesses the following qualities is likely to steer his/her business towards
a high growth trajectory:
• Passion

• Vision to attain dream

• Persistence to work relentlessly and tirelessly

• High Self-efficacy to attain one’s objective

• Resource Skills

• Intelligence

(ii) Characteristics of business

Some characteristics of a firm would be conducive to high growth. Some important ones are as
follows:

• Strong commitment for growth

• Collaborative Growth Strategies

• Good Planning Strength

• Vibrant Organization

(iii) Business practices of the enterprise

Business practices are important for a long-term play of business, which grows fast. It is matter
of rules, procedures, documentation and overall culture that can deliver customer satisfaction and
build credibility. This can be achieved through quality product and services, offering of value for
money to customers and innovations that may fulfill customer needs.

(iv) Human resources

Human resources are of utmost importance for the survival and growth of a business. It is also
true that a growing firm can easily offer opportunities for employees to grow. Growth here does
not mean financial advancement, but mostly professional advancement.
Be selective in hiring employees, especially on key positions. Search for the right people and
offer opportunities in monetary terms and growth terms. Hiring is one thing and developing is
another. Continuous development of human resources is a function of several well-designed
actions like, compensation plan, motivational steps, training need identification, imparting
training, bringing innovation in jobs, empowerment of employees, promotion opportunities and
others. Employee commitment is commanded through positive culture and empowering
leadership. Still, recognition in monetary terms cannot be undermined. Start-ups are well-off
designing reward system that attracts talent that is willing to take risk and be rewarded if risk
taking succeeds. High growth rate of an enterprise is a compounded outcome of several factors
characterized by entrepreneurship characteristics, business characteristics, business practices and
human resources. Interplay among all these collectively creates an environment that may be
either conducive to growth or destructive to growth.