Block 2

Entrepreneurial
Competencies
Block
2
BUSINESS IDEA SELECTION AND FEASIBILITY
UNIT 5
Business Opportunity Identification and Selection
UNIT 6
Market Research
UNIT 7
Business Plan Preparation
UNIT 8
Business Plan Feasibility
UNIT 9
Business Plan Implementation
87
Entrepreneurship:
A Perspective
Business Opportunity:
UNIT 5 BUSINESS OPPORTUNITY: Identification and
Selection
IDENTIFICATION AND
SELECTION
Structure
5.0 Objectives
5.1 Introduction
5.2 Business Opportunity Identification
5.3 Trends
5.4 A Good Business Idea
5.5 Sources of Business Ideas
5.5.1 Internal Sources
5.5.2 External Sources
5.6 Techniques of Idea Generation
5.7 Scanning and Screening of Business Ideas
5.8 Selection of Workable Business Ideas
5.9 New Product Development Process
5.10 Critical Factors of New Venture Development
5.11 Let Us Sum Up
5.12 Key Words
5.13 Answers to Check Your Progress
5.14 Terminal Questions
5.0 OBJECTIVES
After studying this unit, you should be able to:
x explain the meaning of business opportunity;
x explore new emerging trends which may pave way for a business idea or
opportunity;
x discuss the elements of a good business idea;
x analyse and evaluate the ideas;
x identify the internal and external sources of generating new ideas ;
x describe the techniques of generating new business ideas;
x do screening and scanning of business ideas;
x describe the process of selection and evaluation of viable business idea;
x discuss new product development process; and
x describe the critical factors of new venture development.
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Business Idea
Selection and 5.1 INTRODUCTION
Feasibility
In the previous units, you have been acquainted with the theoretical
foundation of entrepreneur and entrepreneurship. Now you will be given a
tour of the practical insights of what do the entrepreneurs do and how they do
that. ‘Well begun is half done’- Aristotle, a very appropriate saying relevant
in the entrepreneurship world. Identification of a business opportunity is the
very first step and the most crucial part of an entrepreneur’s journey.
Specifically, a new entrant in the entrepreneurship world has to search for a
right business opportunity at the right point of time in the uncertain
environment. Most of the business opportunities arise from the unmet needs
or the deprivation of the market. The success of the new business venture
depends on the cracking of the right business opportunity at the right time.
Not only the success of new venture, for an entrepreneur to be successful, he
needs to be continuously innovating and looking for opportunities to survive
and grow in the uncertain market conditions. Essentially, entrepreneurs need
ideas to start and grow their entrepreneurial ventures. Generating ideas is an
innovative and creative process. Sometimes, the most difficult aspect of
starting a business may be facilitated with a business idea. Even if you have a
general business idea in mind, it usually needs to go through fine-tuning
processes. Fruitful ideas often occur at points where your skill set, your
hobbies and interests, and your social networks intersect. In this unit, you
will learn the identification of business opportunity, trends of business ideas.
You will be further acquainted with the techniques of idea generation,
scanning and screening of ideas or selection of workable ideas. You will be
further familiarised with the critical factors of new venture development.
5.2 BUSINESS OPPURTUNITY

IDENTIFICATION
Business opportunity, in general sense implies a good chance or a favourable
situation to do the business. Business opportunity identification is central to
the domain of entrepreneurship. Entrepreneurship revolves around answering
various questions with regard to why, where, when and how business
opportunities arise. Recognizing an opportunity often results from the
knowledge and expertise of the individual entrepreneur. The entrepreneur
must always be ready to use his knowledge and experience and turn his ideas
into a powerful business opportunity and create a successful venture.
Opportunity identification and selection are like corner stones of a business
enterprise. Better the former, better is the latter. However, all the identified
opportunities and the business ideas must be carefully screened and analysed
by the entrepreneur. The first step for every entrepreneur is the identification
of a business opportunity and generate a new business idea. The generation of
new business idea is not an easy task. Thus, let us now examine various
sources and techniques of idea generation for new products and services. You
need to understand that business opportunity, identification and selection
involves a thorough research of the dynamic market.
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Business Opportunity:
5.3 TRENDS Identification and
Selection
Trends mean something which is trending in your target market. Trends often
provide great opportunities for starting a new venture, particularly when the
entrepreneur can be at the start of a trend that lasts for a considerable period
of time. Seven trends that provide business opportunities are discussed
below:
1) Wearable Trend: As the cost and size of microprocessors continue to

shrink; the ability to carry the computers with monitors to display
relevant information is now a reality. The wearable tech industry
includes categories such as body monitoring (Fitbit) which has brought
smart watches into the market. Consumer’s interest in smart watches is
expected to boost the industry further as new companies come forward to
service the industry with applications and accessories.
2) Green Trend: The green sector continues to brimming opportunities

around the world. The Green sector is filled with opportunities for
entrepreneurs around the world. Today consumers are willing to pay
more for green products. Going green is not going away, but the various
trends within the green business movement will change direction,
creating opportunities for new products and new businesses. For
example: a movement towards hybrid cars, eco-friendly products and
packaging etc.
3) Payments: The dynamic payments industry continues to expand and

evolve, with digital payment vehicles and transaction volumes growing
across the globe. This industry includes services for lending money
(lendingtree.com) to products that allow anyone to accept credit/debit
cards (billdesk) as well as billing and accounting services (Paytm).
4) Maker Trend: The maker movement is a trend in which individuals or

groups of individuals create and market products that are recreated and
assembled. The recreation and assembly are done by using unused,
discarded or broken electronic, plastic, silicon or virtually any raw
material and/or products from a computer-related device. The maker
movement has led to the creation of a number of technology products
and solutions by typical individuals working without supportive
infrastructure. For example, MintyBoost, a popular DIY USB charger kit
built uses an Altoids tin, batteries and a few connectors which can easily
be created using instructions online, or purchased from other makers who
sell their devices.
5) Mobile Trend: The mobile phones continue to revolutionise the way of
purchases and interaction with consumers. The consumers are short of
time so the activities once done on desktops are now done on mobile
phones or tablets. There is no point in drawing a distinction between
future of technology and future of mobile. Both have been moving
towards consumers friendly operations.
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Business Idea 6) Heaalth Trend: Health maintenance concern abo out health care, are one of
Selection and
Feasibility the biggest trends that will continue in the next decade as the population
agess. This provides many opportunities for entrepreneurs
e including:
Cossmetic procedures, Fitness centres (also refeers as gym), Fitness toys
(e.gg. punch balloon, bi-cycle, etc.), Fit food, Caare clinics, And wellness
coacches. Green Mountain Digital is developing a social network platform
for nnature lovers.
7) Thee Internet of Things: With each passin ng day, the population
connnecting to internet has been increasing. TheT potential for nearly
everrything we interact with to be connected to th
he internet has given rise
to nnew products. They can access internet thro ough an embedded WIFI
trannsmitter. It has been assumed that interneet will disappear soon,
meaaning that you would not even sense that you are interacting with it.
Health
Trend
The
Maker
Internet
Trend
of things
TRENDS
Mobile
Wearable Trend
Trend
Greeen
Payments
Tren
nd
Figure 5.1 Trends
5.4 A GOOD BUSINESS IDEA

A busineess idea is a starting point for any current or future
f entrepreneurs. It is
essentiall because it is the beginning of a new lifee for a business and an
entreprenneur. An idea is important in the initial stagee of a start-ups as well as
their deevelopment. The results from good businesss ideas will feel in all
phases of the development of a firm, but will also depend on other
entreprenneurial activities. Any good business ideas could be an invention, a
new prooduct or service, or an original idea or solutions to an everyday
problem
m. A good business idea does not necessarilly have to be an unique
product or service. Majority of the entrepreneurs becomes successful with the
accompllishment as a result of the exceptional execcution of ordinary ideas.
The chaances of success therefore will be far greatter if you can market a
product that is similar to existing offerings, while prroviding greater value to
customeers. In entrepreneurship ‘ideas’ is used as an acronym.
a
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IDEAS stand for: Business Opportunity:
Identification and
Selection
I- Identification of opportunities
D- Designing into prototype to show to segment of society
E- Exclusive or Unique that is different from competitors
A- Acceptable to segment of society
S- Satisfying to the segment of the society for which made.
In other words, ideas are referred to as problems expressed by the people in

the society. Any problem stated by the consumers becomes a business
opportunity to be fulfilled by providing necessary goods or services as a
solution to their problems. For example, if a person is looking for keeping
his/her body fit then this problem can be solved by offering gym facility to
him/her.
5.5 SOURCES OF BUSINESS IDEAS

Business ideas are thoughts that when implemented can lead to income
generation. Coming up with new and feasible business ideas is a crucial
initial step to become a great entrepreneur. Business ideas are all around us in
the environment. Some of these business ideas emerge from market analysis
and consumer needs, while others emerge from a long research process.
Sources of new product ideas include: company employees, customers,
competitors, outside inventors, acquisitions, and channel members.
However, there is no conventional technique for sensing and selecting a right
business opportunity, these are some of the fruitful sources of business ideas
adopted by successful entrepreneurs which can be classified as internal and
external sources of idea generation. Let us learn them in detail.
5.5.1 Internal sources

Internal sources facilitate the generation of business idea from within the
organization. When people think about creativity in a business, they are often
referring to ideas for new products and services that come from the
employees. Using internal sources, the company can find new ideas through
formal Research and Development (R&D) or through formal and informal
employee’s suggestions. Rewards and recognition can be provided in order to
obtain maximum participation from the employees.
1) Research and Development: R&D can be carried out in-house or

outside the organization. R&D activity suggests what and how a new or
modified product can be produced to meet the customers’ requirements.
R&D involves researching the market and the customer needs and
developing new and improved products and services to fit these needs.
Businesses that have an R&D strategy have a greater chance of success
than businesses that not have R&D strategy can lead to innovation and
increased productivity and can boost competitive advantage of the
business. However, research and development can be expensive and
time-consuming process but its benefits outweigh its costs.
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Business Idea 2) Intrrapreneurship: An intrapreneur is a perso on who takes on the
Selection and
Feasibility respponsibility to innovate new ideas, products an
nd processes or any new
inveention within the organization. Beyond its internal R&D process,
com
mpanies can use the brains of its employeees—from executives to
scieentists, engineers, and manufacturing staff to sales people. Many
com
mpanies have developed successful “intraprreneurial” programs that
encoourage employees to envision and develop neew-product ideas.
3) Hob bbies and Interests: Hobbies are the activitiies that one enjoys doing
duriing leisure time and can prove to be a major source of business ideas
which is generated from within an entrepreneur. In fact, many successful
entrrepreneurs have established great successful business ventures while
purssuing their interests or hobbies. Virat Koh hli, one of the greatest
sporrtsmen of the 21st century has started its own
o fitness centre chain
nam
med ‘Chisel’ and turned his interests into o a successful business
ventture.
Hobbies and Interests
INTERNAL SOURCES Intrapreneurship
Research and Development
Need Recognition of
SOURCES OF IDEA customers
GENERATION
Existing Products and Services
Distribution Network
EXTERNAL SOURCES
Trade Journals, Business

Magazines and Newspapers
Trade Fairs and Exhibitions
Government Schemes
Figure 5.2 Sources of Idea Generattion
5.5.2 External Sources

Businesss can also obtain brilliant new-product ideas from any of a number of
external sources. These external sources are numerrous, such as customers,
competittors, channel members, but the firms differ greatly as to where they
concentrrate their efforts for outside assistance an nd the extent to which
external ideas are sought after and used.
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1) Need Recognition of Customers: Potential entrepreneurs should always Business Opportunity:
Identification and
pay close attention to the needs of the people in the society. A business Selection
opportunity arises from the need which is strongly felt by a vast majority
of people. When a need is strongly felt and people are unable to satisfy it
themselves, they tend to find its solution from the outside world.
Entrepreneurs should try to recognise this need as and make sincere
efforts to turn this need into a successful business venture. Needs can be
recognized by conducting surveys, whether formally or informally,
through questionnaires, interviews or observation.
2) Existing Products and Services: Improving upon the already existing
goods and services is yet another successful source of business idea
generation. This improvement might result into a completely new
product or service having more market appeal and sales potential. Thus,
an entrepreneur should carefully analyse and evaluate existing products
and services of itself and competitors and should bring out ways to
improve these offerings. That is why it is said that entrepreneurs need to
be creative and innovative. To understand it clearly let us take an
example. Data storage was never as easy as it is now via cloud storages
which were once a floppy disk. This got improved to a completely new
product as CD, and then turned into a pen drive and various other small
chip sized memory cards. Now data is stored on the virtual clouds like
iCloud, google drive etc.
3) Distribution Network: Members of distribution partner like dealers,

wholesalers, retailers and agents have proved to be one of the brilliant
sources of new idea generation. The distribution networks have
proximity with the customers and they can recognise the unsatisfied
needs of the customers. No one knows more than them, what do the
consumer wants and what are they getting at the moment. These channel
partners can provide with a wide variety of suggestions regarding
improvements in the existing products and services as well as new
product ideas according to the needs of the market as they deal in
number of products and services and thus might be having a maximum
experience across industry.
4) Trade Journals, Business Magazines and Newspapers: Statistical

information and other reports are being published by various trade
journals, business magazines and newspapers which can be used in
generating new business ideas. They write on current trends in industry,
best practices, legal issues, and general business environment which can
provide gainful insights while generating new business ideas for a
successful new venture and its growth. For example: Laghu Udyog
Samachar Magazine is a magazine published by MSME in India for
identification of business ideas.
5) Trade Fairs and Exhibitions:Trade fairs and exhibitions have proved to
be one of the excellent sources of idea generation since decades as they
are usually advertised on the Internet, radio, and newspapers. People
from all around the world come and participate in these fairs and
exhibition displaying their new products and services. One can meet a
95
Business Idea number of manufacturers, sales representatives, distributors, wholesalers,
Selection and
Feasibility and franchisers who can provide gainful insights in generating new
business ideas and launching a new venture.
6) Government Schemes: In order to eliminate unemployment and to
motivate youth to become entrepreneurs rather than craving for
employment, government of India has initiated various schemes to
provide training and assistance to the people having a desire to start their
own enterprises. These schemes by themselves, is a great source of idea
generation. For instance, Khadi and Village Industries Development
Board in India has led Indian handicrafts across borders by providing a
variety of incentives. These incentives are provided to village craftsmen
and artisans in the form of training, subsidized loans and raw materials,
export promotions etc. Support to Training and Employment Programme
for Women (STEP) aims to impart training to women above 16 years of
age in several sectors such as horticulture, agriculture, food processing,
handlooms etc. so that they can become independent and start their own
business. Various other schemes like Jan-Dhan Aadhar Mobile (JAM),
Biotechnology Industry Research Assistance Council (BIRAC), Trade
Related Entrepreneurship Assistance and Development (TREAD), etc.
have helped many individuals in generating new business ideas and
become entrepreneurs.
Thus, there can be many sources through which entrepreneurs can
generate new business ideas and grab an opportunity. The entrepreneurs
must keep on exploring new ways and means for the identification of the
new business ideas. Business visionaries and potential entrepreneurs
must evaluate these ideas and select those that can lead them to a well-
organized and successful business that meets the needs of the customers
and promote the economy in the society. Business idea generation,
therefore, helps to identify the opportunities than can be converted into
successful business ventures.
Check Your Progress A

1) What do you mean by entrepreneurship?
2) Distinguish between entrepreneurship and intrapreneurship.
3) List out five trends.
4) List out four external sources of idea generation.
5.6 TECHNIQUES OF IDEA GENERATION

Idea generation is described as the process of creating, developing an abstract
concrete or visual ideas and anyone can participate in generating new ideas.
Let us learn the techniques of idea generation.
1) Brainstorming: Brainstorming is a creative problem-solving technique

and also an informal approach to business ideas generation. It encourages
people to come up with thoughts and ideas that can, at first, seem a bit
96
crazy. The sustainable sinceree effort is required for the conversion of Business Opportunity:
Identification and
crazy idea into real business oopportunities. Some of these ideas can be Selection
crafted into original, creative solutions to a problem, while others can
spark even more ideas. The oobjective of brainstorming is to come up
with as many ideas as possiible and therefore, during brainstorming
sessions, there is no criticissm, rewards or judgements. For more
successful results, brainstorming should be conducted with the help of
experts.
2) Brain Writing: Brain writing iis an idea-generating method that involves
everyone in a group activity. Itt is a kind of written brainstorming. Unlike
brainstorming, which is verball and where the ideas are being generated
spontaneously, brain writing teends to give more time to the participants
to generate ideas. Brain writinng is silent technique where the group of
people (usually six) are requireed to write minimum three ideas on special
forms or cards which are circullated to each participant for a pre-specified
duration.
3) Focus Groups: Focus groups have been used for a variety of purposes
and have been widely used foor idea generation. The group is lead by a
moderator to conduct an in-deppth discussion. The group usually consists
of 8-14 recruited participants. In focus group, the role of moderator is
very much important for prooviding direction and leading the group
towards the generation of freshh ideas for new product development. For
example, a focus group createed by a car manufacturer to discuss about
the possible improvements in thhe existing model of its cars. Focus groups
are helpful not only in idea genneration but also in idea screening.
Brainstorming
Brain Writing
Focus Groups
Mind Mapping
Heuristic Ideation Technique
SCAMPER
TECHNIQUES
OF Problem Inventory Analysis
IDEA GENERATIO
ON
Free Association
Figure 5.3 Techn

niques of Idea generation
4) Mind mapping: Mind maps aare an idea generation strategy to produce
ideas effectively by associatioon. It is a powerful graphical technique
which is used to translate whateever is running into the minds into a visual
picture. The process of mind-m mapping involves penning down a central
theme and coming out with nnew and associated ideas that branch out
97
Business Idea from the central idea. These branches form a connected nodal structure.
Selection and
Feasibility With respect to creative problem solving, mind maps help to show how
are different pieces of information or different ideas connected. It helps
to unlock potential of the brain.
5) Heuristic Ideation Technique: HIT is an idea generation technique that

facilitates generation of new product ideas by exploring different
products’ features and making different combinations in order to search
for a new product idea. Under this technique, new product ideas are
developed using the combination of the elements of already existing
products.
6) SCAMPER: SCAMPER is an activity-based thinking process that helps

to generate diverse ideas. SCAMPER is an acronym which stands for: S-
Substitute; C-Combine; A-Adapt; M-Modify; P-Put to another use; E-
Eliminate; R-Rearrange. Substitute means thinking about substituting
different parts of the product or its processing for something else.
Combine means thinking about combining different products’ features or
processes in order to develop completely new product. Adapt signifies
adapting different measures according to the situation. Modify signifies
modifying features, physical qualities, size or price of existing product.
Put to another use means using the existing product for some another
problem or as a by product. Eliminate signifies eliminating non-essential
components and reducing time/efforts and cost. Rearrange means
rearranging the components or using different order.
7) Problem Inventory Analysis: Problem Inventory analysis though seems
similar to focus group method, yet it is somewhat different from the
latter in the sense that it not only generates the ideas, but also identifies
the problems the product faces. The procedure involves two steps: One,
providing consumers a list of specific problems in a general product
category. Two identifying and discussing the products in the category
that suffers from the specific problems. This method is found relatively
more effective for the reason that it is easier to relate known products to
a set of suggested problems and then arrive at a new product idea.
8) Free Association: Free association is a method of developing

new idea through a chain or a cycle of word association. The process
involves a word relating to the problem being written down, then another
and another.Free association contains elements of several other idea-
generating techniques and depends on a mental ‘stream of
consciousness’ and network of associations that are of two types:
x First is Serial association which starts with a trigger, you record the
flow of ideas that come to mind, each idea triggering the next, ultimately
reaching a potentially useful one.
x The second is Centred association, (which is close to classical

brainstorming) prompts you to generate multiple associations to the
original trigger so that you ‘delve’ into a particular area of associations.
98
Check Your Progress B Business Opportunity:
Identification and
Selection
1) What do you mean by brainstorming?
2) What is Focus Group?
3) What do you mean by Free association?
4) State whether the following statements are True or False:
i) Idea generation is the first step towards starting a new venture.
ii) Members of distribution channel are usually good sources of idea
generation.
iii) In brainstorming technique, rewards and criticisms are necessary to
encourage participation.
iv) Mind mapping is the process where branches are stemmed out of the
central theme.
v) Modifying in SCAMPER refers to adapting measures according to
the situation.
5) Fill in the blanks:
i) ………………. is the powerful graphical technique which is used to
translate whatever is running into the minds into a visual picture.
ii) …………………….. idea generation technique allows for in-depth
discussions.
iii) Government of India has initiated various schemes to provide
……………………… to the people having a desire to start their
own enterprises.
iv) Brain writing is a kind of written …………………………. .
v) …………………… is the idea generation technique that aims to
develop new product ideas by combination of features of existing
products.
5.7 SCANNING AND SCREENING OF BUSINESS

IDEAS
So far you have seen different sources of business ideas and techniques for
generating business ideas. Ideas may be many but as an individual you may
not want to make use of all the possible business ideas and to convert them
into business venture. Therefore, you need to screen the ideas, evaluate each
of them and select one or few that is viable. Idea screening is a process used
to evaluate innovative product ideas, strategies and marketing trends.
Screening is essentially an elimination technique. The purpose of idea
generation is to generate large number of ideas whereas the purpose of idea
screening is to reduce these numbers to some profitable business ideas. Idea
screening criteria are used to determine compatibility with overall business
objectives and evaluate whether the idea would offer a viable return on
investment. Whatever does not meet these criteria is typically discarded. In
simple words, idea screening refers to evaluating the business ideas on the
99
Business Idea basis of their profitability and discarding those which are not fruitful ones.
Selection and
Feasibility Out of hundreds of ideas, there may be only one or two real opportunities.
With the list of potential new product ideas, the need is to decide which ideas
to pursue and which to discard. Due to scarcity of available resources, it is
difficult to develop several products at the same time. Thus, a careful idea
screening process helps in focusing the whole product development process
with a higher possibility of achieving success. The purpose is to eliminate
the number of ideas without screening away the potential ones. The ideas can
be screened based on eight criteria’s and the entrepreneur must aim to answer
following questions while screening ideas:
1) Attractiveness of Idea: Would you enjoy doing it? For an idea to
become a successful business venture, it should be attractive to the
entrepreneur as well the market. No enterprise can become successful if
the idea is not attractive enough to be translated into a business.
2) Ability to undertake: Do you have the skills needed to do it? One can
generate any number of ideas but the ideas for which the entrepreneurs
have skills and abilities are considered to be the best ones. Even if the
skills are not sufficient, then the entrepreneur must consider whether
these skills can be developed by undertaking some training and
development programmes or not.
3) Practicality: Is it something that really can be done? A workable idea is

one which is feasible and practical. Before committing funding to a
proposed venture, one must decide whether it is viable or not.
4) Potential Market Demand: Will the customers be willing to buy it?
Before selecting an idea, its market demand must be carefully analysed.
There is no point investing in something that cannot stimulate its
demand,
5) Ability to Combat Competition: Is there competition in the market and

can you combat it in some way? A careful analysis of competition
present in the market is necessary before resorting to an idea. One must
ensure the intensity of available competition in the market. They should
enter only that market where they can manage the competition and
differentiate their product.
6) Ability to Differentiate: Can you differentiate it in some way that can
be sustained over a long period? The good idea is the one which has the
ability to be sustained for over a long period of time. It has to be
differentiated from those of competitors.
7) Price Potential: Can you avoid competing simply on price? The
competition should not be based only on price as that can lead to a price
war. The price war is not appropriate for long term survival of the
business.
8) Resource Availability: Do you think you have, or can get the resources
you need to start up the business? For conducting any business, sufficient
amount of resources is required. One must ensure that they have or can
100 gather sufficient amount of resources required for business.
Out of these eight criterions that can be used for screening business ideas, the Business Opportunity:
Identification and
personal interest and experience in a particular trait of the entrepreneur is of Selection
paramount importance in selecting the business idea. All the criterions
mentioned above has a question which needs to be rated on five-point scale
read as 1 = poor, 2 = average, 3= neutral, 4= good and 5= very good. All
these criterions on the questions concerned when rated on a five-point scale
will give a score to business idea. The minimum score that an idea can get is
8 and maximum score is 40. Therefore, the business idea that gets a score
more than 20 and anything greater than 20 may be considered to be a better
idea for its implementation. For example, when an idea A is rated on eight
criterions using five-point scale and score comes out to be 25 whereas an idea
B when rated gets a score of 35, therefore, it is very clear that idea B is better
than idea A. Therefore, the perception of the entrepreneur is converted into
quantitative score which helps the entrepreneur to pick up idea which is
having the highest score from amongst all other business ideas. In other
words, for selection of business idea, a two-stage process may be followed. In
stage one, from all the business ideas that are identified and listed, initial
screening can be done based on entrepreneur’s interest and investment it
requires. In stage 2, out of the shortlisted business ideas which should not be
more than 5 to 7, they can be rated on five-point scale as mentioned above
and the idea that get the highest score based on the perception of the
entrepreneur can be considered to be best amongst the shortlisted. However,
this process needs to be followed with lots of objectivity and due diligence on
the part of the entrepreneur. Besides, SWOT (Strengths, Weakness,
Opportunity and Threats, where SW are internal and OP are external factors)
analysis is also undertaken. A little more discussion on SWOT will be done
in the forthcoming units of this course.
5.8 SELECTION OF WORKABLE BUSINESS

IDEAS
The final decision is “what to produce?” in case of manufacturing or “what to
market?” in case of trading business. It is the most crucial decision in
entrepreneurship development as all the entrepreneurial activities reflect
around the production and sales of that product. Product selection is a
decision process, in which the design team selects one or few product
concepts for further development. The factors influencing the decision of
product selection are known as criteria of the product selection. An
entrepreneur has to critically apply these criteria at the stage of finalizing the
product.
1) Market Survey and Assessment of Market Potential: The majority of

small businesses fail within five years of starting up as the experience
goes in the market place if things are not planned properly. While there
are many reasons that businesses fail, including some that have nothing
to do with an owner's skills. It may also be possible that many of those
same businesses collapsed simply because they could not get enough
customers to buy their product or service. Thus, before selecting a
product, a market survey is required to be conducted. Every entrepreneur
101
Business Idea must understand that unless there is a market potential for his product, all
Selection and
Feasibility his entrepreneurial efforts may be futile.
2) Availability of Factors of Production: Selection of a product depends
heavily on the availability of factors of production like raw material,
labour supply, skilled workers, machines and equipment, spare parts,
transportation and communication facilities, water and electricity supply
etc. The selection of the business has to be done considering the types of
resources required by it and the availability of resources required to run
the business not for a short period of time rather for a longer period of
time. For example: - many industries in Mumbai had to shift themselves
to other neighbouring cities because of frequent power cuts, i.e., the
shortage of industry, and in those industries, electricity was the major
factor of production like steel mills. Similarly, because of pollution
emission by the select industry, the government of that state may take a
harsh decision to relocate those industries to the neighbouring areas. In
the view of non-availability of factors of production may lead to failure
of industries. So, all these should be covered as a part of market survey
before actually launching the product/business.
3) Cost of Production: Cost of production forms part of the criteria for
selecting a product in entrepreneurship. Entrepreneurs need to produce
goods that allow for appreciable profit margins, thereby limiting the cost
of production while increasing the possible gains. Therefore, cost of
production plays an important role in product selection for entrepreneurs.
Only products that give the highest profit margins are selected. The
selected products are tailored to fit into, or be accepted by the consumer.
If the entrepreneur is thinking of a completely new product the cost will
be very high as it includes the cost of research and product development
other than initial investment into new machinery training to employees &
the cost of raw material. If it is just a modification of an existing product
than the cost will be less hence depending upon the cost or the
capacity to spend the type of new product can be determined.
4) Availability and Access to Raw Materials: Different products require

different raw materials. The source, quality and quantity of the raw
materials needed are factors to be seriously considered, Are the raw
materials available in sufficient quantities? Are the suppliers ready to
supply raw material at desired prices? The sources of raw material, their
accessibility and policies of the government. If it is to be imported are to
be considered critically before selecting the product or service for
production. Satisfactory answers should be provided to these and many
other relevant questions regarding availability and accessibility of raw
materials.
5) Availability of Funds: Whether the required amount of funds is

available for production of the product or delivering the service are
available to the entrepreneur either by his/her own resources or through
outside investments and loans is a critical factor in selection of a product.
An entrepreneur may decide to produce high cost product like cars,
jewellery etc., but it would be selected based on the availability of funds
102
to the investor. The investor can raise funds through shares, debentures, Business Opportunity:
Identification and
secured loans etc. The entrepreneur can also select middle or lower Selection
ranged products like- electronic items, FMCG products etc. where less
investment is required. Hence, depending upon the financial strength the
type of product can be selected.
6) Differentiation: The extent to which an entrepreneur can establish a

brand image, service, product innovation or reputation describes its
differentiation. An entrepreneur should select such product which
differentiates it from competitors. There is no point competing on price
basis. A product or service should be selected only when it has a
competitive advantage and can be differentiated from the competitors.
Differentiation can be on the basis of technology, quality, ease of use,
packaging etc. which provides an edge over competitors.
7) Product Acceptance: This criterion used in selecting products in
entrepreneurship is very important. The level of acceptance a product
gains in the market place is tied to how successful such product will be.
Therefore, careful thought should be given to how a product is accepted.
However, the only way to know how well a product is accepted in the
marketplace is by first conducting a research. This can involve a
considerable amount of financial resources. Product testing in the open
market place can go a long way in identifying the underlying challenges
that accompany certain products.
8) Technical Implications: The production process for the product needs
to be considered. There is a need to know the technical implications of
the production, sales and distribution of selected product on the existing
production line, available technology, and even the labour force. The
choice of a particular product may require either acquisition of the
machinery or refurbishing of the old ones. The product itself must be
technically satisfactory and acceptable to the user.
9) The Future of the Product: This forms an important aspect of the
process of product selection in entrepreneurship. The future of the
product contributes significantly to how well the product fares. Hence,
important answers need to be given to questions on the level of demand
for the product, the acceptance of the product at the price fixed for it,
how feasible is the product and if there are any margins for meaningful
profits. All these form important criteria for selecting and developing a
product/service in entrepreneurship. A product that has wide demand and
at the same time offers impressive margins for profits will most certainly
be selected over those with lesser prospects.
10) Government Objectives and Schemes: The government policies can

significantly impact the decision to select a new product or service.
Various government schemes for entrepreneurs may help them in
selection of a particular product or sector in order to take advantage of
those schemes. For example, the government provides subsidies for
exporting goods encouraging entrepreneurs to develop the goods that are
popular outside India and can be exported.
103
Business Idea
Selection and
Feasibility
Cost of
Production
Availability of Availabilitty of
Factors of and Accesss to
Production Raw Mate erials
Market Survey
and Assesment Availability of
of Market Funds
Potential
SELECTION
CRITERIA FOR
NEW
PRODUCT OR
SERVICE
Government
objectives and Differentiation
schemes
The Future of Producct

the Product Acceptan
nce
Technical
Implications
Figure 5.4 Selection Criteria for New Producct or Service
5.9 NEW PRODUCT DEVELOPM

MENT PROCESS
Entrepreeneurs need to be concerned with formaally evaluating an idea
throughoout its evolution. Care must be taken to be sures that idea can be the
basis forr a new venture. This can be done through h careful evaluation that
results innto go or no-go decision at each of the stagess of the product planning
and devvelopment process. The new product develo opment is done through
followinng stages:
1) STA
AGE 1 - Idea generation
The neww product development process starts with h idea generation. Idea
generatioon refers to the systematic search for new-prroduct ideas. Typically, a
companyy generates hundreds of ideas, maybe eveen thousands, to find a
handful of good ones in the end. Two sources of new w ideas can be identified:
Internall idea sources: The company finds new ideaas internally. That means
R&D, buut also contributions from employees.
Externaal idea sources: The company finds new ideas externally. This refers
to all kkinds of external sources, e.g. distributors and suppliers, but also
competittors. The most important external source aree customers, because the
new prodduct development process should focus on crreating customer value.
Various examples exists in the market place where observations
o made by the
entreprenneur both inside the country and outside thee country with the focus
104 on customers have helped them in idea generaation. For example, the
entrepreneur Kishore Biyani of Futture Group when entered into the business Business Opportunity:
Identification and
could foresee that consumers of today are looking for casual wears and Selection
therefore, started offering denim jeeans in the market. And the time when he
was deciding about the brand nam me under which the fashion wear can be
launched in the market, he found oout that Indian consumer is fascinated by
foreign slangs. The denim jeans w which was a trouser and in Hindi, it was
called as patloon, added French slaang to it and came out with a brand name
which was “Pantaloons”. The Panttaloons which became the brand name for
fashion wear under which all categgories of fashion wears were introduced in
the market. Many such stories are aalready available in the literature where the
entrepreneur’s observation has helpped them in generation of new ideas. In all
such cases, all the ideas implem mented as business opportunities were
solutions to the problems of the connsumers.
2) STAGE 2 - Idea Screening

The next step in the new product deevelopment process is idea screening. Idea
screening means nothing else than ffiltering the ideas to pick out good ones. In
other words, all ideas generated aree screened to spot good ones and drop poor
ones as soon as possible. While the purpose of idea generation was to create a
large number of ideas, the purpose of the succeeding stages is to reduce that
number. The reason is that prooduct development costs may increase
substantially in the later stages. T
Therefore, the company would like to go
ahead with only those product ideeas that will turn into profitable products.
Dropping the poor ideas as soon as possible is, consequently, of crucial
importance.
STAGE
1
ͻ Idea Generation
STAGE
2
ͻ Idea Screenin
ng
STAGE 3
ͻ Concept Deveelopment and Testing
STAGE 4
ͻ Marketing strrategy
STAGE 5
ͻ Technical and
d Marketing Development
STAGE 6
ͻ Test Marketin
ng and Validation
STAGE 7
Commercializzation
Figure: 5.5 New Prroduct Development Stages
105
Business Idea 3) STAGE 3 - Concept Development and Testing
Selection and
Feasibility
Today, it is increasingly common for companies to run some small concept
test in a real marketing setting. The product concept is a synthesis or a
description of a product idea that reflects the core element of the proposed
product. Marketing tries to have the most accurate and detailed product
concept possible in order to get accurate reactions from target buyers. Those
reactions can then be used to inform the final product, the marketing mix, and
the business analysis. New tools leveraging technology for product
development are available that support the rapid development of prototypes
which can be tested with potential buyers. When concept testing can include
an actual product prototype, the early test results are much more reliable.
Concept testing helps companies avoid investing in bad ideas and at the same
time helps them catch and keep outstanding product ideas.
There are various types of marketing tools that can help in concept
development and testing. One such tool is conjoint analysis and it can help
the marketer to arrive at a concept proved statistically and therefore truly
justified. For example, manufacturer wants to introduce a coffee making
machine and this machine can come in different variations based on its
attributes. The three important attributes that can be considered by the
consumers at the time of buying a coffee making machine can be as follows:
Price Coffee_Brew_Time Capacity

Rs. 600 4 minutes 400 ml
10 minutes 1000 ml
When these options are before the manufacturer, he/she has to come out with
that combination in case of coffee making machine that can provide the
optimal solution to the customer. It can be a coffee making machine with 600
ml capacity with a brew time of 4 minutes and with the price range of Rs
1000 which can be concept 1. Similarly, concept 2 can be machine with the
capacity of 800 ml with a brew time of 4 minutes and in the price range of
Rs. 1000. And such concepts, once they are developed have to be tested on
consumers so that the consumers opinion may become the final verdict to be
launched in the market.
4) STAGE 4 - Marketing strategy

At this stage, a marketing strategy will be created for the selected concept.
Marketing strategy is created in three steps. These steps are:
x Identify in which market will the new product concept can be sold, how
much profit is targeted from new product concept and what are its
planned value proposition, sales and market share for the first few years.
x Identify the price at which new product concept will be sold, how will it
be distributed in the market and what will be the marketing budget for
106 the first year and so on.
x Identify how much new product concept will be sold in the long term, Business Opportunity:
Identification and
how much profit is targeted from long-term sale and what will be long- Selection
term marketing mix strategy.
This stage is very crucial because as Napoleon said that “Wars are not won in
the battle field rather on the piece of paper. Similarly, the entrepreneur is
required to craft marketing strategy for the business concept finalised and
then go for its implementation so that more or less the success is guaranteed.”
To learn more about marketing you may read our course BCOE-141
“Principles of Marketing”.
5) STAGE 5 - Technical and Marketing Development

A product that has passed the screening and business analysis stages is ready
for technical and marketing development. Technical development processes
vary greatly according to the type of product. For a product with a complex
manufacturing process, there is a lab phase to create specifications and an
equally complex phase to develop the manufacturing process. For a service
offering, there may be new processes requiring new employee skills or the
delivery of new equipment. These are only two of many possible examples,
but in every case the company must define both what the product is and how
will it be delivered to many buyers.
While the technical development is under way, the marketing department is

testing the early product with target customers to find the best
possible marketing mix. Ideally, marketing uses product prototypes or early
production models to understand and capture customer responses and to
identify how best to present the product to the market. Through this process,
product marketing must prepare a complete marketing plan—one that starts
with a statement of objectives and ends with a coherent picture of product
distribution, promotion, and pricing integrated into a plan of marketing
action.
6) STAGE 6 - Test Marketing and Validation

Test marketing is the final stage before commercialization. The objective is
to test all the variables in the marketing plan including elements of the
product. Test marketing represents an actual launching of the total marketing
program, done on a limited basis. Initial product testing and test marketing
are not the same. Product testing is totally initiated by the producer. He or
She selects the sample of people, provides the consumer with the test
product, and offers the consumer some sort of incentive to participate. In
product testing, there are two types of tests which are conducted called alpha
and beta testing. In alpha testing, the product is subject to checking of the
product’s standards/ specifications and is done in the laboratory. In Beta
testing, the product is put to test in a simulated situation. If the product passes
through all the tests when the product is made available for actual use that
shows that product is free from all technical problems because of which the
product may fail in the market place. For example, in case of car the car is
subject to alpha testing, by checking the controls on the apparatuses in the
laboratory and once the whole car is ready then the speed of the car, RPM of
the engine, breaking power, etc. is all an outcome of simulation test called
107
Business Idea beta testing and a sticker is placed on the car titled “PDI done” i.e. pre
Selection and
Feasibility delivery inspection completed.
7HVW PDUNHWLQJ on the other hand, is distinguished by the fact that the test
group represents the full market, the consumer must make a purchase
decision and pay for the product, and the test product must compete with the
existing products in the actual marketing environment. For these and other
reasons, a market test is an accurate simulation of the broader market and
serves as a method for reducing risk. It should enhance the new product’s
probability of success and allow for final adjustment in the marketing mix
before the product is introduced on a large scale. In case of test marketing,
once the product is finalised, a small geographical area is identified for the
target market and in that area the product is sampled to the consumers to use
the product. After a week or so their feedback is obtained to find out the
shortcomings in the product reported by the consumers. These shortcomings
are then removed in the laboratory and once no further problems are
expressed by the consumers at the time of using the product, it is assumed
that now the product is fit for final launching and commercialization.
7) STAGE 7±Commercialization

The first thing to be done at this stage is determining the time when new
product concept will be commercialized or introduced to the market. Then, at
which scale or capacity, new product concept will be introduced to the
market formally i.e., at a small scale such as a city, medium scale such as a
region, or at a big scale such as the national market, or the international
market. Usually, most businesses prefer to introduce new products into the
market at small or medium scales and expand the market in the process as
introduction of new product at a big scale requires more capital, confidence
and capacity which only few businesses have. This stage requires patience on
the part of the entrepreneur and is the beginning of the recovery of the
investment made by the entrepreneur in the form of return from the sale of
the product.
5.10 CRITICAL FACTORS OF THE NEW

VENTURE DEVELOPMENT
A new venture undergoes several stages: pre start-up stage, start-up stage and
post start up stage. Pre start-up stage starts with generation of idea for the
new venture and ends when the business opportunity is cracked. The start-up
phase starts when the production, sales and delivery activity commence and
the venture starts to function and ends when the business is established and
business has learnt to survive beyond short term threats and challenges. The
post start-up phase ends with the termination of venture or when the
surviving entity is no longer controlled by the entrepreneur. A number of
critical factors are important to consider for the assessment of new venture.
The five critical factors are explained below for the assessment of new
venture:
1) Uniqueness: Uniqueness is something that will make your business to be
108 the only one of its kind of business. The unique business idea is
something that will increasee the business potential energy of your Business Opportunity:
Identification and
business. It can be done bby creating a USP. A unique selling Selection
proposition (USP) is a well-thoought-out statement that helps a company
distinguishes itself from othher businesses in its category. In most
instances, companies will focuus on a single feature or benefit that solves
a problem, satisfies a need, orr takes away their customers' pain as their
USP. In order to articulate it too their customer base in a memorable way,
companies will create taglines oor summaries of their USP and insert them
into their advertising messagess. For example: - ‘taaza ho le’ by Taaza tea
reflecting the freshness of their tea differentiating it from other
competitors. ‘Hungry, grab a Snickers’ tagline by Snickers reflects its
tummy-filling capability of chocolate which is unique and not available
in competing chocolate brands..
Uniqueness
Customer Product
Availability Availability
CRITICAL
FACTORS OF
NEW VENTURE
DEVELOPMENT
Growth of
Investment
Sales
Figure 5.6 Critical Factoors of New Venture development
2) Investment: The capital iinvestment in every business varies

considerably. In some industriies only large-scale start-ups are feasible
whereas in some cases onlyy small-scale start-ups are feasible. For
example, an online business requires comparatively small amount of
investments as compared to aan offline brick and mortar business. An
entrepreneur entering publishiing industry can start small scale venture
initially and grow further. Conntrary to it an entrepreneur attempting to
manufacture cars may require large capital base and have to enter as a
large-scale business unit. It also involves analysing the investment needs
that may occur not just at startt up but during the initial years of the new
venture. Break-even analysis nneeds to be conducted in order to evaluate
the profitability of investment rrequirements in the new venture.
3) Growth of Sales: The pattern of growth of sales needs to be analysed in
advance. The rate of growth expected also needs to be calculated to
know the gestation period of tthe new venture to breakeven. It involves
answering various questions likke: Are sales and profits expected to grow
slowly or level off shortly aftter start up? Are large profit expected at
some point, with only small annd moderate sales growth? Are both sales
growth and profit growth likelyy?
109
Business Idea 4) Product Availability: Availability of the product after the promotion is
Selection and
Feasibility an essential factor to be considered. Sometimes, firms make so much
hurry in launching new product but unable to make it available at the
doorsteps of the target population which may tarnish its image.
Sometimes the product launched during its development stage which
needs further modifications or testing. For example, a software firm
rushing to launch its software and then customers find bugs in the
software which needs to be fixed. Lack of a products’ availability in
finished form, free from all defaults pre-tested may tarnish company’s
image.
5) Customer Knowledge about their requirements (customer connect):

It is important for the entrepreneur to understand the requirement of the
customer before starting the production in the venture. The product
available from the venture to be started should understand the needs and
wants of the consumer through market survey which will increase the
likelihood of venture success. Venture risk is affected by availability of
customers for start-ups. Sometimes, venture launches its product without
knowing who will buy its products, for whom they are preparing the
product. A critical consideration is how long will it take to determine
who the customers are, as well as their buying habits. It is also important
for the entrepreneur to understand what are new features looked by the
consumer of their target market in the product they want to introduce and
also check for its affordability from the market where the product is to be
introduced. For example, if a new mobile is to be introduced then the
entrepreneur has to go to the market to find out the features which the
consumers look for in mobile at the time of buying and at what price
range, they will be interested to buy it. The knowledge of both these
factors can be gathered by carrying out initial market survey by the
entrepreneur using focus group interviews. This will ensure the venture
success in the long term. It is said in the marketing literature, that
produce what consumers want and do not offer anything to the market
till the consumers want. So, this calls for proactive approach on the part
of entrepreneur.
Check Your Progress C

1) What do mean by market survey?
2) What is marketing strategy?
3) List out the steps of product development.
4) State whether the following statements are True or False?
i) It is not necessary to judge the feasibility of ideas.
ii) Test marketing represents an actual launching of the total marketing
program, done on a limited basis.
iii) Concept testing helps companies to avoid investing in bad ideas and
at the same time helps them catch and keep outstanding product
ideas.
110
iv) It is right to compete just on price basis with the competitors. Business Opportunity:
Identification and
Selection
v) Free association is a method of developing new idea through a chain
or a cycle of word association.
i) …………….. is the criteria to judge the feasibility of the product.
ii) Test marketing is the final stage before ………………………. .
iii) The ……………………… is a synthesis or a description of a
product idea that reflects the core element of the proposed product.
iv) No enterprise can become successful if the idea is not
……………….. enough to be translated into a business.
v) The product needs to be …………………….. from that of its
competitors.
5.11 LET US SUM UP

Business opportunity identification is central to the domain of
entrepreneurship. Entrepreneurship revolves around answering various
questions with regard to why, where, when and how business opportunities
arises in the economy. The entrepreneur must always be ready to use his
knowledge and experience and turn his ideas into a powerful business
opportunity and create a successful venture.
Trends often provide great opportunities for starting a new venture. Trends
with regard to wearable trend, mobile trend, payments, green trend, health
trend and the internet are emerging at a fast pace.
Business ideas can be generated through internal as well as external sources.
There are internal various sources with which ideas can be generated like
research and development, intrapreneurship, etc. and external sources like
distribution channel, trade magazines, journals, government schemes, etc.
Techniques for generating ideas include: HIT, SCAMPER, Free Association,
problem inventory analysis, brain storming, brain writing, mind maps etc.
each technique has its own advantages and disadvantages.
Idea screening is a process used to evaluate innovative product ideas,
strategies and marketing trends. Screening is essentially an elimination
technique. The purpose of idea generation is to generate large number of
ideas whereas the purpose of idea screening is to reduce these numbers to
some profitable business ideas. There are eight criteria for screening business
ideas: Attractiveness of idea, practicality, potential of market demand, ability
to undertake, price potential, resource availability, ability to combat
competition and ability to differentiate.
Product selection is a decision process, in which the design team selects one
or few product concepts for further development. The entrepreneur should
follow various criteria for selecting a product for production and sales. Some
111
Business Idea of those criteria are: (1) Cost of Production, (2) Availability of and Access to
Selection and
Feasibility Raw Materials, (3) Availability of Funds, (4) Differentiation, (5) Product
Acceptance, (6) Technical Implications, (7) The Future of the Product, and
(8) Government objectives and schemes.
Entrepreneurs need to be concerned with formally evaluating an idea
throughout its evolution. Care must be taken to be sure that idea can be the
basis for a new venture. A process for new development starts from idea
generation, idea screening, concept development and product testing,
marketing strategy, technical and market development, testing and validation
and commercialization.
A new venture undergoes several stages: pre start-up stage, start-up stage and
post start up stage. A number of critical factors are important to consider for
the assessment of new venture. The five critical factors are explained below
for the assessment of new venture: Uniqueness, Product availability,
customer connect, growth of sales and investments.
5.12 KEY WORDS

Brainstorming: Brainstorming is a creative problem-solving technique and
also an informal approach to business ideas generation.
Idea screening: It is a process used to evaluate innovative product ideas,
strategies and marketing trends.
Intrapreneur: An intrapreneur is a person who takes on the responsibility to
innovate new ideas, products and processes or any new invention within the
organization
Free association: Developing new ideas through chain of word associations.
Heuristic Ideation Technique: New product ideas are developed using the
combination of the elements of already existing products.
Mind maps: Idea generation strategy to effectively produce ideas by
association.
Product testing: It means testing the product in the laboratory to ensure that
the product is technically safe and free from all product risks and liabilities.
Problem inventory analysis: A method for obtaining new ideas and
solutions by focusing on problems.
Test marketing: Final stage before commercialization in product
development stage.
5.13 ANSWERS TO CHECK YOUR PROGRESS

B) 4. i. true, ii. true, iii. false, iv. true, v. false
5. i. Mind Maps, ii) Focus Group, iii. Training and Assistance, iv.
Brainstorming, v.Heuristic Ideation Technique
C) 4. i. false, ii. true, iii. true, iv. false, v. true
112
5.i. Practicality, ii. Commercialization, iii. Product Concept, iv. Business Opportunity:
Identification and
Attractive, v. Differentiated Selection
5.14 TERMINAL QUESTIONS

1) Define business opportunity. What are the emerging trends for analysing
business opportunity?
2) What are the sources of generating business ideas? Explain with
examples.
3) What are the methods of generating successful business ideas? Explain
with the help of examples.
4) Explain the stages of the process of New Product Development.
5) What are the criteria for screening business ideas? Discuss with
examples.
6) What are the critical factors required to consider before launching new
venture? Explain with examples.
7) Write short notes on:
a) Brainstorming
b) SCAMPER
c) Mind Maps
d) Test Marketing
Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.
FURTHER READINGS
x Hisrich, R. D., Peters, M. P., and Shepherd, D. A.
2016.Entrepreneurship, Indian Edition, Mc Graw Hill Education; (Part
two, Chapter 4).
x Kaplan J. M. and Warren, A. C. 2015. Patterns of Entrepreneurship
Management, Wiley; ( Part one, Chapter 4).
x Kaulgud, A. 2003. Entrepreneurship Management, Thomson; (Chapter 3)
x Kuratko, D. F. and Rao, T.V. 2016.Entrepreneurship, A South-Asian
Perspective, Cengage Learning; (Part three, Chapter 9).
x Roy R. 2009. Entrepreneurship, Oxford; (Section one, Chapter 2)
113
Business Idea
Selection and UNIT 6 MARKET RESEARCH
Feasibility
Structure
6.0 Objectives
6.1 Introduction
6.2 Market Survey
6.3 Market Research
6.4 The Marketing Mix
6.5 Preparing the Marketing Plan
6.6 Proposed Business Plan for a Sports Retail Store
6.7 Rural Market Research
6.7.1 Features of Rural Market
6.7.2 Difference between Urban and Rural Market Research
6.8 The Marketing Mix of Rural Market
6.9 Let Us Sum Up
6.10 Key Words
6.0 OBJECTIVES
x explain the meaning of market survey and market research;
x describe the importance of market survey;
x explain the meaning and process of market research;
x discuss the decisions regarding marketing mix;
x identify the steps in preparing marketing plan;
x explore rural market and its features;
x discuss the difference between urban and rural market research; and
x describe the marketing mix of rural market.
6.1 INTRODUCTION
Once you have identified and selected the business idea that can be converted
into a business venture, you need to do the preliminary survey/research to see
whether your business idea is marketable or not. Only those offerings
(business) are profitable which has got a good market. So the next important
thing that you need to do is to study the market and do the survey/research to
find out the acceptance of your proposed market offerings (goods and
services). There are two words in marketing literature namely, marketing
research and market research. Marketing research is broader and market
research is subset of marketing research. In other words, marketing research
114

covers all aspects starting from motivation research, product research, pricing Market Research
research, promotion research etc. i.e., research in all elements of marketing.

Market research is a focus research covering the consumers only. Since you
are conducting this research at a pre-start-up phase, at this time you need to
know primarily about your consumers. However, once your business venture
comes into existence you need to do a more comprehensive research for
growth and development. In market research the entrepreneur research about
the consumers’ needs and wants, demand pattern, features to be introduced in
the product as product attribute, what are the consequences of these
attributes. Finally he/she tries to understand the value provided by these
attributes in order to help the consumer to form an attitude towards the
product, drive him/her towards purchase intention and finally to purchase
behaviour. This is a very critical component and therefore needs to be carried
out with utmost care.
A market is a group of people who have purchasing power and unsatisfied

needs. These needs should be carefully identified by the entrepreneur as the
entrepreneur will survive only when there is a market for its products or
services. Thus, before entering any market it is vital that the entrepreneur
conducts market analysis by carrying out market survey or other techniques.
If the entrepreneur himself is not an expert enough to conduct market
research, he may take help from outside agency. By doing so, the
entrepreneur will be in a position to gain in-depth knowledge about the
specific market and can translate this knowledge into a well formulated
business plan. In a way, the entrepreneurs tries to understand what does a
market consist of, the process of marketing research, the development of
marketing research, and the development of marketing plan. In this unit, you
will learn about the market survey, the process of market research, marketing
mix and steps in preparing marketing plan. You will be further acquainted
with the rural market research and rural marketing mix.
6.2 MARKET SURVEY

Market survey is the survey research and analysis of the market for a
particular product/service which includes the investigation into customer
inclinations. It is a study of various customer capabilities such as investment
attributes and buying potential. Market surveys are tools to directly collect
feedback from the target audience to understand their characteristics,
expectations, and requirements.
Marketers develop new and exciting strategies for upcoming

products/services but there can be no assurance about the success of these
strategies. For these to be successful, marketers should determine the
category and features of products/services that the target audiences will
readily accept. By doing so, the success of new avenue can be assured. Most
marketing managers depend on market surveys to collect information that
would catalyse the market research process. Also, the feedback received from
these surveys can be contributory in product marketing and feature
enhancement.
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Business Idea Importance of Market Survey
Selection and
Feasibility
There are 5 factors that depict the importance of a market survey. Let us learn
about them in detail:
1) Understanding the demand and supply chain of the target market: A

product is most likely to be successful if it is developed by keeping in
mind the demand and supply of the target market. This way, marketers
can obtain insights about market capabilities to absorb new products and
concepts to develop customer-centric products and features. The demand
estimation has to be done by the entrepreneur which includes not only of
the present demand but also of the future demand. For this, various types
of demand forecasting techniques are used by the entrepreneur which are
both quantitative and qualitative by nature. To name few techniques,
they are Delphi technique, Composite of sales-force opinion, consumer
survey of the current demand as to how much quantity they would like to
buy at what price, extrapolation of the past trend, method of least square,
exponential smoothening etc. In supply chain, it requires to be found out
that what the degree of competition is. This is important for entrepreneur
to do the competitive analysis in order to find out what are they offering
at what price, how are they promoting and the strategy of distribution.
This supply side information will help the entrepreneur to re- orient their
strategies to combat the moves of the competitors.
2) Developing well-thought marketing plans: The World is a target

market for an organization and therefore getting data from the target
market through well planned market research is the need of the hour.
Using market surveys and segmentation can be a source of creating
concrete and long-term marketing plans. Preparation of adequate
marketing plan may facilitate the operations of the business.
3) Figure out customer expectations and needs: All marketing activities
revolve around customer acquisition. All small and large organizations
require market surveys to gather feedback from their target audience
regularly. This is done by the application of customer satisfaction tools;
such as, Net Promoter Score, Customer Effort Score, and Customer
Satisfaction Score (CSAT) etc. Organizations can analyse customer
feedback to measure customer experience, satisfaction, and expectations
etc. to keep on being updated about the changing customer demands over
period of time. If the customer expectations are known by the
entrepreneur then accordingly, they can design their products and
services to deliver results which can meet and exceed these expectations.
If results are greater than the customer expectations, it will always add to
their delight.
4) Accurate launching of new products: Market surveys are influential in

understanding where to test new products or services. Market surveys
provide marketers a platform to analyse the scope of success of
upcoming products and make changes in strategizing the product
according to the feedback they receive. The accurate and precise
information may facilitate launching of new products.
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5) Obtain information about customer demographics: Customer Market Research
demographics form the core of any business and market surveys can be
used to obtain intricate and sensitive details about customer
demographics such as race, ethnicity or family income. Such
demographic information obtained through market survey will always
help the entrepreneurs to segment their markets carefully to ensure the
success of their venture. Moreover, the precise demographic information
may help the entrepreneurs to offer the products in such a way that may
satisfy the customers.
6.3 MARKET RESEARCH

Market research involves the process of gathering, analysing and interpreting
information about a market, about a product or service to be offered for sale
in that market. It includes: the past, present and potential (future) customers
for the product or service; research into the characteristics, spending habits,
location and needs of your business's target market, the industry as a whole,
and the particular competitors you face.
Market research involves the gathering of data to determine such information
as who will buy the product or service, what is the size of potential market,
what price should be charged, what is the most appropriate distribution
channel and what is the most appropriate promotion strategy to inform and
reach potential customers. Market research may be conducted internally by
entrepreneur or by outside specialized agencies. Market research is conducted
following a process which begins with defining the objectives or purpose of
the research. Market research allows a company to discover the
target market and get opinions and other feedback from consumers about
their interest in the product or service. There are lot of various research firms
in India which can be hired by entrepreneurs for this job. To name few, these
are Operation Research Group (ORG), Indian Market Research Bureau
(IMRB), RNB research, TNS India Private Ltd. IDC India, The Nielsen
Company, etc.
Process of Market Research

Now, let us try to understand the process of market research. The market
research process is a systematic methodology for arriving at various types of
business decisions. Marketing research involves gathering information about
a particular market and analysing that information for use. It consists of
various steps because it is a systematic investigation of facts and figures as
follows:
1) Define the Research Purpose and Objectives: The first stage in a
marketing research process is to define the research problem. The
research problem will direct the entrepreneur to collect the information.
The entrepreneur should first focus and prepare a list of all the
information that will be needed to prepare further plans. Defining the
problem, the entrepreneur needs to decide what information is needed
and how that information can be gathered. It involves preparing
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Business Idea questions that will define the research objectives. For example: the
Selection and
Feasibility entrepreneur should aim to answer questions like:
x Who will buy the product or service?
x What is the size of potential market?
x What prices will the target customers willing to pay?
x What is the most appropriate distribution channel?
x What is the most appropriate promotion strategy to inform and reach
potential customers?
x How does the business differentiate its products/services with that of
its competitors?
2) Gather Secondary Data: Secondary data refers to the information

already collected by some other researcher, the information that already
exists and compiled. Gathering secondary data is helpful to the
entrepreneur in many ways as it is considered to be the less expensive
source of collecting information and are already tested for its reliability
by the researcher. There are many secondary research sources like
business magazines, peer reviewed journals, published articles, libraries,
government agencies, and most important being internet and social
media sites. All these sources are helpful in providing information about
the market and its competitors.
However, these may not be always suitable as these are collected by the
researchers for some other purpose which may not suit the current
purpose. The secondary information can be outdated, therefore, less
useful. Some sources of secondary data may not be authentic. Therefore,
secondary data should be used while evaluating various business
opportunities to make more informed decision of selection of the
business idea.However, this data should be used with caution.
3) Gathering Information from Primary Sources: If the secondary
sources are not sufficient, the entrepreneur may generate new
information, known as primary data which is collected by the
entrepreneur or the agent recruited by him/her for the purpose of market
research. Primary research is the original research whose purpose is to
collect the data specifically for the current objective. Surveys and
experimentation by mailing, telephonic and personal interviews,
observation, etc. are some of the sources of collecting primary data. The
advantage of using primary information is that it is specifically collected
for the required purpose and is fresh and latest.
However, primary data collection is considered to be a costly and time-
consuming process. Sometimes, the respondents do not give consent for
personal interviews and may feel intruded if observed by the researcher.
To gather information from primary sources we need to develop an
Information Gathering Instrument. The questionnaire is the basic
instrument that can be used to gather information from the market
through a survey. The questionnaire needs to be carefully developed
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and it should contain questions that bring out the required information Market Research
from the respondent. However, it should not contain personal questions

that the respondents hesitate to answer and respondents may choose to
respond as an anonymous. Also, concise directions are required to be
given to the respondents in the questionnaire and use of technical words
should be avoided. Instrument designing is an art and comes through
experience therefore the entrepreneur can take the help of outside
agencies or some experts at the time of finalising the instrument used for
information gathering.
4) Analysis of Data: Now that all the information needed is collected, it is
the time for analysing the data. The data collected is raw data and needs
to be organized for its effective utilization. Large quantities of data are
merely facts. To be useful, they should be moulded and organized into
meaningful information. The data collected by observing the units in the
sample has to be compiled and coded. Then analysis of the data should
be done based on appropriate statistical methods. Some of the widely
used statistical tools are regression analysis, correlation analysis and
statistical testing for independence between attributes.
5) Interpreting and Reporting Information: The results of marketing

research must be effectively communicated to the management.
Presenting the results of a marketing research study to the management
generally should be done as a formal written report as well as an oral
presentation. Preparing a research report has three steps: understanding,
organizing and writing. The summary of findings is the most important
component of the written report, and many of management team who are
to receive a copy of the report will only read this section. Easy-to-
understand tables, charts and graphics will enhance the readability of the
written research report.
6) Put Research into Action: Once the research is complete. It is time to
present the findings and take action. It is time to start developing
marketing strategies and campaigns and putting the findings to the test.
The biggest takeaway here is that, although this round of research is
complete, it is not over. The problems, business environment, and trends
are constantly changing, which means that the research is never over.
The trends discovered today through research are evolving. One should
be analysing the data on a regular basis to see where one can improve.
The more an entrepreneur knows about his/her buyer personas, industry,
and company, the more successful his/her marketing efforts and
company will be.
6.4 THE MARKETING MIX

An understanding of the concept of marketing mix is required to make the
marketing plan. Therefore, let us quickly and briefly get an idea about the
concept of marketing mix. The marketing mix refers to the set of actions, or
strategies, that a company uses to promote its brand or product in the market.
Marketing mix is the concept given by McCarthy’s which is the concept of
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Business Idea taking iinto consideration all the relevant and esssential factors that are
Selection and
Feasibility requiredd to contribute towards the success of an entrepreneur’s
e marketing
endeavoours. A marketing mix is described as a suitaable amalgamation of ‘4
Ps of mmarketing’, which are: Product, Price, Prom
motion and Place. Let us
learn theem.
1) Prooduct: Product refers to the item actually being
b sold. The product
musst deliver a minimum level of performance; otherwise even the best
worrk on the other elements of the marketing mix x would not do any good.
Somme critical decisions which are required to be taken are quality of
commponents of materials, style, features, options,, brand name, packaging,
sizees, service availability, and warranties. In a way it is also called as
prodduct mix. The analysis of each component of product mix and
mannufacture of suitable products any enhance the acceptability of the
prodduct.
2) Pricce: Price refers to the value that is put for a product. It depends on
costts of production, segment targeted, ability y of the market to pay,
suppply - demand and a host of other direct and inndirect factors. There can
be several types of pricing strategies, each tied t in with an overall
busiiness plan. This involves decision with regaard to quality image, list
pricce, quantity, discounts, allowances for quick k payment, credit terms,
and payment period. This is also called as Prrice Mix when all these
elemments are taken into consideration. The deteermination of right price
mixx may help in increasing the sale of the producct.
Promotion
Marketing
Product P
Price
Mix
Place
Figure 6.1 – 4 Ps of Marketing Mix
3) Proomotion: This refers to all the activities undertaken

u to make the
prodduct or service known to the user and trrade. This can include:
adveertising, word of mouth, press reports, incen ntives, commissions and
awaards to the trade. It can also include: con nsumer schemes, direct
marrketing, contests and prizes. This involves crittical decisions regarding:
Meddia alternatives, message, media budget, role of personal selling, sales
prommotion (displays, coupons, etc.), use of sociial networking, Web site
120 desiign, and media interest in publicity. The entreepreneur has to design its

IMC which means Integrated Marketing Communications where all the Market Research
elements of promotion are given weightage in terms of percentage of the

promotion budget to be spent. This way the entrepreneur synergises its
promotion effort where sum-total of whole elements is greater than the
sum of the individual elements of promotion. The promotion strategy
may be helpful in making the customers in making the customers aware
about the products and their features. The awareness may facilitate in the
buying decision of the customers.
4) Place: Place refers to the point of sale. In every industry, catching the
eye of the consumer and making it easy for her to buy it is the main aim
of a good distribution or 'place' strategy. Retailers pay a premium for the
right location. In fact, the mantra of a successful retail business is
'location’. The critical decision regarding media alternatives, message,
media budget, role of personal selling, sales promotion (displays,
coupons, etc.), use of social networking, website design, and media
interest in publicity may be taken. This calls for making the distribution
strategy by the entrepreneur on the basis of the feedback of the
consumers. One thing should be ensured that promotion should be
followed with distribution. In other words if distribution channels are not
available at any place in the market then in that area the promotion
should also not be done.
All the elements of the marketing mix influence each other. They make
up the business plan for a firm and handled right, can give it great
success. The wrong decision may be very harmful and business could
take years to recover. The marketing mix needs a lot of understanding,
market research and consultation with several people, from users to trade
to manufacturing and several others. A detailed discussion on the
marketing mix is given in other course offered by IGNOU. If you are
interested you may study that course.
6.5 PREPARING THE MARKETING PLAN

When in a business, the mind of the entrepreneur has to be focused on what is
to be achieved and how are we going to do the achievement. Marketing
planning is used to:
x Assess how well the organisation is doing in its markets.
x Identify current strengths and weaknesses in these markets.
x Establish marketing objectives to be achieved in these markets.
x Establish a marketing mix for each market designed to achieve
organisational objectives.
Steps in Preparing the Marketing Plan

There are various stages involved in preparing the marketing plan. Each of
these stages, when completed, will provide the necessary information to
formally prepare the marketing plan (Figure 6.2). An effective marketing
plan will give a business owner a clear idea of the opportunities available in
121

Business Idea their market, as well as a deep understanding of target audiences and
Selection and
Feasibility competitors. Using that information, businesses can craft a detailed strategy
to guide their marketing efforts toward success and growth. Following are the
essential steps in preparing marketing plan:
1) Defining the Business Situation: The situation analysis is a review

where the company considers many of the environmental factors and
industry analysis. The entrepreneur should simply review some of the
key elements of this section to provide a context for the marketing
segmentation and actions that will be stated in this section of the
business
plan. Industry analysisshould include: information on market size, growt
h rate, suppliers, newentries, and economic conditions. Defining business
situation involves description of the company, the marketing plans in
place and goals for the future. It also states the company’s mission
statement. The current business situation is one section in the plan
describing the company’s current state of market.
2) Defining the Target Market: Opportunities and Threats: A target
market is the specific group of people you want to reach with
your marketing message. They are the people who are most likely to buy
your products or services, and they are united by some common
characteristics, like demographics and behaviours. Knowledge of the
target market provides a basis for determining the appropriate marketing
action strategy that will effectively meet its needs. The defined target
market will usually represent one or more segments of the entire market.
Thus, it is important even before beginning the research to understand
what market segmentation is before determining the appropriate target
market. Market segmentation means dividing the whole population into
small homogenous group so that the entrepreneur responds more
effectively to the needs of more homogeneous consumers.
The process of segmenting and targeting customers by the entrepreneur

should proceed as follows:
x Decide what general market or industry you wish to pursue.
x Divide the market into smaller groups based on characteristics of the

customer or buying situations. The characteristics of the customer or
buying situations may be as follow:
A. Characteristics of the customer

i) Geographic (e.g., state, country, city, region)
ii) Demographic (e.g., age, sex, occupation, education, income, and
race)
iii) Psychographic (e.g., personality and lifestyle)
B. Buying situation

i) Desired benefits (e.g., product features)
ii) Usage (e.g., rate of use)
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iii) Buying conditions (e.g., time available and product purpose) Market Research
iv) Awareness of buying intention (e.g., familiarity of product and

willingness to buy)
x Select segment or segments to target.
x Develop a marketing plan integrating product, price,

distribution, and promotion.
3) Considering Strengths and Weaknesses: It is important for the

entrepreneur to consider strengths and weaknesses in the target market. It
is most appropriate in the early stages of marketing planning. The
analysis takes internal resources and capabilities, such as strengths and
weaknesses, and external factors, such as opportunities and threats, into
account.
4) Establishing Goals and Objectives: A sound marketing strategy

aligned with your highest-level business goals and objectives helps you
to create awareness for your company and its products and services. It is
important to decide “Where do we want to go?” and should specify
things such as market share, profits, sales (by territory and region),
market penetration, number of distributors, awareness level, new product
launching, pricing policy, sales promotion, and advertising support. All
the preceding goals and objectives are quantifiable and can be measured
for control purposes. However, not all goals and objectives must be
quantified. It is possible for a firm to establish such goals or objectives as
customer attitudes toward a product, set up a sales training program,
improve packaging, change name of product, or find new distributor. It is
a good idea to limit the number of goals or objectives to between six and
eight. Too many goals make control and monitoring difficult. Obviously,
these goals should represent key areas to ensure marketing success.
5) Defining Marketing Strategy and Action Programs: Once the
marketing goals and objectives have been established, the entrepreneur
can begin to develop the marketing strategy and action plan to achieve
them. These strategy and action decisions respond to the question: “How
do we get there?” In this step, it involves decisions regarding marketing
mix of the company discussed earlier in section 6.4 of this chapter.
6) Marketing Strategy: Consumer versus Business-to-Business

Markets: The decisions regarding marketing to consumers are very
much different from that of business-to-business marketing. In business-
to-business markets, the entrepreneur sells the product or service to
another business that uses the product or service as part of its operations.
Dell Computer markets its products to both consumers and businesses. In
marketing to consumers, the company uses direct mail and the Internet,
and to businesses it uses its own sales force. The consumer marketing
effort, however, does support the business marketing effort since the
advertising and promotions will be seen or read by both markets.
Consumer markets involve: sales to households for personal
consumption. Food, beverages, household products, furniture, and
123

Business Idea commputers would be a few examples. Usuaally business-to-business
Selection and
Feasibility marrketing strategy involves a more direct channeel of distribution because
of tthe volume of each transaction and the need to relate product
knowledge to the business buyers. Advertising g and promotion for the
busiiness-to-business market involve more trad de magazine advertising,
direect sales, and trade shows.
7) Bud dgeting the Marketing Strategy: Effecttive planning decisions
shouuld also consider evaluating the cost of impleementing those decisions.
Thee cost for achieving the desired goals an nd objectives should be
reassonably clear and budgets should be prepaared well in advance. It
shouuld be clearly stated so that anyone else who w reviews the written
marrketing plan understands all the implicationss. The costs and budgets
fram
med in this also help in preparation of financiaal plan.
^dWϭ
ϭ
ͻ Defining the B
Business Situation
^dWϮ
Ϯ
ͻ Defining the TTarget Market: Opportunities and Thre
eats
^dWϯ
ϯ
ͻ Considering Sttrengths and Weaknesses
^dWϰ
ϰ
ͻ Establishing Goals and Objectives
^dWϱ
ϱ
ͻ Defining Markketing Strategy and Action Programs
^dWϲ
ϲ
ͻ Marketing Straategy: Consumer versus Business-to-B
Business Markets
^dWϳ
ϳ
ͻ Budgeting thee Marketing Strategy
^dWϴ
ϴ
ͻ Implementatio
on of the Market Plan
^dWϵ
ϵ
ͻ Evaluation of M
Marketing Plan
Figure 6.2- Steps in Preparing Marketin

ng Plan
8) Imp plementation of the Market Plan: Once all a the above-mentioned
stepps are clearly framed and stated, the time comes for its
impplementation. Marketing plan is not a form mality for proposing to
outsside financial supporter but a formal plan thaat should be implemented
withh careful research and planning. Someone in i the venture should be
assigned the responsibility of coordinating and immplementing the plan.
9) Evaaluation of Marketing Plan: This is the final critical step in

prepparation of marketing plan. A number of variables can affect the
outccomes of marketing plan and thus it is neecessary to evaluate the
perfformance of marketing plan and make necessary changes if required.
Salees volume data by product, territory, sales rep
p, and outlet are a few of
the specific results that should be monitored. In n addition to monitoring
124

the progress of the existing plan, the entrepreneur should also be Market Research
prepared for contingencies. If the entrepreneur is constantly faced with

significant changes in the marketing strategy, then it is likely that the
plan was not prepared properly and the entrepreneur should focus on it
again or follow the contingency plan.
6.6 PROPOSED BUSINESS PLAN FOR A

SPORTS RETAIL STORE
Business name and address:
Sport Retail
Sector-11, Rohini,
Delhi.
Proprietor’s name and address:
RAMESH SHARMA
Sector-11, Rohini,
Delhi.
Business form: Sole trader (Proprietorship).
Business activity: The above shop will sell general sportswear, clothing,
footwear and sports accessories from a good secondary retail location close to
the main shopping area of Rohini. Sports covered will include: football,
cricket, golf, tennis, archery, skiing and other sports, as appropriate to the
reason. In addition, the shop will sell general sports clothing and footwear
such as track suits, trainers and so on. Suppliers will include major names
such as Adidas, Nike, and so on.
Aim: The aim of the business is to provide an adequate income for myself
and my wife. We shall be living above the shop.
Objectives:
1) Sales of Rs.2,50,000 in the first year
2) Gross profit margin of 40%
3) Net profit margin of 16%
4) Drawings at least Rs.25,000
Market size and growth: The last decade has seen a substantial increase in
the popularity of sport and consequently the growth of the sportswear market.
It is estimated that two-thirds of time spent on leisure pursuits is devoted to
sport. The estimated size of the sport clothing and footwear market is about
Rs. 1 billion. The market for sport equipment is about the same size and the
market for swimwear and beachwear is over Rs.2,00,000. These estimates are
very approximate because the demarcation between sportswear and fashion
wear is becoming increasingly blurred.
125

Business Idea Competitors:
Selection and
Feasibility
Name Strengths Weakness
Olympus Sports Located in main shopping Lack of expert advice
Silver St. area Lack of personal service
(400 yards away) Very price competitive Limited range
2 Seasons National promotion Lower end of market
Harpur St Shop layout appeal to Poor location
young
Market stall Cramped shop, poor displays
Skiing and tennis
No service
equipment
Only open market day
Good service
Poor quality
Well-known brands
Low end of market
Cheap
Your business:
Strength Weakness
Personal, expert service Secondary location (better than 2
Wide range of equipment Seasons)
Quality equipment Limitedmerchandising opportunities
Well-known brands Cannot afford expensive promotions
Competitive advantages:
1) Personal, expert service
2) Football links – proprietor local football celebrity
3) Links with local sports clubs, schools and so on will enable equipment
and sportswear to be purchased to meet their specific requirements
4) Wide range of quality merchandise
Proposed customers:
General public
Typical market segments: School age (male and female)
Teenage and twenties
Middle age (mainly male)
Impulse shopper
Dedicated buyer
Sports clubs and schools
These are the groups we expect to attract.
Advertising and Promotions strategy:

1) Very limited advertising in local paper: shop opening and seasonal sales.
It is proposed to get a well-known sportsman to launch the shop.
126

2) Extensive promotion to sports clubs and schools offering special Market Research
equipment and sportswear and ‘discounts. Displays may be mounted at

Clubs and so on or special evenings could be arranged.
3) In-store seasonal promotions of particular sportswear or equipment. This

could include: special displays, promotional signs and, perhaps, a
discounted ‘loss-leader’ to get customers into the shop.
4) Store displays would emphasize the professional football links.

Pricing strategy: We cannot compete against Olympus on price and will not
attempt to do so. We will offer good quality branded merchandise at
recommended retail prices. We will attempt to stock alternative merchandise
and brands to Olympus. We will offer good value for money but not lowest
price.
Premises: 1000 square foot retail premises in community Area, Rohini. This
is a prime secondary site close to the main shopping area of Rohini. Rohini
itself offers a good location and is the main shopping Centre for the north of
the Delhi. The premises are leasehold with 10 years to run, let on a full
repairing and insuring basis with rent reviews every 5 years. There is a two-
bedroom flat above the shop in which I intend to live with my wife.
Equipment: Shop display equipment only.

Key people and job functions: Mr. and Mrs.Sharma – Proprietors
There may be other part-time counter staff, as required for Saturday work and
so on.
Background details of key people:
Mr.Sharma
Formerly professional footballer (joined from school).
Retired 4 years ago.
Worked as a salesman with Rank Xerox selling photocopiers to large
companies.Made redundant 6 months ago.
Still maintains good links with local sports clubs and, in particular, old
football club.
Mrs.Sharma
Housewife.
No work experience since marriage.
Prior to marriage was employed as counter staff with Spencer.
Currently Parent Governor of Bachpan School and on organizing committee

for local Youth Club.
Financial Highlights: initial 12 months
Turnover:
Rs. 2,50,000
127

Business Idea Profit:
Selection and
Feasibility Rs. 40,000 before drawings
Break-even:
Rs. 60,000 x 2,50,000/1,00,000 = Rs. 1,50,000
Funding requirement:
Lease purchase Rs. 20,000
Redecoration 5,000
Fixtures and fittings 15,000
Total Rs.40,000
+ Overdraft facility as required (see cash flow)
Source of funds:
Own funds Rs. 25,000
Bank loan Rs. 15,000
We shall be seeking a 10 year, fixed interest rate loan.
Forecast Profit and Loss Account
Business: Sports Retail
Period: Year 2020
Sales: Rs. 2,50,000 (A)
Less direct (variable) costs:
Materials Rs. 1,50,000
Direct wages
Other
Total direct (variable) costs: (Rs. 1,50,000)
Gross profit/contribution: Rs. 1,00,000 (40%) (B)
The above business plan consists of all the requirements that an entrepreneur
need to state in a business plan which also incorporates marketing plan for
the business. An entrepreneur should carefully analyse all the factors shown
in the example before actually launching the business.
Check your progress A

1) What do you mean by market survey?
2) What is market research?
3) List out the steps in preparing marketing plan.

4) State whether the following statements areTrue or False:
i) A target market is the specific group of people you want to reach
with your marketing message.
ii) Market segmentation means dividing the whole population into

small heterogeneous group.
128 iii) All marketing activities revolve around customer acquisition.

iv) Gathering data is the first step in the preparation of marketing plan. Market Research
v) The pricing decisions are based solely on competitor’s price.
i) In ……………………. strategy, the entrepreneur decides about

selling and advertisement of his product.
ii) Segmenting market on the basis of age and occupation is an example

of ………………….. segmentation.
iii) ………………………..and……………………… are internal

resources and capabilities of the firm.
iv) The new information can be generated using ………………… data.

v) ………………… can be the less expensive source of collecting data.
vi) …………………. consists of the 4 Ps of marketing.
6) Multiple Choice Questions:
i) First step in marketing research process is to:

a) Define problem
b) Stating research objectives
c) Deciding research approach
d) both A and B
ii) Primary data consists of gathering data through:

a) Journals, books, magazines
b) Website
c) Survey and interviews
d) None of the above
iii) Secondary research consists of gathering data through:

a) Internet
b) Published journals, magazines and books
c) Government agencies
d) All of the above
iv) Marketing mix involves decisions regarding all except:

a) Product
b) Production
c) Price
d) Promotion
e) Place
129

Business Idea v) Target market is the group of homogenous consumers that an
Selection and
Feasibility entrepreneur:
a) Does not aim to communicate
b) Aims to reach with his/her marketing message.
c) All of the above
d) None of the above
6.7 RURAL MARKET RESEARCH

Since, we are talking of market research, rural markets provide umpteen
opportunities to the budding entrepreneurs. This makes much more sense to
understand about rural markets and gauge the business opportunity provided
by these markets. However, rural market is a bit different than the markets
that we have discussed so far and so are the rural consumers or buyers. The
rural buyer may be less awarded, price sensitive, more traditional and is keen
viewer of T.V and video programmes. Products for rural markets have to be
simpler, easy to use, visually identifiable, affordable, communicated in an
interesting style and available at the customers’ door step.
The rural market in India brings in greater revenues in the country, as the
rural regions comprise of the maximum consumers in this country. Indian
rural market contributes almost more than half of the country’s income.
Indian Rural Marketing has always been difficult to predict and consist of
special uniqueness. Today, as rural markets are considered as high potential
markets, marketers are trying to take full advantage of the current boom, for
which they need to know more about the markets they are entering. A large
number of research organisations have begun to make their advent with
newer tools and techniques into the rural markets. However, the critical point
for the marketers will be the implementation techniques in the rural markets.
They cannot use the same ways and means they have been using in the urban
markets. For example, with regard to the tools and techniques to be adopted
for rural research a typical 5-point or 7-point scales used in the urban market
are not effective in the rural context because they involve complex
understanding on the part of the rural consumer. The rural consumer is not
spatially well equipped. Pictorial scales may be used in their place.
The rural market, though difficult to tap due to infrastructure problems and
the unique behaviour of the rural consumer, there exists widespread
opportunities in rural market. The vastness of the rural market poses both a
challenge and an opportunity to the entrepreneurs. ‘Go rural’ is the
entrepreneur’s new slogan. Indian marketers as well as multinationals, such
as Colgate-Palmolive, Godrej and Hindustan Unilever have focused on rural
markets. Thus, looking at the opportunities, which rural markets offer to the
marketers, it can be said that the future is very promising for those who can
understand the dynamics of rural markets and exploit them to their best
advantage. One of the prominent marketing strategies adopted was Nokia’s
launch of affordable mobile phones ‘Nokia 1100’, which has a bright torch
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and an alarm clock. This was done to facilitate the rural population residing Market Research
in the areas where there is no electricity.

What is important to understand is that rural markets are not as evolved as
urban markets and hence it might not be appropriate to use the tools and
techniques used in the urban markets. Similarly, the segmentation variables
used in rural markets are different as compared to the urban market and
therefore entrepreneur needs to be cautious at the time of using these
segmentation variables.
In order to get acquainted with the concept of rural market research, it is

important to understand about rural market, its features and the difference
between urban and rural market research due to the peculiar characteristics of
the rural markets. These have been discussed below:
6.7.1 Features of Rural Market

1) Low Standard of Living: The standard of living and purchasing power
of rural customers may be comparatively lower as compared to the urban
population. Rural population is employed in small-scale agricultural and
related occupations. This unreliability factor in case of rural income
makes the rural consumers extremely conscious in their purchase
behaviour as they are not confident about their future earnings. Majority
of the rural population lives below poverty line and have low literacy
rate, low per capita income, social backwardness etc. The village
lifestyle is quite conservative and straightforward. People here spend
more on necessities instead of luxury goods, making it very different
from that of urban lifestyle.
2) Large, Diverse and Scattered Market: Rural market in India is large
and scattered into a number of regions. There are numerous villages
located throughout the country, with a small group of people living in
each of them. Covering, such a large and widely scattered geographical
market, characterized by less population per settlement, raises the
inventory and transportation cost. The increased cost affects the viability
of the route schedule operations of the distribution system in rural areas.
3) Major income comes from agriculture: Agriculture is a seasonal

activity and the major income of the rural consumers come from
agriculture itself as majority of rural population are engaged in
agricultural activities. Rural prosperity is tied with agriculture prosperity.
In the event of crop failure, the income of rural masses is directly
affected. However, with the launch of new government schemes for rural
and entrepreneurship development, other sectors are also emerging in
rural areas. This has been resulting into a very much required shift from
agricultural sector (which suffers from disguised unemployment) to other
sectors.
4) Infrastructure: The infrastructure facilities like road, warehouses,

communication system and financial facilities are inadequate in rural
areas. Promotion and physical distribution thus become very difficult in
the rural areas because of inadequate infrastructural facilities. However,
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Business Idea there is development of infrastructure facilities such as construction of
Selection and
Feasibility roads and transportation, communication network, rural electrification
and public service projects in rural India, which has increased the scope
of rural marketing.
5) Diverse Socio-Economic Background: The rural population is

dispersed in vast geographical region and every small district is different
from others in terms of religion, linguistics, culture and social groups
leading to a heterogeneous market. Socio-cultural background influence
consumer willingness to accept innovations and new products in
different areas. The variations in behaviour due to consumer
environment, geographical, occupation, demographical and behavioural,
influences the lifestyle and create altogether different sets of needs in
different areas. This creates the need to segment the rural market to cater
it effectively. The village population tend to stick to their traditions and
are resistant to change due to low literacy level. However, the rural youth
is initiating development though at a slower pace.
6) Literacy Rate: The literacy rate of rural population is very low and the
people in rural areas are very less educated which leads to the problem of
communication for promotion purposes. With low literacy rates, print
medium become inefficient and to an extent irrelevant in rural areas. The
reach of print medium is poor and therefore, the marketers use another
medium such as radio, road shows and nukkad dramas for rural
marketing. However, rural people have started going to urban areas for
higher education. Government has introduced various schemes for rural
education. Internet has increased the awareness and the farmers are well
informed about the world around them. They are also educating
themselves on the new technology around them and aspiring for a better
lifestyle.
7) Market Growth: Demand pattern of rural customer is fast changing due
to increase in income and credit facilities offered by the banks like ‘kisan
credit card’. Consumerism is certainly on a rise and the spending on
lifestyle products is emerging. The rural market is growing steadily over
the years. Demand for traditional products, such as bicycles, agricultural
inputs, FMCG Products etc. has also grown over the years. This was the
result of new employment opportunities and new sources of income
made available through rural development. This result into the increasing
the potential of rural areas.
6.7.2 Difference between Urban and Rural Market Research

Market research in rural markets is considerably different from the urban
market research. Issues like literacy level, civic amenities and infrastructure
support are some key factors that affect rural market research. Some broad
differences in rural and urban market research are illustrated as follows:
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Table 6.1Differences between Urban and Rural Market Research Market Research
S.No. Aspect Urban Market Rural Market

1) Respondents Literate, brand aware, Semiliterate or illiterate,
individuals respond brand knowledge low.
individually. Difficulttoget individual
responses. Generally
group response.
2) Time Willing to respond. Hesitant initially, but
Have time pressures. once opens up, devotes
Spare little or virtually time.
no time to field staff.
3) Accessibility Easy to access, though Tough to access;
many suffer, from geographical distances
research fatigue. and psychological
apprehensions are
barriers. Do not speak
easily to outsiders.
4) Secondary data Internal data, syndicated Very few sources and
source research, published less data.
media. Many sources
and large data.
5) Primary data Less number of Large number of all
source middlemen, experts, categories.
sales force, consumers
and opinion leaders.
6) Sampling Respondents form Heterogeneous groups.
relatively homogeneous Income and land holding
group. Income can be a to be carefully applied.
criterion.
7) Data collection Use of sophisticated Requires simplified
instrument, style and instruments
administration. .Respondents
Respondents, comfortable with
comfortable with colours, picture and
numbers , ratings and stories.
timelines.
6.8 THE MARKETING MIX OF RURAL

MARKET
The entrepreneur before entering rural market should formulate key
marketing mix strategies in order to become successful in rural market. The
features of rural market discussed above can provide gainful insights in
133

Business Idea formulating these strategies. Some of the strategies that can be used by the
Selection and
Feasibility entrepreneurs are as follows:
1) Product Decisions: The products demanded by rural population are
different from those of urban population in many aspects. Product for
the rural market must be built or modified to suit the lifestyle & needs of
the rural customers and must be acceptable to rural consumers in all
significant aspects. The product features like size, shape, colour, weight,
qualities, brand name, packaging, labelling, services, and other relevant
aspect must be fit with needs, demands and capacity of rural buyers. The
company should keep in mind that before developing the products for
rural market, marketers must identify the typical rural specific needs.
Urban products cannot be dumped into rural markets without
modifications. Since the purchasing power of the rural population is
comparatively low, packaging the products into small packets/sachets is
recommended in rural areas. For example, Parle G biscuits have
launched its Rs. 2 packets for rural population; various shampoo brands
have launched Rs. 1 packets for rural population. Coca-cola launched Rs.
5 bottles in rural areas.
2) Pricing Decisions: Rural consumers are most price sensitive and price
plays more decisive role in buying decisions. This does not mean that a
rural consumer is a miser. He is not simply looking for the cheapest
product rather he understands and demands value for money in every
purchase that he makes. Pricing offered to consumers should be for value
offerings that are affordable. Pricing policies and its strategies must be
formulated with care and caution. Price level, discounts and rebates, then
credit and instalment facilities are important considerations while setting
prices for rural specific products. Marketers have to plan their activities
in order to bring down the cost of production. They have to bring down
the price in order to attract the customers e.g. Nirma Washing Powder.
3) Promotion Decisions: Promotion aspects always create a challenge in

rural areas as they have a very thin population density but spread over
the large remote area. Also, due to low literacy level, print media is not
recommended for rural population. Television, radio, presentation,
displays can be used to promote the marketing activities of the company.
Programmes like folk dances, rural fairs, nautankis, local contests,
generating word of mouth publicity through opinion leaders, colourful
wall posters, wall paintings of houses in the villages etc. can be taken
into consideration to promote the company’s products. Personal selling
can also play an important role in this respect. ‘Brand’ can be established
through visible logos etc. the rural promotion needs creativity and
innovation. Nowadays, educated youth of rural area can also influence
decision-making of the rural consumers. Rural consumers are also
influenced by the western lifestyle they watch on television and have
influenced the buying behaviour greatly.
4) Place Decisions: Rural market faces critical issues of distribution. A

marketer has to strengthen the distribution strategies. In Rural India, the
selection and use of distribution channels is not an easy task and possess
134

great challenges. Both physical distribution and distribution channel Market Research
should be decided carefully to ensure easy accessibility of products for

rural consumers. Choosing the right mode of transportation, locating
warehouses at strategic points, maintaining adequate inventory, sufficient
number of retail outlets at different regions, and employing specially
trained sales force are some of the critical decisions in rural distribution.
Normally, indirect channels are more suitable to serve scattered rural
customers. Usually, wholesalers are located at urban and semi urban to
serve rural retailers. Nowadays, online marketing is also making its place
gradually in rural areas of the progressive states. Marketers must design
and modify their distribution strategies time to time taking into
consideration the nature and characteristics prevailing in rural areas
which may be quite differently than that of urban markets.
Check your progress B

1) What do you mean by rural market?

i) The selection and use of distribution channels come under
Promotion mix decisions.
ii) The vastness of the rural market poses both a challenge and an
opportunity to the marketers.
iii) Major income of the rural consumers comes from agriculture.

iv) Market research in rural markets is considerably different from the
urban market research.
v) The marketing mix of rural market is way too different from urban
market.

i) With low literacy rates, ………………..become inefficient and to an
extent irrelevant in rural areas
ii) ……………………. mix decisions involve decisions regarding

packaging and labelling.
iii) …………………. market is providing lot of opportunities after the

initiation of government policies.
iv) Physical distribution become very difficult in the rural areas because
of inadequate …………………. facilities.
v) The rural market is a ………………… market which needs to be

segmented.
6.9 LET US SUM UP

Marketing research involves the gathering of data to determine such
information as who will buy the product or service, what is the size of
135

Business Idea potential market, what price should be charged, what is the most appropriate
Selection and
Feasibility distribution channel and what is the most appropriate promotion strategy to
inform and reach potential customers. Market research is conducted
following a process which begins with defining the objectives or purpose of
the research. The process of market research includes following steps; (1)
Defining research purpose and objectives, (2) Gathering secondary data, (3)
Gathering primary information, (4) Developing an Information Gathering
Instrument, (5) Interpreting and Reporting Information, (6) Put Research into
Action.
The marketing mix refers to the set of actions, or tactics, that a company uses
to promote its brand or product in the market. All the elements of the
marketing mix influence each other. They make up the business plan for a
company and handled right, can give it great success. The entrepreneur must
carefully take decisions with regard to its marketing mix which consists of 4
Ps- Product, Price, Promotion and Place.
An effective marketing plan will give a business owner a clear idea of the
opportunities available in their market, as well as a deep understanding of
target audiences and competitors. Using that information, businesses can craft
a detailed strategy to guide their marketing efforts toward success and
growth. The marketing plan entails a number of major steps. First, it is
important to conduct a situation analysis to assess the question, “Where have
we been?” Market segments must be defined and opportunities identified.
This will help the entrepreneur determine a profile of the customer. Goals and
objectives must be established. These goals and objectives must be realistic
and detailed (quantified if possible). Next, the marketing strategy and action
programs must be defined. Again, these should be detailed so that the
entrepreneur clearly understands how the venture is going to get where it
wants to go. The marketing strategy section or action plan describes how to
achieve the goals and objectives already defined. There may be alternative
marketing approaches that could be used to achieve these defined goals. The
use of creative strategies such as Internet marketing may give the
entrepreneur a more effective entry into the market. The steps on preparing
marketing plan is as follows: (1) Defining the Business Situation, (2)
Defining the Target Market: Opportunities and Threats, (3) Considering
Strengths and Weaknesses,(4) Establishing Goals and Objectives, (5)
Defining Marketing Strategy and Action Programs, (6) Marketing Strategy:
Consumer versus Business-to-Business Markets, (7) Budgeting the
Marketing Strategy, (8) Implementation of the Market Plan, (9) Evaluation of
Marketing Plan.
Rural market is a bit different than the urban markets and so are the rural
consumers or buyers. The rural market, though difficult to tap due to
infrastructure problems and the unique behaviour of the rural consumer, there
exists widespread opportunities in rural market. The features of rural market
are as follows: Low Standard of Living, Major income comes from
agriculture, Infrastructure, Diverse Socio-Economic Background, Literacy
Rate, and Market Growth. Market research in rural markets is considerably
different from the urban market research. The rural markets are not as
136

evolved as urban markets and hence it might not be appropriate to use the Market Research
tools and techniques used in the urban markets.

The marketing mix decisions in case of rural marketing are very much
different from that of marketing mix decisions in urban areas because of the
characteristics of rural population and rural market. The entrepreneur should
carefully examine the needs of rural market and take the decisions
accordingly to meet the needs of this heterogeneous market.
6.10 KEY WORDS

Business-to-business markets: the entrepreneur sells the product or service
to another business that uses the product or service as part of its operations.
Differentiation: It is the way; entrepreneur distinguishes his/her product with

that of competitors.
Market research: The process of gathering, analysing and interpreting

information about a market, about a product or service to be offered for sale
in that market, and about the past, present and potential customers for the
product or service.
Market surveys: They are tools to directly collect feedback from the
target audience to understand their characteristics, expectations, and
requirements.
Primary research: The original research whose purpose is to collect the data
specifically for the current objective and is collected by the entrepreneur
himself.
Secondary data: Refers to the information already collected by some other

researcher, the information that already exists and compiled
Situation analysis: A review carried out by the company considering many

of the factors of environmental and industry analysis.

A) 4. i.True, ii.False, iii.True, iv.False, v.False
5. i.Promotional; ii.demographic; iii.strength and weakness; iv.primary;

v.secondary; vi. marketing mix
6. i.a; ii.c; iii.d; iv.b; v.b
B) 3. i.False; ii.True; iii.True; iv.True; v.True

4. i. Print medium ii. Product; iii. Rural market; iv. infrastructural; v.
heterogeneous
137

Business Idea
Selection and 6.12 TERMINAL QUESTIONS
Feasibility
1) What do you mean by market research? Explain its process that an
entrepreneur needs to follow.
2) Which are the critical decisions required to be taken by entrepreneurs

while planning marketing mix?
3) What is market survey and why is it important for market research?
4) What are the steps involved in the preparation of marketing plan?
5) What factors should be considered by the entrepreneur while selecting
new product or service?
6) What do you understand by the term rural market? Discuss its features.
7) Explain the difference between urban and rural market research.
8) Briefly explain the strategies that the entrepreneur should frame in
marketing mix of rural population.

x Market Research
x Target Population and Market Segmentation
x Market Survey
x Rural Market Research
FURTHER READINGS
x Hisrich, R. D., Peters, M. P., and Shepherd, D. A. 2016.
Entrepreneurship, Indian Edition, Mc Graw Hill Education;(Part three,
Chapter 8).
x Kaplan J. M. and Warren, A. C. 2015.Patterns of Entrepreneurship

Management, Wiley; (Part one, Chapter 4).
x Kuratko, D. F. and Rao, T.V. 2016.Entrepreneurship, A south-asian

perspective, Cengage Learning; (Part two, Chapter 10).
x Roy R. 2009. Entrepreneurship, Oxford; (Section three, Chapter 12)
138

Business Plan
UNIT 7 BUSINESS PLAN PREPARATION Preparation
Structure
7.0 Objectives
7.1 Introduction
7.2 What is a business plan?
7.3 Benefits of Writing A Business Plan
7.4 Requisites of Preparing a Business Plan
7.5 Writing the Business Plan- Elements of business plan
7.6 Detailed Project Report
7.7 Proforma of Detailed Project Report
7.8 Let Us Sum Up
7.9 Key Words
7.0 OBJECTIVES
x explain the meaning and importance of business plan;
x describe elements of business plan;
x analyse the scope and value of the business plan to investors, lenders,
employees, suppliers, and customers;
x explain the meaning of detailed project report;
x describe the contents of detailed project report; and
x prepare a detailed project report.
7.1 INTRODUCTION
A business plan is also a road map that provides directions so a business for
future course of action and helps it avoid bumps in the road. The time you
spend making your business plan thorough and accurate, and keeping it up-
to-date, is an investment that pays big dividends (returns) in the long term.
For companies in private industry, the heart of the business plan is a business
model and business strategy which describes how and where the company do
expects to make and spend money. Founders and owners typically develop an
initial business plan before start-up. They build the plan anticipating the flow
and outflow of funds using it as a tool for supporting their requests for
investment capital or loans to start the business. Once the company is
operating, the business plan becomes a living document, which management
reviews and revises frequently i.e. quarterly , six monthly etc.. A good
business plan should incorporate strengths and weaknesses of the business
and should carefully analyse the opportunities and threats that can be
139

Business Idea converted into opportunities. Like any other project, business plan writing
Selection and
Feasibility needs careful planning and systematic execution. In this unit, you will learn
about the business plan, elements of business planned detailed project report.
You will also be acquainted with the format of detailed project report.
7.2 WHAT IS A BUSINESS PLAN?

A business plan is a guide—a roadmap that provides directions so a business
can plan its future and helps in the smooth functioning of the business. It is a
plan which outlines goals and details about how to achieve those goals. The
business plan is a written document prepared by the entrepreneur that
describes all the relevant external and internal elements involved in starting a
new venture. It is often an integration of functional plans such as marketing,
finance, manufacturing, and human resources. A description of all the facets
of the new venture is necessary to provide a clear picture of what a venture is
about, where is it projected to go and how can the entrepreneur plans to go
about it. A business plan should give as much details as possible but also
these should be in concise manner so that the reader reads it completely.
They are also a way for companies to keep themselves on track going
forward. It aims at addressing both short-term and long-term decision making
and strategies for the first three years of operation. Thus, the business plan is
sometimes referred to the game plan or road map. The plan answers the
questions like: Where am I now? Where am I going? and How will I get
there? Business plan is required and requested by various stakeholders
including investors, customers, suppliers and creditors etc.
Business plan is used by entrepreneur for various purposes. Business plans
are important to allow a company to lay out its goals and attract investment.
It can be used to get debt from banks, raise funds through securities and angel
investors or venture capitalists. It helps the entrepreneur to be prepared in
advance for the initial years of business as it provides blue prints of the
strategies prepared by the entrepreneur. It describes clearly the goals and
objectives of the firm and how can these be achieved. Entrepreneur can also
set performance benchmark to judge the effectiveness of business plan. It can
also be called as techno-economic feasibility study.
Key Features of Business Plan

There are few elements that should be included in a business plan to make it
more useful for entrepreneurs and other stakeholders. These elements are as
follow:
1) It should depict a clear description of product or services that your
business is going to offer to the target audience.
2) It should give proper focus on important players of the market such as
customers, suppliers, competitors etc.
3) It should give data regarding sales forecasting etc. which is very close to
be real.
140

4) It should exhibit the distinctive features of the proposed market offerings Business Plan
Preparation
(USP of goods and services).
5) It should clearly state the required strategy to implement the plan.
6) It should include details of required technical know-how and your plan to
acquire it.
7) It should express the workability of profitability of the proposed

business.
7.3 BENEFITS OF WRITING A BUSINESS PLAN

The business plan is valuable to the entrepreneur, potential investors, or even
new personnel, who are trying to familiarize themselves with the venture, its
goals, and objectives. The business plan is important to these people because:
1. It helps the entrepreneur to avoid a project that may result in ultimate
failure through planning and research in advance. It is better and cheaper
not to start a bad-fated business than to learn through a failed experience.
2. It helps to determine the viability and potential of the venture in a

designated market where it a viable to start a business in that particular
market or not.
3. It provides guidance to the entrepreneur in organizing his or her planning

activities. It gives details about how to achieve the desired objectives and
goals of the firm. It also provides decision making and strategic
guidelines to the entrepreneur about the first few years of the venture.
4. It serves as an important tool in helping to obtain financing. Investors

need to know the parameters and the timings of the expected future
revenue streams, the main outlines of the business to evaluate the risk
and viability of the firm. Thus, with the help of business plan,
entrepreneur can attract investors and raise funds through banks, equity
market, angel investors or venture capitalists.
5. It also helps to find alliances if required to reach new markets, develop
new products, etc. Other firms may want to know about the viability of
the venture before entering into a long-term commitment. Business plan
can help attract these alliances.
6. It also helps in attracting and employing experienced top-level

employees and professionals.
7.4 REQUISITES OF PREPARING A BUSINESS

PLAN
It is important to first know the audience to whom the business plan should
be addressed as to for whom the business plan is written. The business plan
may be read by:
x employees,
141

Business Idea x investors,
Selection and
Feasibility x bankers,
x venture capitalists,
x suppliers,
x customers,
x advisors, and
x consultants.
The actual content and focus of the business plan depend upon who is
expected to read the business plan. Since each of these groups reads the plan
for different purposes, the entrepreneur must be prepared to address all their
issues and concerns. In some ways, the business plan must try to satisfy the
needs of everyone, whereas in the actual marketplace the entrepreneur’s
product will be trying to meet the needs of selected groups of customers .In
preparing the business plan, it is important for entrepreneurs to consider the
needs of external sources and not merely provide their own perspective.
While preparing business plan, the entrepreneur must carefully analyse the
three main view points:
1. First is the perspective of the entrepreneur himself as he is the one

developing the venture and clearly has the most in-depth knowledge of
the creativity and technology involved. The entrepreneur must be able to
clearly articulate what the venture is all about.
2. Second is the marketing perspective which requires critical emphasis
that an entrepreneur must incorporate while preparing business plan.
Many entrepreneurs tend to deemphasize the in-depth marketing
information in their business plan. Too often, an entrepreneur will
consider only the product or technology and not whethersomeone would
buy it. Entrepreneurs must try to view their business through the eyes of
their customers.
3. Third the entrepreneur should try to view his or her business through
the eyes of the investor. Sound financial projections are required for the
business plan. If the entrepreneur does not have the skills to prepare the
financial projections, he/she may get the assistance of outside experts.
The business plan is valuable to the entrepreneur, potential investors, or even
new personnel, who are trying to familiarize themselves with the venture, its
goals, and objectives.The process also provides a self-assessment by the
entrepreneur. Usually, he or she feels that the new venture is assured of
success. However, the planning process forces the entrepreneurto bring
objectivity to the idea and to reflect on such questions as: “Does the idea
make sense? Will it work? Who is my customer? Does it satisfy customer
needs? Whatkind of protection can I get against imitation by competitors?
Can I manage such a business? Whom will I compete with?” This self-
evaluation is similar to role playing, requiring the entrepreneur to think
through various scenarios and consider obstacles that might prevent the
venture from succeeding. The process allows the entrepreneur to plan ways to
142

avoid such obstacles. It may even be possible that, after preparing the Business Plan
Preparation
business plan, the entrepreneur will realize that the obstacles cannot be
avoided or overcome. And hence, the business can be terminated while on
papers and no time and money goes wasted.
7.5 WRITING THE BUSINESS PLAN

Like every other project, business plan writing also requires some preparation
and should be carefully planned and systematically executed. A business plan
should be comprehensive enough to give any potential investor a complete
picture and understanding of the new venture, and it should help the
entrepreneur clarify his or her thinking about the business. This will improve
the quality of the final business plan and it will also keep the things moving
smoothly.
Key Elements of Business Plan

See Figure 7.1 to know all the elements of writing a business plan at a glance.
Following are the elements of business plan writing:
1) Introductory page: This is the title or cover page that provides a brief
summary of the business plan’s contents.The introductory page should
detail about the name and address of the company and the
entrepreneur(s), telephone number, e-mail address, and Web site address
if available. It should also describe the nature of the business in brief.
The amount of financing needed and a statement of the confidentiality of
the report should also be provided in this section. This is for security
purposes and is important for the entrepreneur. This title page reflects the
basic concept that the entrepreneur is attempting to develop. Investors
consider it important because they can determine the amount of
investmentneeded without having to read through the entire plan.
2) Executive Summary: The executive summary lays out all the vital
information about your business within a relatively short space;
typically, two-three pages or less. It is a high-level look at everything
and summarizes the other sections of your plan. It should stimulate the
interest of the potential investor and other stakeholders. It must be clear
concise and compelling so that people will read further. This is a very
important section of the business plan and should not be taken lightly by
the entrepreneur since the investor uses the summary to determine if the
entire business plan is worth reading. Thus, it should highlight in a
concise and convincing manner the key points in the business plan.
3) Industry Analysis: The entrepreneur should analyse the environmental

and industrial environment to be updated about the current status and
future trends and changes in the market at both domestic and
international level that may impact the working of the business. Any
climate change, current government policies, changes in policies,
economic trends to understand the purchasing power of target market,
cultural and technological changes etc. are analysed and their impact on
the products or services may be understood. Entrepreneur should also
143

Business Idea checck all the legal requirements and procedure in
n advance to open a new
Selection and
Feasibility ventture. Most entrepreneurs generally face poteential threats from larger
corpporations. The entrepreneur must be preparred for these threats and
shouuld be aware ofwho the competitors are and d what are their strengths
and weaknesses so that an effective marketing plan
p can be prepared and
impplemented. The entrepreneur can identify th he potential threats from
commpetitors through media, journals, social media and their websites.
Thee entrepreneur must consult government publication
p like MSME
repoort, reports of various associations of industry like FICCI,
ASS SOCHAM and marketing research organisatiion like McKinsey, PWC
etc.,, and prepared detailed report pertaining to particular industry. The
entrrepreneur may consult these reports for understanding
u the recent
deveelopments in the industrial operations.
1. Introductory Page 2. Executive Summary 3. Inddustry

d Analysis
Name and address oof $EULHIVVXPPDUL]DWLRQRI Anaalysis
a of competitors
business and entreprreneur whole business plan in two Marrket
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1DWXUHRIEXVLQHVV to three pages. Induustry
u and market
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i plan
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confidentiality of reeport
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Figure 7.1 Key Elements of Business Plan
144

4) Business Description: In this section, the description of the venture is to Business Plan
Preparation
be detailed by the entrepreneur. It should begin with describing mission
and vision of the firm. It should give clear idea about the scope and size
of the firm to the investors. The new venture should be thoroughly
described, along with its proposed potential operations. Functional
specifications and descriptions should be provided. Drawings and
photographs may be included. The potential advantages of the new
venture possessing over the competitors should be discussed at length.
Patents, copyrights, and trademarks, as well as specialised technologies
should also be included in this section. If the product is very technical, it
will be important to make sure that its description is clear and easy to
understand. The location of business is very important for its success and
thus, it should also be included in this section.
5) Production Plan: A production plan is necessary for the manufacturing

business. Entrepreneur needs to describe the physical layout of his
production plant, the machinery and equipment needed to perform the
manufacturing operations; raw materials and suppliers’ names,
addresses, and terms; costs of manufacturing; and any future capital
equipment requirements. Discussions of these elements are necessary for
the investors in order to ascertain the financial needs of the firm. If some
or all manufacturing activities are to be sub-contracted then the name and
addresses of the sub-contractor(s), reason for selection and the costs,
terms of contract should be disclosed in this section.
6) Operations Plan: This section begins with describing what needs to be
done to get the business underway. Every type of business, whether
manufacturing- non manufacturing should include operations plan. It
describes the production of goods and services and the flow of goods and
services from producers to customers. It should explain the chronological
steps in completing a business transaction. In addition, this would be a
convenient place for the entrepreneur to discuss the role of technology in
the business transaction process. It must state the strategies to acquire
raw materials.
7) Marketing Plan: The general marketing activities and approach that the
company would follow should be outlined in this section. It describes
how the product(s) or service(s) will be distributed, priced, and
promoted. Marketing strategy which is developed by conducting market
research should be discussed here. Market defensive strategy should be
discussed here. Potential investors related to the marketing plan as
critical to the success of the new venture should be highlighted. Thus, the
entrepreneur should make every effort to prepare as comprehensive and
detailed plan so that investors can be clear as to what are the goals of the
venture and what are the strategies to be implemented for achievement of
the goals effectively.
8) Human Resource Plan: This part takes care of the human resource
requirement for the proposed business to be started. This covers both
human resource planning at the worker’s level as well as at the executive
level. The number of employees required to run the business is worked
145

Business Idea out. The detailed HR policy is prepared. What will be the compensation
Selection and
Feasibility that will be given to employees at different levels is also decided so that
the entrepreneur is clear about the HR outlay so that it can be made a part
of the business budget. Initially the human resources are kept at bare
minimum and as the business progresses more, human resources are
added in the team. What will be the job description and job specifications
for each position to be filled up is also worked out. The detailed process
of recruitment and selection is worked out. What will be the method of
performance appraisal, etc. are all worked out as part of human resource
plan.
9) Organizational Plan: It describes the form of ownership of the firm
whether it is proprietorship, partnership, or corporation. If the venture is
corporation it should give details about the shares of stock authorized
and share options, as well as the names, addresses, and resumes of the
directors and officers of the corporation. If it is a partnership firm, it
should describe the partnership deed and the terms of the partnership. It
is also helpful toprovide an organization chart indicating the line of
authority and the responsibilities of the members of the organization.
This information provides the potential investor with a clear
understanding of who controls the organization and how will other
members be interacting in the performance of the managerial functions.
10) Assessment of Risk: Every organization faces some risks and threats
and the investors may appreciate that entrepreneur have carefully
analyzed and disclosed possible risks and threats that the venture may
face. The investors may also find key strategies to overcome them. It is
important that the entrepreneur makes an assessment of risk.
Entrepreneur should explain the possible risks, the situation if those risks
becomes reality, and the strategy that will be employed to prevent,
minimize,or respond to the risks if they occur. Major risks can be from
competitors move, weaknesses in the marketing, production, or
management team and the technological changes. All these possible
risks, if any, should be discussed in details with the key strategies to
overcome them.
11) Financial Plan: It is the most looked up section of the business plan.
Most of the financial information and projected statements are disclosed
in this section. It determines the potential investment commitment
needed for the new venture and indicates whether the business plan is
economically feasible. The entrepreneur, in this section, should carefully
project the anticipated sales, possible expenses and the cash flow
projections of the first three years. It should carefully state the financing
needs of the venture for the first three years. The first year’s projection
should give details on monthly basis. The last financial item needed in
this section of the business plan is the projected balance sheet. This
shows the financial condition of the business at a specific time. It
summarizes the assets of a business, its liabilities, the investment of the
entrepreneurand any partners, and retained earnings.
146

12) Appendix (contains backup material): The appendix of the business Business Plan
Preparation
plan generally contains any backup material that is not necessary in the
text of the document. Reference to any of the documents in the appendix
should be made in the plan itself.Letters from customers, distributors, or
subcontractors, copies of documents pertaining to incorporation, various
permits and grants, documents of IPRs, graphical layouts of production
process, etc. are the examples of information that should be included in
the appendix.
Format of a Business Plan

1) Business Name and Address
…………………………………………………………………………….
…………………………………………………………………………….
2) Proprietor’s Name and Address:

…………………………………………………………………………….
…………………………………………………………………………….
3) Business Form:

…………………………………………………………………………….
…………………………………………………………………………….
4) Business Activity:

…………………………………………………………………………….
…………………………………………………………………………….
5) Aims:
…………………………………………………………………………….
…………………………………………………………………………….
6) Objectives:
…………………………………………………………………………….
…………………………………………………………………………….
7) Market Size and Growth:

…………………………………………………………………………….
…………………………………………………………………………….
8) Competitors:
Name Strengths Weaknesses
147

Business Idea 9) Your Business
Selection and
Feasibility
Strengths Weaknesses
10) Competitive Advantage

…………………………………………………………………………….
…………………………………………………………………………….
11) Proposed Customers:

…………………………………………………………………………….
…………………………………………………………………………….
12) Advertising and Promotion Strategy:

…………………………………………………………………………….
…………………………………………………………………………….
13) Pricing Strategy:

…………………………………………………………………………….
…………………………………………………………………………….
14) Premises:
…………………………………………………………………………….
…………………………………………………………………………….
15) Equipment:
…………………………………………………………………………….
…………………………………………………………………………….
16) Key People and Job Functions

…………………………………………………………………………….
…………………………………………………………………………….
17) Background details of Key people

…………………………………………………………………………….
…………………………………………………………………………….
FINANCIAL HIGHLIGHTS (12 Months): As regards:
Turnover: ……………………………………………………………
Profit: …………………………………………………………………
Break Even: …………………………………………………………
148

Funding Requirement: ……………………………………………… Business Plan
Preparation
Sources of Funds: ……………………………………………………
Forecasted Profit and Loss Account:
Name of the Business: ……………………………………….
Period Ending: ……………………………………………….

Sales: I n Rs. (‘000)
Less:Direct (Variable) Cost

1) Raw materials
2) Direct wages
3) Overtime
4) Other
Total direct costs: ……………………………
Gross profit/ Contribution: ………………………………………..
Less: Fixed costs (Overheads):

1) Wages/ salaries (including taxes)
2) Rent
3) Heat and Power
4) Advertising
5) Insurance
6) Transport
7) Stationary
8) Repairs/ renewals
9) Depreciation
10) Local taxes
11) Other professional fees
12) Others
Total fixed cost …………………………………………….

Net Profit: ………………………………………………….
Less: Interest
Net profit after Interest ………………………………………
Less: tax
Profit Retained in the Business: ……………………………….

149

Business Idea Projected Balance Sheet:
Selection and
Feasibility
Business :……………………………………..
Period ending: ……………………………………..
Fixed Assets:
1) Car
2) Computer and other equipment
3) Machinery
Less: Depreciation ……………………………………..
Current Assets:
1) Debtors
2) Cash/ bank
Less: Current Liabilities
Net Current Assets: ……………………………………..
Total Assets: ……………………………………..A

Represented By:
Capital Introduced:
1) Promoters Equity
2) Loans/ secured/ unsecured
3) Other assets
4) Retained Profits
Net profit for the year
Less: drawings
Total capital: ……………………………………………………………..B

A and B must balance
Check Your Progress A

1) What do you mean by the business plan?
2) What is executive summary of business plan?
3) Distinguish between business plan and marketing plan.

i) Potential investors regard the marketing plan as critical to the

success of the new venture.
150

ii) The executive summary lays out all the vital information about your Business Plan
Preparation
business within ten-twelve pages.
iii) The first perspective of writing business plan is for potential
investors view-point.
iv) A business plan should give as much details as possible but also
these should be in concise manner so that the reader reads it
completely.
v) Business plan can be used to get debt from banks, raise funds
through securities and angel investors or venture capitalists
i) ……………………. determines the potential investment

commitment needed for the new venture and indicates whether the
business plan is economically feasible.
ii) ………………………. describes the form of ownership of the firm.
iii) ……………………………… should begin with describing mission

and vision of the firm.
iv) ………………………………….. describes the production of goods
and services and the flow of goods and services from producers to
customers.
v) The business plan is valuable to the ……………………..
and………………………. .
7.6 DETAILED PROJECT REPORT

Business Plan that we have discussed so far, presents the techno-economic
feasibility of a proposed business idea. After the feasibility studies are carried
out, a detailed project report (DPR) is required to be drawn up based on the
data and results obtained from the studies. The preparation of the DPR is the
final and most important stage of pre-investment phase of project. A project
report is a detailed plan of action and particulars about the proposed project.
The company will submit the copies of the detailed project report to the
banks and financial institutions for their participation in the scheme of
finance and also for working capital requirements of the project. A project
report consists of analytical study of the proposed project and conclusion can
be drawn about its viability. The promoter’s capacity and competence will
also reflect in the project report.
The preparation of DPR is undertaken only after the investment decision is
made on the basis of the technical, economic, and financial feasibility studies,
so that the expensive efforts involved in the preparation of DPR are not
wasted. Process designs, layout drawings and construction data are absolutely
necessary for the preparation of DPR.
151

Business Idea The project report will be prepared for a plan of action to be undertaken
Selection and
Feasibility which covers various aspects which are as follows:
i) Technical,
ii) Financial,
iii) Marketing,
iv) Management and
v) Social.
The outline and the content of DPR is the same as the techno-economic
feasibility report. All the vital aspects of location and site costs,
process/technology, market demand, plant capacity, product revenue,
production costs, profitability, economic benefits, etc. must be covered in
much greater detail in the DPR. The basic difference between the feasibility
study report and DPR is the level of accuracy and degree of detail.
Contents in Detailed Project Report

A detailed project report, generally, contain the following information:
i) General information about the Entrepreneur(s):

Detailed project report begins with the introduction of the entrepreneurs. It
contains basic and general information regarding the name of the
entrepreneur, address of his residence, communication information, age etc.
When the entrepreneur approaches a bank or any other financial institution,
he is a stranger to those parties and thus, his complete details must be
required by those parties. It is obligatory for him/her to introduce
himself/herself to those authorities. The main components that come under
this section are:
1) Name and address of the entrepreneur
2) Contact information
3) Date of birth and age
4) Educational and professional qualifications
5) Special and vocational training
6) Qualities, skills, values, attitude and aptitude of the entrepreneur
7) Family background
ii) Introduction to Project and Industry:

This section gives the introduction of the project. The entrepreneur is
required to give details about the industry he/ she wishes to enter and also
analyse the competition available in the industry. The main elements under
this section are:
1) Industry position in the world scenario
2) Industry position in the country
3) Value addition by the industry
152

4) Profile of the industry in the country Business Plan
Preparation
5) Description of product selected
iii) Project Details:
By the time entrepreneur prepares detailed project report, the location of the
business must have been decided. This section gives description of the
promoters of the firm, reason for selecting a particular location. The major
components of this section are:
1) Promoters
2) Registered office
3) Location of the factory
4) Line of activity
5) Background of other directors
6) Scheme of project
7) Land and site development
8) Building and civil works
9) Plant and machinery
10) Contingencies to plant and machinery
11) Utilities
12) Miscellaneous fixed assets
13) Vehicles
14) Quality control and testing equipment
15) Erection and commissioning
16) Technical knowhow fee
17) Deposits
18) Preliminary and preoperative expenses
19) Working capital margin
20) Schedule of implementation
21) Management etc.
iv) Raw Materials Details:
Raw materials constitute major percentage of the production cost.

Information about the raw material is to be compiled as given in the proforma
below. The quantity and quality of raw material, its price, sources of raw
materials and the reason for selecting a particular supplier etc. needs to be
described in this section. The main components of this section are:
1) Requirement of raw materials
2) Situation of raw material availability indigenously
3) Feasibility of import of raw materials
4) Areas from which raw material can be procured
153

Business Idea 5) Suppliers of raw materials
Selection and
Feasibility 6) Annual requirement
7) Transportation of raw materials
8) Varieties and grades of raw material
9) Cost of raw materials and transportation cost to the factory
10) Linkages with suppliers of raw material.
v) Utilities Details:
Utilities do not form the part of the end product or service. The nature of the
product and production process determines the type of utilities. An
entrepreneur has to carefully analyse the requirements of utilities in advance.
Utilities facilitate the production process and are constituted mainly by items
like:
1) Power
2) Steam
3) Compressed air
4) Fuel
5) Water
6) Chilled water
7) Effluent and waste disposal etc.
vi) Manpower Details:

A large percentage of the project cost is constituted by the labour cost making
it necessary for the entrepreneur to estimate carefully the manpower
requirements and disclose the same in the detailed project report. It is
customary to classify labour into categories like: skilled, semi-skilled,
unskilled labour and administrative staff. The wages and competitive wage
rates should also be disclosed in this section. The major elements of this
section are:
1) Manpower requirement
2) Organization chart
3) Availability of manpower
4) Total cost of labour
vii) Technical Details:
This section begins with factual description of the production programme for
the given time period which is usually one year which may extend up to three
years. It gives details about the plant capacity and its utilization, a detailed
description of the product in terms of its size, weight, colour, taste, quality,
packaging, usage, etc. It also describes technical details regarding the
technology required and the expertise required for the same. The main
components of this section are:
154

1) Plant capacity Business Plan
Preparation
2) Capacity utilization
3) Manufacturing process with flow chart
4) Plant layout
5) Product description and properties
6) Packing and its cost
7) Technical know-how
8) Plant and machinery details
9) Plant and machinery suppliers
viii)Financial Details:
The cost on account of land and building, machinery and equipment, working
capital requirements, preliminary expenses etc. are to be estimated and
enclosed in this section. This section should also cover the estimated
financial position of the firm, its cash flows, projected sales and break-even
point. It is also required to determine the profitability of the firm in advance
in order to ascertain the return on investments to the investors so that they are
enticed to invest in project. This section is the most important section as it
provides financial and economic viability of the project and helps the investor
in taking the final decision. The main elements of this section are as under:
1) Cost of project, with details to individual cost items
2) Means of finance
3) Assumptions made in financial projections
4) Estimates of production and sales
5) Estimated cost of production and profitability
6) Estimated funds flow statement
7) Projected balance sheet
8) Statement of debt service coverage ratio
9) Statement of computation of working capital
10) Statement of break-even analysis
11) IRR calculations
12) Payback period calculations
13) Return on investment calculations
14) Debt-equity ratio calculations
15) Promoters’ contribution to Cost of project
16) Promoter’s contribution to Total equity
17) Workings for financial projections
155

Business Idea ix) Marketing Details:
Selection and
Feasibility
This section begins with the description of the target market, preferences of
the target customers, distribution channel etc. the major components under
this section are:
1) Present state of the industry
2) Consumer preferences
3) Market requirements
4) Market segments
5) Distribution channels
6) Market characteristics of the product
7) Export prospects and international market
8) Marketing and selling arrangements
x) Project Evaluation-Social Angle:
Finally, last section gives analysis of the project from social angle and its
implications to the society. This section is important as the entrepreneur
might get subsidies or tax advantages if they are providing any social benefit
to the society. This section includes:
1) Analysis of critical factors
2) Socio Economic benefit
3) Labour availability
4) Impact on ecology
5) Foreign exchange earnings
6) Value addition
7) Import substitution
8) Technology absorption etc.
7.9 PROFORMA OF PROJECT REPORT

1) The Enterprises and the Entrepreneurs
Project report for the manufacture of ………………………………

i) Name of the Item/ Items
…………………………………………………………………………
ii) Name of the units and address

…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
iii) Telephone No. Office………………….. ; Factory ………………..

156

iv) Name (s) and addresses of the promoters in block letters Business Plan
Preparation
…………………………………………………………………………
…………………………………………………………………………
v) Constitution of the Firm Proprietary/ Partnership/ Pvt. Ltd./ Coop.

Society
…………………………………………………………………………
…………………………………………………………………………
vi) Qualifications both Academic/ Professional of the Entrepreneur (s)
Name
…………………………………………………………………………
Qualification
…………………………………………………………………………
vii) Production / working experience of the Entrepreneur(s)
Name of the Organization

…………………………………………………………………………
Items manufactured
…………………………………………………………………………
…………………………………………………………………………
Period
…………………………………………………………………………
Family Background (please give details of close relations who are in

the industry/ business)
Name and Address of the Units and Items manufactured

…………………………………………………………………………
…………………………………………………………………………
…………………………………………………………………………
viii)Location/ Proposed locations

…………………………………………………………………………
ix) Name and address of the bank with which you want to deal with
…………………………………………………………………………
2) Economic Viability and Marketability

i) Introduction
…………………………………………………………………………
157

Business Idea ii) (Basis & Presumptions)
Selection and
Feasibility …………………………………………………………………………
…………………………………………………………………………
iii) Scope
…………………………………………………………………………
…………………………………………………………………………
iv) Marketability (please give proposed selling arrangements & list of
places where the products will be mainly sold & likely buyers, if
any)
3) Technical Feasibility
i) Manufacturing process (please give process flowchart).
ii) Please indicate the process which will get done from outside.
iii) Specifications (whether proposed to adopt ISI specifications or some
other)
iv) Components to be purchased from outside.
S NO. Name of the components No. Specifications

1. Installed Capacity Qty. Value
2. Proposed capacity to be Qty. Value
utilised
3. Motive power
Requirements (HP)
approx.
4) Financial Projections
A) Fixed Capital
i) a) Land, Area and Value
b) Building area, Value owned/ rented or leased
c) please mention if some arrangements have made in this respect.
(please append the proposed layout plan)
ii) Machinery & Equipment
S. Description Indigenous/ Qty. Price Sales Installations Total Name &
No. and Imported tax Address
Specifications of the
Suppliers
158

iii) Testing equipment (with details as above) Business Plan
Preparation
S. Description Indigenous/ Qty. Price Sales Installations Total Name &

No. and Imported tax Address
Specifications of the
Suppliers
iv) Electrification and Installation Charges and Maximum 10% of cost of

machinery and equipment.
v) &RVWRIWRROV-LJV)L[WXUHVPRXOG:RUNLQJWDEOHVHWF
vi) Cost of Office Equipment’s

vii) Pre-operative expenses if any, (cost of project preparation, technical
know-how expense royalties etc.)
viii)Total non-recurring expenditure

(i+ii+iii+iv+v+vi+vii)
B) Working capital (per month)

i) Staff & Labour
Staff and Designation No. Salary Total

Labour
Technical
Office
Sales
Others
Salaries per
month
Perquisites (10
to 20% of
salaries)
Total Salary
159

Business Idea ii) Raw materials (per month on single shift basis including packing
Selection and
Feasibility materials)
Name with Indigenous/ Qty. Rate Total

specificati imported
ons
iii) Other overhead expenditure (per month basis on single shift basis)
a) Utilit
Power ……….. KWH unit @ ……… per unit cost Rs. …………….
Fuel (Steam/ Furnace oil etc.) tonnes @ Rs. ……………………..
Water ………………….. kilo litre ………… per Kl. ……………….
Total Cost of Utilities ………………………………………….
b) Advertisement and publicity
c) Transport
d) Commission to Distributors/ Agents
e) Consumable stores
f) Rent
g) Taxes (other than income taxes)
h) Insurance
i) Stationery
j) Postage and telephone etc.
k) Repair and maintenance
l) Sales expenses
m) Other miscellaneous (not given above)
Total overheads (a+b+c+d+e+f+g+h+i+j+k+l+m)
iv) Total recurring expenditure (per month) (i+ii+iii)
Working capital for two/ three months (depending upon need or worked
out on the bank system of assessment of working capital needs).
2/3 X expenditure
C) Total investments
i) Fixed capital ……………………………….
160

ii) working capital …………………………… Business Plan
Preparation
Total …………………………………………
D) Cost of production (per year)

i) Total expenditure recurring (per year)
ii) Depreciation on building @ 5%
iii) Depreciation on machinery and equipment’s @10 %
iv) 'HSUHFLDWLRQRQ-LJV)L[WXUHVPRXOGWRROV#
v) Depreciation on office equipment’s @ 20%
vi) Depreciation on total furnaces
vii) Interest on Total investment @ …………………
(Actual to be charged by Financial Institution or Banks)
E) Total Cost of Production ……………………………………….
F) Turnover per year
Sr No. Sales Qty Rate Total
G) Net profit per year (F-E)

(Before taxes)
H) Financial Assessments
i) Return on Sales = Profit (per year) x 100
Total Sales (p. a.)
ii) Rate of Return = Profit (per year) x 100

Total Investment
iii) Break Even Point (BEP)
Total Fixed Cost (FC) per year

a) Depreciation
b) Rent
c) Interest on total Investments
d) 40% of Salary & Wages
e) 40% of overheads (Excluding Rent and Insurance)
f) Insurance
161

Business Idea BEP: FCx 100
Selection and
Feasibility
FC+ Profit
iv) Name & addresses of the Suppliers (Raw Material’s & Machines)
The detailed project reports whose format is given above may vary from
financial institution to financial institution. However, the information asked
by the financial institution more or less remains the same. It is important for
the entrepreneur to first of all finalise the financial institution from where to
get the funding of the project and then ask them to supply the copy of DPR
format and use that format to supply the information to them which will be a
right step on the part of the entrepreneur. These project reports are subject to
appraisal by the financial institution and based on their appraisal report it is
decided by the banker/ financial institution to fund the proposal or not.
Check your progress B

1) What do you mean buy Detailed Project Report?
2) List out various technical details of DPR.

3) List out various financial details of DPR
i) The preparation of the DPR is the final and most important stage of
pre-investment phase of project.
ii) A project report consists of analytical study of the proposed project

and conclusion can be drawn about its viability.
iii) A detailed project report can be prepared before conducting
feasibility study.
iv) Marketing plan can be skipped while preparing detailed project
report as it is not necessary for the investors to know.
v) Financial assessments should include break even analysis of the

company.
5) Fill in the Blanks:

i) The outline and the content of DPR is the same as the
………………………………………… .
ii) The basic difference between the ……………………… and DPR is
the level of accuracy and degree of detail.
iii) Socio Economic benefit is needed to be considered while evaluating

the project from ………………………………….. .
iv) …………………………. consists of Market segments and

Distribution channels required.
v) ……………………. point reflects the no profit and no loss situation

of the business.
162

Business Plan
7.8 LET US SUM UP Preparation
Founders and owners typically develop an initial business plan before start-
up. They build the plan anticipating using it as a tool for supporting their
requests for investment capital or loans to start the business. The business
plan is a written document prepared by the entrepreneur that describes all the
relevant external and internal elements involved in starting a new venture. A
business plan should give as much details as possible but also these should be
in concise manner so that the reader reads it completely. It can be used to get
debt from banks, raise funds through securities and angel investors or venture
capitalists.
The business plan is valuable to the entrepreneur to avoid a project that may
result in ultimate failure through planning and research in advance.It helps to
determine the viability and potential of the venture, provides guidance to the
entrepreneur in organizing his or her planning activities. It is an important
tool in helping to obtain financing. It also helps to find alliances if required to
reach new markets, develop new products, etc. and attracting and employing
experienced top-level employees and professionals.
The business plan may be read by employees, investors, bankers, venture

capitalists, suppliers, customers, advisors, and consultants. The actual content
and focus of the business plan depend upon who is expected to read the
business plan. While preparing business plan, the entrepreneur must carefully
analyse the three main view points. First is the perspective of the
entrepreneur himself as he is the one who develops the venture and clearly
has the most in-depth knowledge of the creativity and technology involved.
Second is the marketing perspective which requires critical emphasis that an
entrepreneur must incorporate while preparing business plan. Third the
entrepreneur should try to view his or her business through the eyes of the
investor.
A business plan should be comprehensive enough to give any potential
investor a complete picture and understanding of the new venture. The
elements of business plan are: Introductory page, Executive Summary,
Industry Analysis, Business Description, Production Plan, Operations Plan,
Marketing Plan, Human Resource Plan, Organizational Plan, Assessment of
Risk, Financial Plan, and Appendix
The preparation of the DPR is the final and most important stage of pre-
investment phase of project. A project report is a detailed plan of action and
particulars about the proposed project. A project report consists of analytical
study of the proposed project and conclusion can be drawn about its viability.
The project report will be prepared for a plan of action to be undertaken
which covers various aspects which include: Technical, Financial, Marketing,
Management and Social. A detailed project report, generally, contain the
following information: Introduction to Project and Industry, Project Details,
Raw Materials Details, Utilities Details, Manpower Details, Technical
Details, Financial Details, Marketing Details, and Project Evaluation-Social
Angle.
163

Business Idea
Selection and 7.9 KEY WORDS
Feasibility
Business plan: The business plan is a written document prepared by the
entrepreneur that describes all the relevant external and internal elements
involved in starting a new venture. It is often an integration of functional
plans such as marketing, finance, manufacturing, and human resources.
Detailed Project Report (DPR): It is a detailed plan of action and

particulars about the proposed project.
Executive Summary: It is a high-level look at everything and summarizes

the other sections of the plan in two-three pages.
Industry Analysis: Any climate change, current government policies,

changes in policies, economic trends that might impact the whole industry
entrepreneur wishes to enter
Potential Investors: Those parties that might be interested in giving finance

to the business.

A) 4. (i) True, (ii) False, (iii) False, (iv) True, (v) True
5. (i) Financial Plan, (ii) Organisational Plan, (iii) Business Description,

(iv) Production Plan, (v) entrepreneur and potential investors
B) 4. (i) True, (ii) True, (iii) False, (iv) False, (v) True
5. (i) the techno-economic feasibility report, (ii) feasibility study report,

(iii) social angel, (iv) marketing details, (v) break-even

1) What do you mean by business plan?
2) Discuss various elements of business plan?
3) What is the importance of writing a business plan?
4) What do you mean by a detailed project report? When it should be

prepared and why?
5) What are the major areas covered by detailed project report?
6) Discuss various elements of financial projections required to be prepared
in financial plan.
7) Describe marketing plan in brief.

x Executive summary
x Industry analysis
164

x Production plan Business Plan
Preparation
x Readers of business plan
FURTHER READINGS
x Hisrich, R. D., Peters, M. P., and Shepherd, D. A. 2016.
Entrepreneurship, Indian Edition, Mc Graw Hill Education; (Part three,
Chapter 7).
x .DSODQ - 0 DQG :DUUHQ $ & 3DWWHUQV RI (QWUHSUHQHXUVKLS
x Kuratko, D. F. and Rao, T.V. 2016. Entrepreneurship, A South-Asian

Perspective, Cengage Learning; (Part three, Chapter 9).
x Roy R. 2009. Entrepreneurship, Oxford; (Section two, Chapter 9)
x Zimmerer T.W. & Scarborough N. M., 2013. Essentials of
Entrepreneurship and Small Business Management, PHI Leaning;
(Section II, chapter 3)
165

Business Idea
Selection and UNIT 8 BUSINESS PLAN FEASIBILITY
Feasibility
Structure
8.0 Objectives
8.1 Introduction
8.2 Project Feasibility Analysis
8.3 Technical Analysis
8.3.1 Technical Appraisal
8.4 Market Feasibility Analysis
8.5 Financial Analysis
8.6 Environmental Analysis
8.6.1 SWOT Analysis
8.6.2 PESTLE Analysis
8.6.3 QUEST
8.6.4 CPM
8.6.5 ETOP Analysis
8.7 Let Us Sum Up
8.8 Key Words
8.0 OBJECTIVES
x explain the meaning of project feasibility analysis;
x explain technical feasibility of business;
x discuss market analysis of a project;
x forecast financial projections of a project;
x explain the application of the break-even point for the new venture;
x explain and understand environmental analysis of a business or a project;
and
x conduct SWOT, PESTLE QUEST, CPM and ETOP analysis.
8.1 INTRODUCTION
In unit 7, you have learnt about the business plan and DPR preparation (what
elements should be there in the document). The next step is to check the
feasibility of your business idea. Unless the idea is feasible it should not be
attempted to convert it into a business venture as all the efforts and resources
will go waste. Feasibility study is a means to investigate the potential
outcome of a project, but most of entrepreneurs are ignorant of this before
166 setting up a business. Feasibility Report is a detailed study that examines the
profitability, feasibility, and effectiveness of a proposed investment Business Plan
Feasibility
opportunity.
It is estimated that one of the hundreds idea can be proved to be
commercially viable. Therefore, it is necessary to conduct business feasibility
study in order to ascertain its viability in advance and safeguarding from
employing time and resources to ill-fated business ideas or projects.
Feasibility study is conducted by analysing the business from various aspects

like- technical analysis, environmental analysis, financial analysis, market
feasibility analysis, etc. Let us now take you into a detail discussion on it.
8.2 PROJECT FEASIBILITY ANALYSIS

Feasibility which can also be termed as workability literally means whether
some idea will work or not. It is the preliminary evaluation of a business idea,
conducted for the purpose of determining whether the idea is worth
pursuing. Feasibility analysis takes the guesswork (to a certain degree) out of
a business launch, and provides an entrepreneur with a more secure notion
that a business idea is feasible or viable. It means knowing beforehand
whether there exists a sizeable market for the proposed product/ service?
What would be the investment requirements and where to get the funding
from? Whether and where from the necessary technical know- how to convert
the idea into a tangible product may be available and so on. In other words,
feasibility study involves an examination of the technical, financial, HR and
marketing aspects of a business on ex ante (before the venture comes into
existence) basis.
Feasibility studies also can provide a company's management with crucial

information that could prevent the company from entering blindly
into risky businesses. Business feasibility study is used to support the
decision-making process of the business based on the cost-benefit analysis of
the business or the project viability. Feasibility study is to be conducted even
before the commencement of a formal business plan. A business feasibility
study is heavily dependent on market research and analysis. The findings and
recommendations of business feasibility study gives insights to the investors
to judge the commercial viability of the project before investing their money
into it. The entrepreneur also should make sure in advance that there are no
major road blocks in the way of success before launching the business or a
project.
As the name implies, these studies ask: Is this project feasible? Do we have
the people, tools, technology, and resources necessary for this project to
succeed? Will the project get us the return on investment (ROI) that we need
and expect? Basically, it is a COST-BENEFIT Analysis.
The goals of feasibility studies are as follows:

x To understand thoroughly all aspects of a project, concept, or plan.
x To become aware of any potential problems that could occur while
implementing the project.
167
Business Idea x To determine if, after considering all significan
nt factors, the project is
Selection and
Feasibility viabble—that is, worth undertaking.
Importaance of Feasibility Studies: Feasibility studies are important to

businesss development. They can allow a business to o address where and how
will it opperate. They can also identify potential obstaacles that may impede its
operations and recognize the amount of funding it will need to get the
businesss up and running. Feasibility studies aim for marketing strategies that
could heelp convince investors or banks that investingg in a particular project or
businesss is a wise choice. It aims to provide the basic information for
effectivee decision making with respect to the prroposed investment. By
showingg the market potentialities, technical and finaancial implications of the
proposedd opportunities, the feasibility report enab bles the entrepreneur to
accept oor reject the project. It also helps to asssist the entrepreneur in
developiing future plans for the organization and serves as the basis for
measurinng the performance of the proposed business..
Feasibiliity analysis is different for different purrposes. However, every
feasibilitty analysis should consist of Technical Analysis, Market Analysis,
Financiaal Analysis and Environmental Analysis. See Figure 8.1
Market
Analysis
Project
Technical Financiaal
Analysis Feasibilty Analysis
Analysis
Environment
Analysis
Figure 8.1 Project Feasibility Analy

ysis
Let us noow try to understand each of them one by onee.
8.3 TECHNICAL ANALYSIS

The techhnical feasibility refers to the ability of the process
p to take advantage
of the cuurrent state of art technology in pursuing fu urther improvement. The
technicaal capability of the personnel as well as the caapability of the available
technoloogy in relation to the requirements of the prop posed project idea should
168 be consiidered and the extent of compatibility shou uld be studied. Technical
feasibility also involves the evaluation of the hardware, software, and other Business Plan
Feasibility
technical requirements of the proposed system. For projects concerning
manufacturing activities, technical analysis is must. It lays out details on how
will a good or service be delivered, which includes transportation, business
location, technology needed, materials and labour. Technical analysis can be
done by answering to the following questions:
x Is the technology proposed to be used the latest technology?
x What is the likelihood of the proposed technology becoming obsolete in
the near future?
x Is the technology proposed to be used a process technology?
x Is the technology proposed to be used available indigenously?
x In case of imported technology, is the technology freely available?
x Is the technology proposed to be used cost effective in the long run?
x Is the technology proposed to be used capable of producing goods and
services according to the requirements and satisfaction of the customers?
x Is there any ongoing or additional research and development needs?
Once you have explored the answer of these questions, you need to do
technical appraisal. Only after getting positive response from technical
analysis you should move further.
8.3.1 Technical Appraisal

It involves critical study of the following aspects besides technology. These
are:
1) Scale of Operations: This section needs description of the scale of

operations and the estimated growth in the future.
2) Raw materials: It gives a complete detail about the selection of raw
materials to be used, name and address of the suppliers, terms of
contract, cost and quality of raw materials to be used. It includes
information such as whether volume discounts will be available as your
business grows or if you plan to manufacture your parts at some point of
time. It also needs to mention if its available locally or needs to be
imported. If it needs to be imported then the import duty and other
agreements should be discussed. The durability of materials from which
the product is made is also required to be considered. The detailed
analysis of raw materials as an input of production has to be carried out
considering availability, cost and quality.
3) Location of the Project: Location of the business affects the success of
the business and thus it becomes important to select the location for the
business carefully. The important factors which determine the selection
of project location are following:
x Availability of land (proper acreage and reasonable costs).
169
Business Idea x The impact of the project on the environment and the approval of the
Selection and
Feasibility concerned institutions for license.
x The costs of transporting inputs and outputs to the project location
(i.e., the distance from the markets).
x Availability of various services related to the project such as

availability of extension services or veterinary or water or electricity
or good roads etc.
4) Technical Know How: It involves selection of the experts and the
professionals for their expertise in required technical know-how to be
used in the business. It also needs analysis of reasonable utility and the
accepted rate of obsolescence of technology.
5) Calculating Labour Requirements: In this section, a list of the number
and types of employees needed to run the business is prepared which
may be employed in the future as your business grows. One may break
labour into categories if necessary:
x Senior Level Management
x Office and Clerical Support
x Production or Distribution Staff
x Professional Staff (i.e., lawyers, accountants, engineers, marketing)
x Fulfilment (i.e., mail room, shipping department)
6) Possibility of Collaborative Agreements: If the organization plans to

collaborate in future or as start-up then it should be analysed in this
section. Collaboration may facilitate the managerial, financial and
technological availability to the organisation.
7) Plant Layout: A plant layout study is an engineering study used to
analyse different physical configurations for a manufacturing plant. Plant
layout is the most effective physical arrangement, either existing or in
plans of industrial facilities. These may be arrangement of machines,
processing equipment and service departments to achieve greatest co-
ordination and efficiency of 4 M's (Men, Materials, Machines and
Methods) in a plant. The adequate layout may help in smooth operations
of manufacturing.
8) Project Scheduling and Implementation: It should describe the project

implementation schedule. The schedule is an important time
management document that defines and schedules the major phases
of project work being carried out to fulfil the desired project objectives
and achieve the expected outcomes. The well documented scheduling
may facilitate smooth process of production.
9) Product Design: The product design refers tofunctional design of the
product and the attractiveness in appearance. It involves flexibility,
permitting ready modification of the external features of the product to
meet demands or technological and competitive changes. It should have
170
descriptions of how will users use and buy the product. It also needs Business Plan
Feasibility
description of how the product can be expanded and modified in future.
The results of these investigations provide a basis for deciding whether a new
venture is feasible from technical point of view or not.

1) What do you mean by Project Feasibility analysis?
2) Why should you carry out the Project Feasibility Studies?
3) What is Technical Analysis?

i) It is necessary to conduct feasibility study before launching a

project.
ii) Feasibility study is conducted to test the viability of the project.
iii) Businesses should not consider about any collaborative agreements

in advance.
iv) It is not important to consider the sources of raw materials.

v) Technical know-how is a part of technical analysis.

i) Plant layout is the most effective ……………………….. of a
manufacturing plant.
ii) For projects concerning ………………….. activities, technical
analysis is must.
iii) Technical feasibility also involves the evaluation of the

……………………………, ……………………………, and other
technical requirements of the proposed project.
iv) The findings and recommendations of business feasibility study

gives insights to the investors to judge the ………………………..
of the project before investing their money into it.
v) A business’s feasibility study is heavily dependent …………………
8.4 MARKET FEASIBILITY ANALYSIS

This is one of the most important sections of the feasibility study as it
examines the marketability of the product or services and convinces investors
that there is a potential market for the product or services. If a significant
market for the product or services cannot be established, then there is no
project. Market Feasibility is all about how will the real-world market be
reacting towards a particular development. It is concerned with gaining the
in-depth knowledge and doing a deep analysis of market and knowing how is
the target market going to respond towards particular project/product.
171
Business Idea Assemblling and analysing relevant information about the marketability of
Selection and
Feasibility new vennture are essential for judging its potential su
uccess. Market feasibility
studies sshould include a description of the industry, current market analysis,
competittion, anticipated future market potential, poteential sources of revenue,
and sales projections.
Three m
major areas in this type of analysis are:
x Inveestigating the full market potential and id
dentifying customers for
goods or services
x Anaalysing the extent to which the enterprise might exploit this potential
marrket
x Usinng market analysis to determine the opportun
nities and risks associated
withh the venture.
To addrress these areas various sources can be ussed like market data of
customeers demand patterns, seasonal variations in
i demand, government
policies affecting demand; range of prices of substitutes goods,
complem mentary goods and the prices of compettitor’s goods; customer
spendingg and purchasing power; major competitorrs and their competitive
strength.
Market feasibility can be tested by following the below

b steps (See Figure
8.2):
Industry Analysis
Demand of the Product
Potential Markets
Customer Segmentation and Targeeting
Marketing Strategies
Costs, Pricing methods and Profitab

bility
Competitors Analysis
Figure 8.2 Steps in Market Feasibility Analysis

A
1) Industry Analysis: While conducting industry analysis

a the entrepreneur
shouuld describe the industry in which the entreepreneur wishes to enter.
He/sshe should also ascertain the size of the indusstry and the market share
expeected, growth rate expected and the outlook. It should also reflect the
trennds of demand and supply factors and a briief description about the
forcces that drive the market whether it be innov vations, cultural changes
172 or reegulations.
2) Demand of the product: It involves investigating and forecasting the Business Plan
Feasibility
demand of the product in advance by using methods like expert’s
opinion, customer’s survey, sales forecasts, trend analysis, Delphi
method, jury of expert method, etc. the forecasting of demand will
facilitate in ascertaining the current and future demand patterns, seasonal
variations in demand, purchasing power of the target market, government
policies affecting demand. It also should provide description of what
level of actual product demand can be ascertained correctly. Some of the
demand forecasting techniques are as follows:
x Jury of Expert Method: The researcher identifies the experts on

the commodity whose demand forecast is being attempted. He/She
further probes with them on the likely demand for the product in the
forecast period. This method consists of securing views of the
salesmen and/ or sales management personnel. There may be many
variations. The entrepreneur has to ascertain precise demand
condition with the help of the expert.
x Delphi method: The Delphi method is a facilitated process of

gaining consensus within a group of anonymous participants. The
facilitator sends a forecast questionnaire to each member of the
Delphi group. Anonymity is critical in this method to prevent a few
group members from dominating the decision. When the
questionnaire is returned, the responses are statistically summarized
and then sent back out to the group. Under Delphi method opinions
are collected from experts and efforts are made to match them.
x Market Experiments: Market experiments (actual or simulated) are

performed to generate demand forecasts. A potential problem with
survey method is that survey responses may not translate into actual
consumer behaviour. Consumers do not necessarily do what they say
that they are going to do. This weakness can partially be overcome
by use of market experiments designed to generate data prior to the
full-scale introduction of a product or implementation of a policy.
x Trend Analysis: Under this method, the demand is forecasted by

analysing past records of sales data of the target customers. In this
method, a large amount of reliable data is required for forecasting
demand. In addition, this method assumes that the factors, such as
sales and demand, responsible for past trends would remain the same
in future.
x Survey Method: Survey method is one of the most common and
direct methods of forecasting demand in the short term. This method
encompasses the future purchase plans of consumers and their
intentions. In this method, an organization conducts surveys with
consumers to determine the demand for their existing products and
services and anticipate the future demand accordingly.
3) Potential markets: Potential market is the part of the total population
that has shown some level of interest in buying a particular product or
service. This section aims at identifying the market potential and who
173
Business Idea will buy the product. The entrepreneur makes a detailed analysis of
Selection and
Feasibility market and the products and determines the potential market
accordingly.
4) Customer Segmentation and Targeting: A target market is the specific
group of people you want to reach with your marketing strategy. They
are the people who are most likely to buy your products or services, and
they are united by some common characteristics, like demographics and
behaviours. Knowledge of the target market provides a basis for
determining the appropriate marketing action strategy that will
effectively meet its needs. The defined target market will usually
represent one or more segments of the entire market. The entrepreneur
should also distinguish between end users of the products and its
customers. Market segmentation means dividing the whole population
into small homogenous group on the basis of demographics factors such
as age, income, occupation, gender, etc. The geographical factors;
psychographic factors and relevant behavioural factors such as frequency
of purchases, reasons for buying the product are considered. Considering
these factors the entrepreneur responds more effectively to the needs of
more homogeneous consumers. It is essential to identify the target
market segment in order to judge the feasibility of the product in the
market.
5) Marketing strategies: The marketing mix is a crucial tool to help

understand what the product or service can offer and how to plan for a
successful product offering. It means formulating various strategies with
regard to marketing mix of the firm i.e., formulating strategies
concerning the 4 Ps- product mix, price mix, promotion mix and place
mix which are discussed in detail in chapter 6.
6) Cost, Pricing Methods and Profitability: It involves ascertaining

various costs involved in marketing of the product and the method which
will be used to calculate and fix the price of the product. Price is the
revenue generated by the firm, therefore the entrepreneur must analyse
the cost price and profitability to obtain the expected amount of profit.
7) Competitors Analysis: Competitor analysis refers to an assessment of
the strengths and weaknesses of current and potential competitors
relative to those of your own product or service. A competitive
analysis is a critical part of market feasibility analysis. It should describe
both the direct and indirect competition. It should also identify the key
competitors of the business and their market share, their strategies,
strengths and weaknesses. It should give details about how their product
can be differentiated by that of competitors and is their product able to
meet the unmet needs of the customers in unique way. The entrepreneur
should also aim to determine the possible reactions of the competitors on
their product launch and the estimation of the time required by the
competitors to imitate your product/ service. Entrepreneur should also
describe strategies to respond to these reactions.
174
It is needless to mention here that market feasibility analysis gives green Business Plan
Feasibility
signal to go further. If market analysis says that the project is not viable
the project is to be dropped then and there. If market feasibility analysis
gives possible indication to go further than you need to do financial
analysis.
8.5 FINANCIAL ANALYSIS

Financial analysis is the process of evaluating businesses, projects, budgets,
and other finance-related transactions to determine their performance and
suitability. Typically, financial analysis is used to analyse whether an entity is
stable, solvent, liquid, or profitable enough to warrant a monetary investment.
The primary purpose of doing a financial analysis of a project is to evaluate
the project's profitability or cost-effectiveness relative to some alternative
project or investment. Frequently, the results of the financial analysis are
used to compare alternative projects to select which ones should be
implemented.
Financial analysis will include analysis of data with regard to:

1. Capital requirements: It refers to the fixed capital requirement of the
project and its time frame during which the capital will be required.
Various components of capital cost of a project/business are:
Land and building
Plant and machinery
Electricals
Transportation
Knowledge and Consultancy fees
Miscellaneous assets
Preliminary expenses
Margin money for working capital
2. Sources of Capital: There are various sources with which capital can be
generated which are as follows:
Ordinary shares
Preference shares having pre-determined rate of dividend
Debentures
Bonds
Term loans
Deferred credits
Capital investment subsidy
Lease financing
Public deposits etc.
175
Business Idea Before selecting any of these options, the entrepreneur has to carefully
Selection and
Feasibility analyse the costs of raising capital from these sources.
Cost of capital can be calculated as follows:
i) Cost of Equity Capital: The cost of equity is the return (often
expressed as a rate of return) a firm is required to pay to its equity
shareholders, to compensate for the risk they undertake by investing
their capital. It is calculated as:
ࡰ૚࢞૚૙૙
Ce (%) = ࡼ૚
Ψ
Where D1= dividend per share
And P1= market price of equity share
If the dividend is expected to grow at a rate of G% every year, then the

cost of equity capital will be calculated as
ࡰ૚࢞૚૙૙
Ce (%) = ࡼ૚
Ψ+ G%
ii) Cost of Debt Capital: The cost of debt is the effective interest rate a
company pays on its debts. It is the cost of debt, such as bonds and loans,
among others. It is calculated as:
Cd (%) = C(1-t) %
Where Cd= after tax cost of debt
C= before tax cost of debt

t= tax rate
iii) Cost of retained earnings: The cost of retained earnings is

the earnings foregone by the shareholders. In other words, the
opportunity cost of retained earnings may be taken as the cost of retained
earnings. It is equal to the income that the shareholders could have
otherwise earned by placing these funds in alternative investments. The
formula for calculating this is the same as that of cost of equity.
iv) Cost of Preference Share Capital: Cost of preference share capital is

that part of cost of capital in which we calculate the amount which is
payable to preference shareholders in the form of dividend with fixed
rate.
஽௜௩௑ଵ଴଴
Cp (%) = ௉
Ψ
Where, Cp= cost of preference share

Div= stated preference dividend
P= Issue price of preference share
v) Weighted Average Cost of Capital: Weighted Average cost of capital

is the sum of all the above costs. It is calculated when the entrepreneur
176 uses more than one sources of finance.
3. Working capital: Workinng capital is the difference between a Business Plan
Feasibility
company’s current assets, such as cash, accounts receivable and
inventories of raw materiials and finished goods, and its current
liabilities, such as accounts payable. It is basically the analysis of
firm’s liquidity position. Coompanies are required to make analysis of
working capital requiremennts at various stages of the project as well
as day-to-day expenses. It hhelps to ascertain the requirements of cash
by ascertaining the timee periods required for raw materials
procurements to work in pprogress to selling the goods and finally
realizing money from the ddebtors. Longer the time taken to convert
raw materials into sales rrealisation, higher shall be the required
working capital. Various staages of working capital requirement are as
follows (Figure 8.3):
Raw Mterial
Procurement
Sales Work-in-
Realization progress
Finished
Debtorss
Goods
Figure 8.3 W
Working Capital Cycle
4. Financial history, if any

5. Potential sources of funds like debt financing or equity financing or other
lending institutions.
6. Required borrowing capital
7. Repayment conditions
8. Fixed and variable costs
9. Projected profitability and returrn on investments
10. Financial Analysis such as:
Profit and Loss analysis: Youur income statement that subtracts the costs
of the business from the earninngs over a specific period of time, typically
a quarter or a year. It is recoommended to show income statement of
initial three years where first yyear’s projections will be made on monthly
or quarterly basis and secondd- and third-year’s projections on annual
basis. In preparation of the proo forma income statement, sales by month
must be calculated first. As indicated above, sales may be projected
177
Business Idea using many different techniques. The pro forma income statements also
Selection and
Feasibility provide projections of all operating expenses for each of the months
during the first year.
Cash-flow analysis: Cash flow is not the same as profit. Profit is the
result of subtracting expenses from sales, whereas cash flow results from
the difference between actual cash receipts and cash payments. An
overview of the cash you anticipate will be coming into your business
based on sales forecasts, minus the anticipated cash expenses of running
the business. It is also called the income statement of the project. It is
recommended to show cash flows of initial three years where first year’s
projections will be made on monthly or quarterly basis and second- and
third-year’s projections on annual basis.
Break-even analysis: Demonstrates the point when the cost of doing
business is fully covered by sales. The break-even analysis helps you in
determining what do you need to sell, monthly or annually, to cover your
costs of doing business. You need to determine the break-even point. To
calculate breakeven point, the entrepreneur should determine variables
like selling price, variable cost and fixed cost of the product. It gives the
quantity that a firm should sell in order to be in no profit no loss
situation.
Balance sheet: The entrepreneur should also prepare a projected balance
sheet depicting the condition of the business at the end of the first year.
In other words, it tells the entrepreneur a measure of the company’s
solvency. The balance sheet will require the use of the proforma income
and cash flow statements to help justify some of the figures.
Assumed and anticipated balance sheet of the project’s financials is required
to be prepared. This includes including assets that represents everything that
is owned by the company; liabilities which represents everything that the
company owes to creditors; and equity which represents excess of assets over
liabilities. Balance sheet should be projected for the initial three years. Every
business transaction affects the balance sheet, but because of the time and
expense, as well as need, it is common to prepare balance sheets at periodic
intervals (i.e., quarterly or annually). Thus, the balance sheet is a picture of
the business at a certain moment in time and does not cover a period of time.
Ratio Analysis: It gives various ratios regarding the profitability and
viability of business and associated risks by calculating returns on
investment, debt-equity ratio, etc.
Various important ratios are:

i) Performance Drivers:
ே௘௧௉௥௢௙௜௧ሺ௔௙௧௘௥௜௡௧௔௡ௗ௧௔௫ሻ
a) Return on Shareholder’s Funds (%)= ௌ௛௔௥௘௛௢௟ௗ௘௥ ƍ ௦௙௨௡ௗ௦
ை௣௘௥௔௧௜௡௚௣௥௢௙௜௧௕௘௙௢௥௘࢏࢔࢚ࢋ࢘ࢋ࢙࢚
b) Return on Total Assets (%) = ࢀ࢕࢚ࢇ࢒ࢇ࢙࢙ࢋ࢚࢙
ii) Profitability Drivers:

178
ࡺࢋ࢚௉௥௢௙௜௧ Business Plan
a) Net Margin (%) = ௌ௔௟௘௦ Feasibility
ீ௥௢௦௦௉௥௢௙௜௧
b) Gross Margin (%) = ௌ௔௟௘௦
ை௩௘௥௛௘௔ௗ௖௢௦௧௦
c) Overhead Costs (%) = ௌ௔௟௘௦
iii) Assets Efficiency:

ௌ௔௟௘௦
a) Capital/ Net Assets Turnover= ே௘௧௔௦௦௘௧௦
ௌ௔௟௘௦
b) Debtor Turnover= ஽௘௕௧௢௥௦
ௌ௔௟௘௦
c) Fixed Assets Turnover= ி௜௫௘ௗ஺௦௦௘௧௦
iv) Liquidity Drivers:

஼௨௥௥௘௡௧஺௦௦௘௧௦
a) Current Ratio= ஼௨௥௥௘௡௧௅௜௔௕௜௟௜௧௜௘௦
஼௨௥௥௘௡௧஺௦௦௘௧௦௘௫௖௟௨ௗ௜௡௚ௌ௧௢௖௞
b) Quick Ratio= ௖௨௥௥௘௡௧௟௜௔௕௜௟௜௧௜௘௦
v) Risk Drivers:

ௌ௔௟௘௦ି஻௥௘௔௞௘௩௘௡ௌ௔௟௘௦
a) Margin of safety= ௌ௔௟௘௦
After getting positive result from financial analysis, you are determined that
the proposed project is more likely to be potentially profitable.
8.6 ENVIRONMENTAL ANALYSIS AND

REGULATIONS
You have learnt about technical feasibility, market feasibility and financial
analysis. Let us now learn about the environmental analysis and regulation.
The external environment consists of a general environment and an operating
environment. The general environment consists of the economic, political,
cultural, technological, natural, demographic and international environments
in which a company operates. The operating environment consists of a
company's suppliers, customers, market intermediaries who link the company
to its customers, competitors and the public. Both the general and operating
environments provide business opportunities, harbour uncertainties and
generate risks to which a business must adapt.
The environmental analysis refers to conditions and factors external to the
company which are outside of the company’s control, that might affect its
sales, market, costs, and so forth. These are often grouped into kinds of
factors, such as the common PESTLE, which stands for political, economic,
social, technological and legal factors that might affect the company. It can
be analysed by SWOT analysis. It aims at highlighting non-economic factors
that may affect the performance of the firm. It includes factors such as:
x Government policies with regard to particular industry.
x Government incentives for special zones for location of the plant.
179
Business Idea x Wasste disposable plans, if required.
Selection and
Feasibility x Poliitical Stability.
x Envvironment Regulations.
x Reggulations related to operations of the business.
An orgaanization relies on strengths to capture opportunities and recognize

weaknessses to avoid becoming a victim of environmeental threats. A company
performss an environmental analysis to gain an understanding of these
strengthss, weaknesses, opportunities and threats .Th he company then gathers
informattion about the selected set of environmenttal factors that are most
likely too impact business operations. For example, thhe company might review
governm ment and industry reports and surveys that relay information about
trade barrriers that companies face in particular countrries.
Variouss Techniques of Environmental Analysis arre as follows:
8.6.1 SWOT Analysis

A SWOT T analysis is a method used to evaluate the business' Strengths,
Weaknesses, Opportunities, and Threats. Using a SWOT S analysis helps to
identify areas that business can improve and maximize opportunities present
in the environment, while simultaneously determ mining negative factors
(threats)) that might hinder the chances of success. Neew businesses should use
a SWOT T analysis as a part of their planning processs. There is no “one size
fits all” plan for your business, and thinking abou ut your new business in
terms off its unique ‘SWOT’ will put you on the right track right away.
OPPORTUNITY
STRENGTHS
SWOT WEAKNESS
ANALYSIS
THREATS
Figure 8.4 SWOT Analysis
1) Streengths (internal, positive factors): Strengtths describe the positive

attriibutes, tangible and intangible, internal to you
ur organization. They are
180
within your control. It cann be the competitive advantage over Business Plan
Feasibility
competitors, new technology, eetc.
2) Weakness (internal, negativee factors): Weaknesses are aspects of your
business that detract from thhe value you offer or place you at a
competitive disadvantage. Youu need to enhance these areas in order to
compete with your best comppetitor. It aims at analysing what lacks in
your business model, is your loocation or technology poor, etc.
3) Opportunities external, posiitive factors): Opportunities are external
attractive factors that represent reasons your business is likely to prosper.
4) Threats(external, negative ffactors): Threats include external factors
beyond your control that couldd place your strategy, or the business itself,
at risk. You have no control oover these, but you may benefit by having
contingency plans to address thhem if they should occur.
8.6.2 PESTLE Analysis

There are many companies the worrld over, that conduct PESTLE analysis on
their brands in order to ascertain strrategies for the future or else to understand
the market before launching them. IIt is a fundamental tool of market planning
and strategizing that must be carriedd out to comprehend market trends and the
systematic risks involved. It is an acronym for political, economic, social,
technological and legal factors. Leet us learn them.
Political
Factors
Ecological
Social Factors
Fcators
PESTLE
ANALYSIS
Technological
Legal Factors
Fcators
Economic
Factors
Figure 8..5 Pestle analysis
1) Political Factors: It refers to vvarious regulations and policies framed by

the government like initiatives taken, subsidies provided, duties imposed
any other special policies with regard to particular industry etc. It is also
affected by various factors succh as the party in power, attitude towards
the business, political stability and the form of government.
181
Business Idea 2) Economic Factors: It includes factors such as GDP, income of the
Selection and
Feasibility consumer, their purchasing power, standard of living, inflation rates,
disposable income, exchange rates, interest rates, unemployment rates,
money supply etc.
3) Social-cultural Factors: It includes factors such as lifestyles and
attitudes of the customers, cultural backgrounds, social classes and
status, concern for fitness and healthy diets, postponement of having
children, consumption pattern of people, tastes and preferences etc. of
the target market.
4) Technological Factors: It involves study of various technological
changes, investments in research and development, state of technology
development, Innovation level etc.
5) Legal Factors: It involves study of various laws like consumer
protection laws, labour laws; product safety issues competition laws etc.
6) Ecological Factors: It includes various policies with regard to climate
changes, wastage disposal laws, land, water and air pollution, global
warming and green house effects etc.
8.6.3 QUEST
QUEST is an acronym for Quick Environment Scanning Technique. This
method uses scenario’s Building for environmental analysis:
1) Managers make observations about major events and trends in the
environment.
2) They speculate on wide range of issues that are likely to affect the future
of the organisation.
3) A report is prepared summarizing the issues and their implications to the
firms two or three scenarios.
4) The report of scenarios is required by strategy part based on which they
identify feasible options.
8.6.4 CPM
CPM is an acronym for Competitive Profile Matrix. The Competitive
Profile Matrix (CPM) is a tool that compares the firm and its rivals and
reveals their relative strengths and weaknesses. In order to better understand
the external environment and the competition in a particular industry, firms
often use CPM.
It starts with assigning weights to various critical factors indicating the
importance of success for each critical factor. After assigning the weights, the
rating is assigned to the firm and competitors based on the factor ranging
from 1 (major weakness) to 4 (major strength). The score is the result of
weight multiplied by rating. Each company receives a score on each factor.
Total score is simply the sum of all individual score for the company. The
182
firm that receives the highest total score is relatively stronger than its Business Plan
Feasibility
competitors.
Firm Competitor A Competitor B

Critical success Factors Weight Rating Score Rating Score Rating Score
1. Market share 0.10 4 .40 4 .4 3 .3
2. Product Quality .25 3 .75 3 .75 3 .75
3. Customer Loyalty .05 4 .2 4 .2 3 .15
4. Price competitiveness .10 2 .2 3 .3 2 .2
5. Sales Distribution .10 4 .4 3 .3 2 .2
6. Customer Service .10 3 .3 2 .2 1 .1
7. Global Expenses .10 2 .2 3 .3 4 .4
8. Advertising, etc. .05 1 .5 4 .2 2 .1
Total 1 .97 .94 1.03
8.6.5 ETOP Analysis

Environment Threat and Opportunity (ETOP) Analysis is a management
tool that analyses environmental information and determines the relative
impact of threats and opportunities for the systematic evaluation of the
environment. ETOP process involves dividing the environment into different
environmental sectors and then analysing the impact of each sector on the
organisation.
ETOP gives a clear picture to the strategies about each aspect of the business
environment, the various individual factors within each sector which affect
the business favourably or otherwise. It consists of a three-step process:
x List all environmental factors
x Access Impact of Each factor
x Get a Big Picture
It provides a clear picture of all the environmental factors and shows which
factors have a favourable impact and which have an adverse impact.
Environmental Factors Nature Of Impact Impact Of The Sector

Economic Factors x Rising income levels
x Price competition
Social Factors x Changes in Lifestyle

x Changes in
customer’s tastes
Technological Factors x Product becomes
unique
x Acquisition of New
183
Business Idea technology needed
Selection and
Feasibility and expenses
Customer Behaviour x Loyalty in purchase
x Buyer’s preferences
for differentiated
goods
Suppliers x High input costs

x Improved quality
Check Your Progress B

1) What do you mean by market feasibility analysis?
2) What is financial analysis?
3) What is PESTLE analysis?
i) Social factors involve study of various laws.

ii) It is necessary to make financial projections for first year only.
iii) The primary purpose of doing a financial analysis of a project is to
evaluate the project's profitability.
iv) Profit is the result of subtracting expenses from sales, whereas cash
flow results from the difference between actual cash receipts and
cash payments.
v) A competitive analysis is a critical part of market feasibility
analysis.
i) …………………… demonstrates the point when the cost of doing

business is fully covered by sales.
ii) …………………… means dividing the whole population into small
homogenous group.
iii) ………………………….. is the part of the total population that has

shown some level of interest in buying a particular product or
service.
iv) …………………………….. concerns about formulating strategies

concerning the 4 Ps.
v) An organization relies on …………………………….. to capture

opportunities.
184
vi) The entrepreneur should also prepare a projected Business Plan
Feasibility
………………………….. depicting the condition of the business at
the end of the first year.
6) Multiple Choice Questions:

i) ……………………….. is not a part of SWOT analysis
a) Weakness
b) Strength
c) Opportunities
d) Tricks
ii) ……………………. is not a part of PESTLE Analysis

a) Political
b) Legal
c) Strengths
d) Economical
iii) ……………………. are the internal positive factors.

a) Strengths
b) Weakness
c) Tricks
d) Strategies
iv) ………………….. involves policies and regulations framed by the

government.
a) Legal factors
b) Economic factors
c) Political factors
d) Technological factors
v) ……………………. tells the entrepreneur the condition of the

company at the end of the financial year.
a) Cash Flow Statement
b) Balance Sheet
c) Income Statement
d) Ratios
8.7 LET US SUM UP

Feasibility analysis takes the guesswork (to a certain degree) out of a
business launch, and provides an entrepreneur with a more secure notion that
a business idea is feasible or viable.
185
Business Idea Business feasibility study is used to support the decision-making process of
Selection and
Feasibility the business based on the cost-benefit analysis of the business or the project
viability. Feasibility study is to be conducted even before the commencement
of a formal business plan. Feasibility studies are important to business
development. They can allow a business to address where and how will it
operate. They can also identify potential obstacles that may impede its
operations and recognize the amount of funding it will need to get the
business up and running.
Every feasibility analysis should consist of Technical Analysis, Market

Analysis, Financial Analysis and Environmental Analysis.
The technical feasibility refers to the ability of the process to take advantage
of the current state of art technology in pursuing further improvement.
Technical feasibility also involves the evaluation of the hardware, software,
and other technical requirements of the proposed system. Technical appraisal
involves the study of various aspects which include: Scale of Operations,
Raw materials, Location of the Project, Technical Know How, Calculating
Labour Requirements, Possibility of collaborative Agreements, Plant Layout,
Project scheduling and implementation and Product Design.
Market Feasibility is all about how will the real-world market be reacting
towards a particular development. Market feasibility studies should include a
description of the industry, current market analysis, competition, anticipated
future market potential, potential sources of revenue, and sales projections.
Market feasibility can be tested by analysing Industry, Demand of the
product, Potential markets, Customer Segmentation and Targeting, Marketing
strategies, Cost, Pricing Methods and Profitability and Competitors Analysis.
Financial analysis is the process of evaluating businesses, projects, budgets,

and other finance-related transactions to determine their performance and
suitability. Typically, financial analysis is used to analyse whether an entity is
stable, solvent, liquid, or profitable enough to warrant a monetary investment.
The projected income statement provides a sales estimate in the first year
(monthly basis) and projects operating expenses each month. These estimates
are determined from the appropriate budgets, which are based on marketing
plan projections and objectives.
Cash flow is not the same as profit. It reflects the difference between cash
actually received and cash disbursements. Some cash disbursements are not
operating expenses (e.g., repayment of loan principal); likewise, some
operating expenses are not a cash disbursement (e.g., depreciation expense).
Many new ventures have failed because of a lack of cash, even when the
venture is profitable.
The entrepreneur should also prepare a projected balance sheet depicting the
condition of the business at the end of the first year. In other words, it tells
the entrepreneur a measure of the company’s solvency. The balance sheet is a
picture of the business at a certain moment in time and does not cover a
period of time.
186
Break even analysis gives the quantity that a firm should sell in order to be in Business Plan
Feasibility
no profit no loss situation. Ratio Analysis gives various ratios regarding the
profitability and viability of business and associated risks.
The environmental analysis refers to conditions and factors external to the

company which are outside of the company’s control, that might affect its
sales, market, costs, and so forth. These are often grouped into kinds of
factors, such as the common PESTLE, which stands for political, economic,
social, technological and legal factors that might affect the company. It can
be analysed by SWOT analysis which stands for strengths, weaknesses,
opportunities and threats.
8.8 KEYWORDS
Break-Even Point: The point at which there is no profit and no loss.
Competitors Analysis: Competitor analysis is an assessment of the strengths

and weaknesses of current and potential competitors relative to those of your
own product or service.
Feasibility Study: It means whether some idea will work or not. It is the
preliminary evaluation of a business idea, conducted for the purpose of
determining whether the idea is worth pursuing or not.
Financial analysis: It is the process of evaluating businesses, projects,

budgets, and other finance-related transactions to determine their
performance and suitability
Market Feasibility: It is concerned with gaining the in-depth knowledge and

doing a deep analysis of market and knowing how the target market is going
to respond towards particular project/product.
Market segmentation: Itmeans dividing the whole population into small

homogenous group on the basis of demographics, geographical,
psychographic and behavioural factors.
PESTLE Analysis: It is an acronym for political, economic, social,

technological and legal factors.
Plant Layout: It refers to the physical arrangement, either existing or in
plans of industrial facilities i.e. arrangement of machines, processing
equipment and service departments to achieve greatest co-ordination and
efficiency of 4 M's (Men, Materials, Machines and Methods) in a plant.
SWOT Analysis: A SWOT analysis is a method used to evaluate

the business' Strengths, Weaknesses, Opportunities, and Threats.
Target Market: A target market is the specific group of people you want to
reach with your marketing message. They are the people who are most likely
to buy your products or services, and they are united by some common
characteristics, like demographics and behaviours.
Technical feasibility: It means the evaluation of the hardware, software, and

other technical requirements of the proposed project. 187
Business Idea
Selection and 8.9 ANSWERS TO CHECK YOUR PROGRESS
Feasibility
A) 4.i True, iiTrue, iii.False, iv.False, v.True
5. i.physical arrangement; ii.manufacturing; iii. hardware, software;
iv.commercial viability, v. market research and analysis
B) 4. i.False, ii.False, iii.True, iv.True, v.True
5. i.Breakeven Point, ii.Market Segmentation, iii.Target Market,
iv.Marketing Mix, v.Strengths, vi.Balance sheet
6. i. d ii. c iii.a iv. c v. b

1) Why is it important to conduct feasibility analysis before launching a
product?
2) Explain the important questions that are required to be answered by the
entrepreneur while conducting technical analysis?
3) Briefly explain the Projections required to me made in financial analysis.
4) Why is it important to conduct Market feasibility analysis? Briefly
describe the components of market feasibility analysis.
5) What are the various demand forecasting methods?
6) What aspects of environmental analysis is required to be done before
launching the project?
x Market segmentation and targeting
x SWOT analysis
x PESTLE analysis
x Breakeven analysis
FURTHER READINGS
three, Chapter 8).
188
Business Plan
UNIT 9 BUSINESS PLAN Implementation
IMPLEMENTATION
Structure
9.0 Objectives
9.1 Introduction
9.2 What is Location Layout?
9.3 Factors Affecting the Location Decisions
9.4 Business Process
9.4.1 Designing the Business Process
9.4.2 Key Elements of Business Process
9.5 Deciding about operation, planning and control
9.6 Preparation of Project Report/ Business Plan
9.7 Selection of Financers
9.8 Let Us Sum Up
9.9 Key Words
9.0 OBJECTIVES
x discuss the designing of business process;
x explain the meaning of location layout;
x describe the factors affecting selection of a plant location;
x explain the meaning of business process;
x design business process;
x explain key elements of a business process;
x decide about operations, planning and control;
x prepare a business plan; and
x explore various sources of funds available to the entrepreneur.
9.1 INTRODUCTION
As discussed in the previous unit, once you are done with your Business
Plan/ DPR preparation and evaluation, you need to focus on implementation
part such as location decision/choice, designing business process,
organization and management planning and selection of investors/financers.
Let us now dig deeper and discuss the implementation part one by one.
Location decisions are the strategic decisions that require large financial
investments and they are irreversible in nature. A number of factors like
189
Business Idea market related factors, tangible or cost factors and intangible or qualitative
Selection and
Feasibility factors affect and are affected by the location choice. The choice is made
only after considering cost and benefits of different alternative sites. It is a
strategic decision that cannot be changed once taken. If at all changed only at
considerable loss, the location should be selected as per its own
requirements and circumstances. Similarly the other decisions (mentioned
above) while planning the implementation part are a tricky affair.
9.2 WHAT IS LOCATION LAYOUT?

Plant location refers to the choice of region and the selection of a particular
site for setting up a business or factory. Entrepreneurs who choose their
locations wisely with their customers’ preferences and their companies’
needs in mind establish an important competitive advantage over rivals who
choose their locations hap hazardly. The physical disposition of the facilities
of a plant is referred to as the plant layout. The basic types of layouts are:
process layout, product layout, fixed-position layout, cellular manufacturing
layout and hybrid layout.
A process layout is the layout in which similar machinery are grouped
together. In product layout the machines are arranged according to the
progressive steps by which a product is made. In a group technology layout,
dissimilar machines are grouped into cells, and each cell functions like a
product layout within a larger job shop or process layout. In a fixed layout,
all the necessary inputs men, materials, and equipment are brought to a fixed
location where the product is actually manufactured. A hybrid or combination
layout constitutes combination of two or three types of layouts.
9.3 FACTORS AFFECTING THE LOCATION

DECISIONS
One of the most important steps in the critical path of the establishment of a
business is the selection of adequate location for the business as this can be
irreversible in nature. The old axiom from marketing is that the three keys to
business success is Location, Location, Location. Location is thus, a critical
item for the successful operations of a new business. Therefore, the
entrepreneur must identify and select the location site very carefully. The
success of the a business to a large extent depend on ideal selection of
location site. The important considerations for selecting a suitable location
are given as follows:
1) Market Proximity: Production has no value without consumption. All
business comes into existence to serve its customers. Locating business
close to markets, the entrepreneurs plan to serve is extremely critical to
manufacturers especially when the cost of transportation of finished
goods is high relative to their value. Locating near customers can also
give competitive advantage. The more the need for after sale services,
more the cost of transportation and lower the shelf life of the finished
goods, the more proximity towards the market will be required. Nearness
190
to the market ensures a consistent supply of goods to customers and Business Plan
Implementation
reduces the cost of transportation.
2) Supply of required raw material:When the raw material required by
the business are either heavy or bulky and involves huge transportation
cost then it is suggested to keep the location of the business near to the
sources of raw material. It is essential for the Organization to get raw
material in right qualities and time in order to have an uninterrupted
production. This factor becomes very important if the materials are
perishable and cost of transportation is very high. It is not profitable to
transport the heavy and low value material over long distances. Selecting
the location near to the raw material source can also reduce the cost of
holding inventory as the suppliers can make quick deliveries. However,
when the raw material is easily available, then one should strategize to
keep the location near to the market and not to the source of raw
material.
3) Availability of Labour and Skills: For labour intensive organizations,

especially, the availability of labour supply and required skills becomes a
critical factor while selecting the location of the business. Entrepreneurs
must consider the number of workers available in the area and their
levels of education, training, adaptability and experience and the number
of workers qualified to the required work of the entrepreneur in the area.
Knowing the exact nature of the labour needed and preparing job
descriptions and job specifications in advance will help a business owner
to determine whether there is a match in the area of the business.
Besides, an entrepreneur should also study labour relations through
turnover rates, absenteeism and liveliness of trade unionism in the
particular area.Such information can be obtained from existing industries
working in the area. Similarly, the wage rates prevalent in the area also
have an important bearing on selection of location decision.While one
can get cheaper labour in industrially backward areas, higher cost of their
training and fall in quality of production may not allow the entrepreneur
to employ the cheap manpower and, thus, establish his/her enterprise in
such areas. Thus, the entrepreneur should be careful in selecting location
based on man power requirements.
4) Infrastructural facilities: For any business, adequate infrastructural

facilitiesis a must. However, the degree of dependency upon
infrastructural facilities may vary from industry to industry, yet there is
no denying of the fact that availability of infrastructural facilities plays a
deciding role in the location selection of an industry. The infrastructural
facilities include: power, transport and communication, water, banking,
etc. If power is the main source of energy to be used, then the
entrepreneur should place the location of the plant in the area where the
cost of power is less, or where subsidy is being provided for the same
and where the power supply is consistent without any disturbances.
Similarly, if water supply is the main consideration then adequate water
supply at low cost may become a dominant decisional factor in case of
selection of industrial location for leather, chemical, etc.
191
Business Idea 5) Traansportation Networks: business owners mu ust investigate the quality
Selection and
Feasibility of thhe local transportation network. He should co onsider the availability of
nearrby airports, ports or railways to connect to required cities. Is the area
feassible to connect to major highways? How much m would be the travel
distaance of the customers? How much time will w it take to deliver the
shippment to them from that location. The rates of o transportation are also
an iimportant consideration. The loading and unloading
u space are also
requuired to be considered for a retail business.
6) Govvernment Policy: Government policies play a very significant role in
the selection of a business location as these affect many aspects of
busiiness operations from acquiring business licenses and building
permmits to dumping trash.In order to promotee the balanced regional
deveelopment, the Government also offerrs several incentives,
conccessions, tax holidays for number of years,, cheaper power supply,
factory shed, etc., to attract the entrepreneurs to
o set up industries in less
deveeloped and backward areas. Then, other facctors being comparative,
thesse factors become the most significant in decciding the location of an
induustry. For example, government of India has h established various
zones known as special economic zone and provides subsidies and
variious tax advantages to the enterprisess established in these
locaations.
Supply of
required raw
material
Avvailability of
Climate
Laabour and
Condition
Skills
Internet Market
Access Proximity
Factots
affecting
selection of a
location for
new business
Political Infrastructural
Condition facilities
Traansportation
Competition
N
Networks
Government
Policy
Figure 9.1 Factors affecting Selection of locatio

on of a business.
192
7) Competition: For some retailers, it is advantageous to open the business Business Plan
Implementation
in the location where the competitors are already available because
locating business near to one another may serve to increase traffic flow
to both. This strategy is mainly beneficial for those where the customers
feel need comparisons amongst the products/shops. However, this
strategy has its limitations, too many businesses of same type in the area
can create an undesirable impact on the profitability of all the firms.
8) Climate condition: Climatic conditions vary from place to place in any
country including India. The climatic conditions affect both people and
manufacturing activity. It affects human efficiency and behaviour to a
great extent. Wild and cold climate is conducive to higher productivity.
Likewise, certain industries require specific type of climatic conditions
to produce their goods. For example, jute and textiles manufacturing
industries require high humidity. As such, these can be established in
Kashmir experiencing humidity-less climate. On the other hand,
industrial units manufacturing precision goods like watches require cold
climate and hence, will be established in the locations having cold
climate like Kashmir and Himachal Pradesh.
9) Internet access: With the increasing growth of e-commerce businesses,

high speed internet availability has become one of the critical factors in
the selection of the location of the business. High tech and e-business
requires speedy and reliable and cost-effective internet connections so
that their business activities do not get hampered.
10) Political condition: Political stability is essential for industrial growth.
The political stability fosters industrial activity and political upheaval
derails industrial initiatives. This has been experienced by analyzing the
political situations across the countries and regions within the same
country. The reason is not difficult to seek.The political stability builds
confidence and political instability causes lack of confidence among the
prospective and present entrepreneurs to venture into industry which is
filled with risks.Besides, an entrepreneur will have also to look into the
availability of community services such as housing, schools and colleges,
recreational facilities and municipal services. Lack of these facilities
makes people hesitant and disinterested to move to such locations for
work. Hardly any entrepreneur will be interested to establish his / her
industry in an area trouble-torn by terrorists. People will be interested to
move to areas having no law and order problem to establish their
industries.
9.4 BUSINESS PROCESS

After selecting the location for the business the next step is to identify the
sequence of activities that need to be carried out and their process. Business
process chart presents a bird eye view of those activities. A business
process or business method is a collection of related, structured activities
or tasks by people or equipment which in a specific sequence produce a
service or product for customers. A business process has also been defined as
193
Business Idea a set of activities and tasks that, once completeed, will accomplish an
Selection and
Feasibility organizaational goal. The process must involve cleaarly defined inputs and a
single ouutput. These inputs are made up of all of the factors which contribute
(either ddirectly or indirectly) to the added value of o a service or product.
These faactors can be categorized into management processes, operational
processees and supporting business processes. A business process may
often be visualized as a flowchart of a sequence of acctivities with interleaving
decisionn points or as a process matrix of a sequ uence of activities with
relevancce rules based on data in the process. The beenefits of using business
processees include improved customer satisfaction and a improved agility for
reacting to rapid market change.Process-oriented orrganizations break down
the barriiers of structural departments and try to avoid
d functional issues.
9.4.1 Designing the Business Process

A busineess process is a building block of any kind off business. By definition,
it is a seeries of repeatable steps that are critical for achieving
a some sort of a
businesss goal. It is something the business does on a regular basis.The more
efficientt the business processes, the better the businesss will perform.
Businesss processes have always played a vital role in
i the proper functioning
of an oorganisation and in its structure. A well planned
p and strategized
businesss process will help a business in reducing g the expenditure, risks,
resourcees and duplication of work; improvising effficiency, reduce human
error, ennsuring time management, etc. The example of
o a business process of a
burger jooint business is explained below:
Inputs- Buns,
Onions, Tomatoes, A
Apply spreads and
Toast Buns
Patty, sauces and sauces
spreads
Prepare burger by
Prepare placing Patty,
Fry Patty
ingredeients Onions and
T
Tomatoes on Buns
Chop onions and Prepare ingredient

Output - Burger
tomatoes for Patty
Figure 9.2 Business process of a Burger Joint
194
Steps in Business Process Design Business Plan
Implementation
For designing the business process, following steps must be taken care of:
1. Write down the inputs, outputs, and steps needed to achieve the business
goal, each one on a separate note.
2. Create the process on the whiteboard (virtual or real) with post-its, each
note containing the finest, most granular steps you can get down to.
3. Draw the links between the different steps and how do the process flow
from one to the next.
4. Once the initial process mapping has been done, carry out several
workshops to identify any gaps in the design.
9.4.2 Key Elements of Business Process

1. Business Process Automation: It is a technology-driven strategy to
automate a business process in order to accomplish it with minimum cost
and in a shorter time. It is extremely useful for both simple and complex
business processes and is used to execute recurring tasks or processes in
a business where manual effort can be replaced.It can streamline
a business for simplicity, achieve digital transformation, increase service
quality, improve service delivery or contain costs.
For example, Purchase order requests are recurring processes in most

organizations. The requesting team fills out a form and sends it to the
purchasing team. The approving authority then examines the request and
rejects the request in case information is inadequate or if there are
budgetary constraints. It is then sent back to the requesting team. If
approved, a purchase order is created and copies are sent to the supplier
as well as the inventory team.
Without automation, the issues like delayed PO approval; impacted

productivity; incomplete records; errors in the PO; errors while taking
delivery of the supplies could crop up.
Business process automation can help improve accountability,

transparency and enable accurate data recording, which can be accessed
by relevant stakeholders when necessary. It will also retain all process-
related communication within the workflow to make execution easier
and faster.
2. Business Process Improvement: It is a strategic planning initiative that

aims at reshaping business processes based on operations, complexity
levels, employee skills, etc. in order to make the entire process more
meaningful, efficient, and contribute to overall business growth. It is a
rather drastic way to rediscover more efficient ways to run a business
process rather than taking small incremental steps.
The example of business process improvement involved the merger of

two companies in the waste handling equipment industry having a
common set of customers. They analysed significant value in a merger.
195
Business Idea When joining the two companies, they found disparate systems and
Selection and
Feasibility processes, and operational redundancies.
Following Ultra’s tried-and-true methodology, the ERP consultant
team conducted a current state analysis, identified change management
processes to align the two companies, and defined the desired future
state. Finally, they set the foundation for selecting and implementing a
new ERP solution that would scale for their expected growth.
Among the values realized by the project, the company reduced costs,
improved customer response times, reduced manual efforts, improved IT
management, and upgraded its vendor management.
3. Business Process Modelling: It is a diagrammatic/structural

representation of flow of business activities in an organization or
function within an organization. Its primary use is to document and
baseline the current flow of activities in order to identify improvements
and enhancements for speedy accomplishment of tasks. This is usually
done through different graphing methods, such as the flowchart, data-
flow diagram, etc. Look at Figure 9.3 which shows the diagrammatic
presentation of business process modeling.
yes
Receive Distributio Stock Print
Order n center Invoice
No
Shipping
Advise Marketing Inform

Customer
Figure 9.3: Business Process Modelling
4. Business Process Reengineering: It is a complete redesign of business

processes after thorough analysis in order to bring drastic impact. It
involves identifying the core of inefficiency, culling out tasks that do not
add any value, and even implementing a top-to-bottom change in the
way a process is designed in order to bring about an overall
transformation.
An example of business process reengineering is that of a fast food

company. Sometimes completely redesigning the delivery of products
can give unexpected results. In this type of restaurant, the process goes
like all others, the customer orders, the order goes to the kitchen, which
prepares the meal and then delivers to the consumer.Business process
analysts realized that it would be more advantageous if the meal portions
196
were previously prepared in a separate center, and delivered to the Business Plan
Implementation
restaurants daily.When the customer orders, staff place everything
together and deliver it. This is a complete change in the process,
resulting in greater control, fewer accidents, greater employee
satisfaction, and increased ability to focus on customer needs, all without
losing quality.
5. Business process optimization: It takes an existing process and uses
analytics and business process mining tools to weed out bottlenecks and
other significant inefficiencies in a process.
Another business process optimization example is the social networking
marketing. Let us assume a company wants to post something on
Facebook three times a day. They assign someone to take care of that,
the employee thinks about the posts, and three times a day takes time to
log in to Facebook, write everything and publish it. Note that like this we
are spending time, preventing the employee to focus on other tasks and
spending resources three times a day.Optimizing this process, we would
get the employee to plan the posts for a week or two weeks, and get a
software that publishes it automatically. Thus, the posts will go up
punctually, daily and consistently. No matter if there is someone to do it
or not.
6. Business process mapping: It is a procedure to document, clarify, and
break down process sequences into logical steps.Business process
mapping is a way to visualize what a business does by taking into
account roles, responsibilities and standards. The mapping is either done
in written format or visualized using flow charts. Choose a process
mapping software that empowers business users to map all the processes
based on logical steps with an intuitive visual interface.

1) What do you mean by Location Layout?
2) What is Business Process?
3) List out key elements of Business Process.
i) A business process is a set of activities and tasks that, once

completed, will accomplish an organizational goal.
ii) Entrepreneurs must consider the number of workers available in the
area and their levels of education, training, adaptability and
experience for location decision.
iii) The physical disposition of the facilities of a plant is referred to as
the plant layout.
iv) Business Process Reengineering is a diagrammatic/structural

representation of flow of business activities in an organization or
function within an organization.
197
Business Idea v) Business Process Modelling is a technology-driven strategy to
Selection and
Feasibility automate a business process in order to accomplish it with minimum
cost and in a shorter time.
i) ……………….. is a complete redesign of business processes after

thorough analysis in order to bring drastic impact.
ii) A …………………….. may often be visualized as a flowchart of a

sequence of activities or as a process matrix of a sequence of
activities with relevance rules.
iii) ………………… is a diagrammatic/structural representation of flow

of business activities in an organization or function within an
organization.
iv) The more the need for after sale services, more the cost of
transportation and lower the shelf life of the finished goods, the
more ………………………. will be required.
v) For some retailers it is advantageous to open the business in the
location where the …………………..are already available because
locating business near to one another may serve to increase traffic
flow to both.
9.5 DECIDING ABOUT OPERATION,

PLANNING AND CONTROL
Operations planning and control follows operations design because once a
product/service has been designed, it needs to be produced. Operations
planning and control is concerned with ensuring that the day-to-day
production process proceeds smoothly.The operations and management plan
is designed to describe just how does the business functions on a continuing
basis. The operations plan will highlight the logistics of the organization such
as the various responsibilities of the management team, the tasks assigned to
each division within the company, and capital and expense requirements
related to the operations of the business. Operational planning is an
estimation of what needs to be done to ensure operational processes are
efficient and effective-that supply always meets demand. Operational control
is to ensure that operations conform with this estimation, and if they do not
conform adjustments can be made.
Maximum production, highest quality and minimum cost are the guiding
principle of production management. Production implies a process of
converting a raw material into finished products which is directly associated
with customers’ satisfaction. Thus, production management plays a
significant role in providing satisfaction to the customers.
Typical activities in the planning and control process include:
x Setting objectives-so that you know what is to be achieved by your plans

198 and by when.
x Allocating tasks and responsibbilities-who is to be involved with the new Business Plan
Implementation
product and service and how arre they to be involved.
x Scheduling-work patterns, prrocess scheduling, supply and demand
scheduling
x Assessing resource requirem ments-people and their skills, money
(budgets), time, raw materials, plant and equipment, capacity.
x Monitoring and evaluating pperformance-the control part, involving
control activities, measures andd control techniques.
Selection of Technique of Production

n
Selection, Utilization and Maintainan

nce of Machinery
Working Conditions
Production Planning nad Scheduling
Easy flow of Materials
Inventory/ Stock Control
Cutting and Controlling the Materiall Cost
Skilled Workers
Materials Handling
Quality Control
Figure 9.4 Thrust areaas of Operations Management
The major thrust areas of operatiions, planning and control are:

1) Selection of Technique of P Production: The success of the business
depends upon the selection of aan appropriate technique for production of
products and services. The requirements of plant and machinery,
equipment and instruments andd labour requirements also varies with the
techniques of production. T There are mainly two techniques of
production. First is Labour-Inntensive technique in which most part of
production is done by using llabour force and the use of machinery is
avoided. Second is the Capitaal-Intensive technique in which most of
the production is done using m machinery and the requirement of labour
force is less. The selection off appropriate technique depends on many
factors like availability of resources, nature of product, scale of
operations, etc.
199
Business Idea 2) Selection, Utilization and Maintenance of Machinery: It concerns
Selection and
Feasibility with the decision regarding which machinery to choose amongst
different alternatives available. The factors like price of machinery,
availability of financing, maintenance and repairs requirements and
availability of spare parts, availability of skilled personnel etc. are
important to consider while selecting the machinery.
3) Workplace Layout: Workplace layout means the internal arrangement

of the machines and equipment, storage of raw materials, moving space,
restroom, work space, packing space, storage of finished product etc. of
an enterprise. It basically means the optimum utilization of the available
space. Good layout results in maximum utilization which facilitates easy
handling, safety, time and energy saving work and ultimately ensures
higher productivity.
4) Working Conditions: In order to ensure complete efficiency of
employees, the entrepreneur must ensure the proper working conditions.
Important areas that should be focussed are: proper lighting, sanitation,
good ventilation, cleanliness, medical facilities, availability of safety
equipment, fire fighting equipment etc.
5) Production, Planning and Scheduling: It is concerned with the flow of

material from each phase of production.Production, Planning and
Scheduling basically involves the functioning of operating cycle from
operations to delivery of finished product. Time slots required for each
phase of production including material handling, loading and unloading
from machines, actual production operation, packaging and
transportation, etc. is required to be calculated. The time at each work
phase is thus, can be scheduled in such a way that the machine and the
worker do not remain idle or under-utilised or overburdened.
6) Flow of Materials: High rate of production depends upon the easy
availability of the materials. An entrepreneur has to ensure timely supply
of all materials required in the production process. Depending upon the
nature of business, the stock of raw materials, spare parts and accessories
should be made available well before their requirement. It saves time and
the cost of obtaining money for these supplies. It is always beneficial to
purchase the stock of raw material from a known source and caution
must be taken about the adulteration and supply of materials of an
inferior quality.
7) Inventory/ Stock Control: An inventory control system is a system

which encompasses all aspects of managing a company's inventories;
purchasing, shipping, receiving, tracking, warehousing and storage,
turnover, and reordering. It is an important area in production
management. Inventory is the stock of either the materials required for
production or the stock of finished products. Both the types increase
financial burden of an entrepreneur. Inventory of raw material should be
carefully planned so that production does not stop and the men and
machineries do not remain idle. This involves planning of how much raw
200
material should be stored, re-order level, the quantity to be re-ordered, Business Plan
Implementation
the time required to deliver etc.
8) Cutting and Controlling the Material Cost: As a manufacturer, there
is always a hope to be able to reduce the manufacturing costs without
having to lessen the quantity and quality of the products. However, one
should not be reckless while choosing cost-saving ideas, because they
may ruin the business instead of growth. Cost of raw material constitute
a major share of production cost. Sometimes, the materials are so scarce
and valuable that an entrepreneur cannot afford to waste it. Therefore,
measures should be taken to control the cost of materials. This can be
done by carefully buying the quality raw material as the cheap material
may hamper the quality leading to rejections by the customers; cutting
down the waste materials or by making good use of waste materials (by
products) resulting from production; waste recycling etc.
9) Skilled Workers: In order to increase efficiency and productivity and

quality, the entrepreneur has to carefully adopt a professional outlook
while recruiting skilled workers as skilled workers have the necessary
skills and expertise to do specific jobs. They can achieve quality
standards and complete a job within a stipulated time. The entrepreneur
might have to pay high charges for these workers but the efficiency they
provide is worth spending for.
10) Material Handling:Essentially, material handling is a process that

includes short distance movement inside the scope of a building, or
between the transportation vehicle and the building. It uses various types
of equipment such as manual, automated, and semi-automated. In
addition, the material handling process involves the movement,
protection, storage, and control of materials. This handling process
occurs in manufacturing shop floors, warehousing, distribution, and even
in material disposal. This is why material handling is an important
process in every facility.
11) Quality Control: Quality control is a process through which a business
seeks to ensure that product quality is maintained or improved. Quality
control requires the business to create an environment in which both
management and employees strive for perfection. This is done by
training personnel, creating benchmarks for product quality and testing
products to check for statistically significant variations.A major aspect of
quality control is the establishment of well-defined controls. These
controls help standardize both production and reactions to quality issues.
Limiting room for error by specifying which production activities are to
be completed by which personnel reduces the chance that employees will
be involved in tasks for which they do not have adequate training.
9.6 PREPARATION OF PROJECT REPORT/

BUSINESS PLAN
A business plan is a guide—a roadmap that provides directions so a business
can plan its future and helps it avoid bumps in the road. It is a plan which 201
Business Idea outlines goals and details about how to achieve those goals. The business
Selection and
Feasibility plan is a written document prepared by the entrepreneur that describes all the
relevant external and internal elements involved in starting a new venture. It
is often an integration of functional plans such as marketing, finance,
manufacturing, and human resources. Business plan is used by entrepreneur
for various purposes. Business plans are important to allow a company to lay
out its goals and attract investment. It can be used to get debt from banks,
raise funds through securities and angel investors or venture capitalists. It
helps the entrepreneur to be prepared in advance for the initial years of
business as it provides blue prints of the strategies prepared by the
entrepreneur. It describes clearly the goals and objectives of the firm and how
can these be achieved. Entrepreneur can also set performance benchmark to
judge the effectiveness of business plan.
It is important to first know the audience to whom the business plan should
be addressed as to for whom the business plan is written. The business plan
may be read by employees, investors, bankers, venture capitalists, suppliers,
customers, advisors, and consultants. The actual content and focus of the
business plan depend upon who is expected to read the business plan. Since
each of these groups reads the plan for different purposes, the entrepreneur
must be prepared to address all their issues and concerns. Like every other
project, business plan writing also requires some preparation and should be
carefully planned and systematically executed. A business plan should be
comprehensive enough to give any potential investor a complete picture and
understanding of the new venture, and it should help the entrepreneur clarify
his or her thinking about the business. The elements of business plan are:
x Introductory page
x Executive Summary
x Industry Analysis
x Business Description
x Production Plan
x Operations Plan
x Marketing Plan
x Organizational Plan
x Assessment of Risk
x Financial Plan
x Appendix
This section is discussed in detail in Unit 7.
9.7 SELECTION OF FINANCERS

Dun & Bradstreet stated that, “Almost half of all new ventures fail because of
poor financial management”. One of the most difficult problems in the new
venture creation process is obtaining finance. For the entrepreneur, financing
for the private firm should be considered from theperspectiveof debt versus
202
equity and using internal versus exxternal funds. The various alternatives for Business Plan
Implementation
raising money for a new venture are: Personal Financing, Debt Financing,
Equity Capital & Creative Sources. Let us learn them in detail:
PERSONAL
FINANCING
SOURCES
DEBTT EQUITY
FINANC
CING OF CAPITAL
FINANCE
CREATIVE
SOURCES
Figure 9.5 Sources of Finance
1) Personal Financing: The m main sources for start-up money for
entrepreneurs include: friendss, family and other resources, such as
savings, credit cards, loans, andd investments.
i) The vast majority of foundders contribute personal funds, along with
sweat equity, to their venttures. Sweat equity represents the value of
the time and effort that a foounder puts into a new venture.
ii) Friends and family are tthe second source of funds for many new
ventures. Taking help fromm near and dear ones for financing the new
business venture is a com mmonly used method. While borrowing
money from family and friiends may seem an easy alternative to deal
with bankers, it can actuallly be a much more delicate situation and it
is important to be as disciiplined as you would be in dealing with a
professional investor.
iii) Bootstrapping: A third soource of seed money for a new venture is

referred to as bootstrappinng. Most people who engage in bootstrap
financing want to avoid taking out loans. Bootstrapping is finding
ways to avoid the need ffor external financing or funding through
creativity, ingenuity, thhriftiness, cost-cutting, or any means
necessary. Many entreprreneurs bootstrap out of necessity. For
example: operating with vvendors through letters of credit without
actually providing cash; B Buying used instead of new equipment;
leasing instead of buyingg; obtaining payments in advance from
customers; sharing office sspace with other businesses; hiring interns;
avoiding unnecessary expeenses etc.
2) Equity Financing: Equity financing means exchanging partial
ownership in a firm, usually inn the form of stock, for funding. It offers
the investor some form of oownership position in the venture. The
investor shares in the profits off the venture, as well as any disposition of
203
Business Idea its assets on a pro rata basis based on the percentage of the business
Selection and
Feasibility owned. It can be of three types: Venture Capitalists; Angel investors and
Initial Public Offerings.
i) Angel Investors: An angel investor is a private, non-professional
investor, such as a friend, a relative, or a business associate, who
funds start-up companies. They are individuals who invest their
personal capital directly in start-ups.The prototypical business angel
is about 50 years old, has high income and wealth, is well educated,
has succeeded as an entrepreneur, and is interested in the startup
process.
“Angels” are wealthy individuals who invest personal capital in

startups in exchange for equity or sometimes a seat on the board of
directors.
It is critical for the entrepreneur to develop a network of individuals

within the industry to gain introductions to potential financiers
because “angels” seldom look at unsolicited business plans.
Business plans are evaluated based on the quality of the
management team, market potential for the business idea, and the
track record of the entrepreneur. “Angels” tend to be more involved
in the day-to-day operations of startups.
ii) Venture Capital: Venture capital is Capital/Money provided by

investors to boost up the Venture/ concept/idea of the entrepreneur.
This is a start-up firm and small businesses with perceived long-term
growth potential but not having any asset to get bank finance or not
having past track record or having limited operating history to
justify the venture revenue. Venture capital funds are investment
funds that manage the money of investors who seek private equity
stakes in start-up and small-to-medium-sized enterprises with strong
growth potential. These investments are generally characterized as
high-risk/high-return opportunities. Venture capitalists often
provide managerial and technical expertise to small businesses.
Stages of Venture Capital Financing:

x Seed Stage: Seed funding takes place at this stage. It is considered
as the setup stage where a person approaches an angel investor or an
investor in a venture capital firm for funding for their idea/product.
During this stage, the person or venture has to convince the investor
why is the idea/product worthwhile. The investor will investigate the
technical and economic feasibility (feasibility study) of the idea and
will invest if he finds the idea of the product is worth investing in.
x Start Up Stage: At this stage, the idea has been transformed into a
product and is being produced and sold. The venture is trying to
squeeze between the rest and it tries to get some market share from
the competitors. If at this stage the management team has proven
their capability of standing hold against the competition, the venture
capital firm will probably give a go for the next stage. However, if
204
the management team is not competent enough then the venture Business Plan
Implementation
capitalists may suggest modifications and improvements or
restructuring.
x Expansion Stage: This stage is seen as the expansion/maturity

phase of the previous stage. The venture tries to expand the market
share they gained in the previous stage. This can be done by selling
more of the product and having a good marketing campaign. The
venture capitalist will continue evaluating the product and the
venture and may give additional funds for expansion if the firm has
required potential for growth.
x Bridge/ Pre IPO stage: In general, this is the last stage of the
venture capital financing process. The main goal of this stage is for
the venture to go public so that investors can exit the venture with a
profit commensurate with the risk they have taken.VC firm sells
stock once company matures.
iii) Initial Public Offerings (IPOs): Initial public offering is the

process by which a private company can go public by sale of its
stocks to general public. It could be a new, young company or an old
company which decides to be listed on an exchange and hence goes
public. It is an act of offering the stock of a company on a public
stock exchange for the first time. There are five steps to become a
public company with stock for sale on a public exchange.
x Choose an underwriter or investment banker.
x Draw up a letter of intent.
x File a registration statement with the SEC.
x Announce the offering in the financial press.
x Do a road show.
3) Debt Financing: Debt financing involves borrowing a fixed sum from a
lender, which is then paid back with interest.When a company borrows
money to be paid back at a future date with interest it is known as debt
financing. It could be in the form of a secured as well as an
unsecured loan. A start-up firm may take up a loan in order to start its
operations if the outside institutions are convinced with the idea of the
business. Bonds, debentures, leases, certificates, bills of exchange and
promissory notes are examples of debt instruments.Sources of debt
capital are far more numerous than sources of equity capital, but the
entrepreneur must be certain that the business can generate enough cash
flow to repay the loan.
i) Banks were once the primary source of operating capital, but today
they are much more conservative in their lending practices.
ii) An established business can usually get a line of credit from a bank.
The business can borrow against this credit. Line of credit is an
arrangement whereby a lender agrees to lend up to a specific amount
of money at a certain interest rate for a specific period of time.
205
Business Idea iii) Some businesses may seek trade credit from other companies in
Selection and
Feasibility their industry as a form of debt financing. Trade credit is a credit
one business grants to another business for the purchase of goods or
services. This is a source of short-term financing provided by one
business within another business, industry or trade.
iv) Businesses can borrow money by pledging as collateral otherwise

idle assets – accounts receivable, inventory, and others.
v) Leasing: Itis a contract between the leasing company, the lessor,
and the customer (the lessee). The leasing company buys and owns
the asset that the lessee requires. The customer hires the asset from
the leasing company and pays rental over a pre-determined period
for the use of the asset.
4) Creative Sources: Some other creative sources of finance are:

i) Business incubators: These generally focus on the high-tech sector
by providing support for new businesses in various stages of
development. However, there are also local economic development
incubators, which are focused on areas such as job creation,
revitalization and hosting and sharing services. Commonly,
incubators will invite future businesses and other fledgling
companies to share their premises, as well as their administrative,
logistical and technical resources. For example, an incubator might
share the use of its laboratories so that a new business can develop
and test its products more cheaply before beginning production.
Generally, the incubation phase can last up to two years. Once the
product is ready, the business usually leaves the incubator's premises
to enter its industrial production phase and is on its own.
ii) Government grants and subsidies: Government agencies provide

financing such as grants and subsidies that may be available to the
business. There are other grants available to the entrepreneur at the
central, state, and local levels. These take many different forms and
vary greatly depending on the objectives of the level of government
involved and the geographic area. Sometimes the federal and some
state governments provide training grants to companies particularly
to those locating in and/or hiring in what has been determined to be
a labour surplus area.
iii) Crowdfunding: It presents an opportunity to overcome the

challenges of traditional access to finance. According to Bi, Liu, &
Usman (2016), crowdfunding is an emerging approach for
entrepreneurs to implement their ideas despite not having traditional
monetary resources such as banks and venture capital. It is a method
of collecting many small contributions, by means of an online
funding platform, to finance or capitalize a popular
enterprise.Through crowdfunding platforms, the crowd can invest in
business ideas and projects, and entrepreneurs can raise funds via the
Internet.
206
The following Figure 9.6 summarizzes the above sources of funds available to Business Plan
Implementation
the new business venture:
Sourcees of Funds
Personal Financing Equity Financccing Debt Financing
ͻ>ŝŶĞŽĨƌĞĚŝƚ
Creative Sou
urces
ͻ^ǁĞĂƚƋƵŝƚǇ ͻAngel Investttors
ͻ&ƌŝĞŶĚƐĂŶĚ&ĂŵŝůǇ ͻVenture Cap p
pitalists ͻdƌĂĚĞƌĞĚŝƚ ͻBusiness
ͻŽŽƚƐƌĂƉƉŝŶŐ ͻInitial Publicc ͻ>ĞĂƐŝŶŐ Incubators
Offerings
ͻŽŶĚƐ͕ĚĞďĞŶƚƵƌĞƐ ͻƌŽǁĚͲfund
ding
ͻŝůůƐŽĨĞǆĐŚĂŶŐĞ ͻ'ŽǀĞƌŶŵĞŶŶƚ
and promissory Grants and
notes Sunsidies
Figure 9.66 Sources of Funds
Check your Progress B

1) What do you mean by Businesss Plan?
2) Distinguish between Angel Invvestors and Venture Capital.
3) List out the sources of Funds.
4) State whether the following staatements are True or False:

i) Bootstrapping is finding ways to avoid the need for external
financing.
ii) Initial public offering is thhe process by which a private company can
go public by sale of its stoccks to general public.
iii) Line of credit is a part of ccreative source of funds.
iv) In order to ensure coomplete efficiency of employees, the
entrepreneur must ensure tthe proper working conditions.
v) Start up is the first stage inn Venture Capital Financing.
i) An ………………………… is a private, non-professional investor,

such as a friend, arelative,, or a business associate, who funds start-
up companies.
ii) ………………………….. are investment funds that manage the

money of investors who sseek private equity stakes in start-up and
small-to-medium-sized entterprises with strong growth potential.
207
Business Idea iii) …………………………… generally, focus on the high-tech sector
Selection and
Feasibility by providing support for new businesses in various stages of
development.
iv) ……………………………, highest quality and minimum cost are
the guiding principle of production management.
v) …………………………….. means the internal arrangement of the
machines and equipment, storage of raw materials, moving space,
restroom, work space, packing space, storage of finished product etc.
of an enterprise.
9.8 LET US SUM UP

Plant location refers to the choice of region and the selection of a particular
site for setting up a business or factory. Entrepreneurs who choose their
locations wisely with their customers’ preferences and their companies’
needs in mind establish an important competitive advantage over rivals who
choose their locations haphazardly. One of the most important steps in the
critical path of the establishment of a business is the selection of adequate
location for the business as this can be irreversible in nature. The important
considerations for selecting a suitable location are given as follows: Market
Proximity; Supply of required raw material; Availability of Labour and
Skills; Infrastructural facilities; Transportation Networks; Government
Policy; Competition; Climate condition; Internet access and Political
Conditions.
A business process or business method is a collection of related, structured

activities or tasks by people or equipment which in a specific sequence
produce a service or product for customers. A business process may often be
visualized as a flowchart of a sequence of activities with interleaving decision
points or as a process matrix of a sequence of activities with relevance rules
based on data in the process. A business process is a building block of any
kind of business. A well planned and strategized business process will help a
business in reducing the expenditure, risks, resources and duplication of
work; improvising efficiency, reduce human error, ensuring time
management, etc. Key Elements of Business Process are: Business Process
Automation, Business Process Modelling, Business Process Improvement,
Business Process Reengineering, Business process optimization and Business
process mapping.
Operations planning and control is concerned with ensuring that the day-to-
day production process proceeds smoothly. The operations and management
plan is designed to describe just how the business functions on a continuing
basis. Maximum production, highest quality and minimum cost are the
guiding principle of production management.The major thrust areas of
operations, planning and control are: Selection of Technique of Production;
Selection, Utilization and Maintenance of Machinery; Workplace Layout;
Working conditions; Production, Planning and Scheduling; Flow of
Materials; Inventory/ Stock Control; Cutting and Controlling the Material
208 Cost; Skilled Working; Material Handling; Quality Control.
A business plan is a guide and a roadmap that provides directions so that a Business Plan
Implementation
business can plan its future and helps it avoid bumps in the road. It is a plan
which outlines goals and details about how to achieve those goals. A
business plan should be comprehensive enough to give any potential investor
a complete picture and understanding of the new venture, and it should help
the entrepreneur clarify his or her thinking about the business.
One of the most difficult problems in the new venture creation process is
obtaining financing.The various Alternatives for Raising Money for a New
Venture are: Personal Financing, Debt Financing, Equity Capital & Creative
Sources. The main sources for start-up money for entrepreneurs include:
friends, family and other resources, such as savings, credit cards, loans, and
investments.
Equity Financing means exchanging partial ownership in a firm, usually in

the form of stock, for funding. An angel investor is a private, non-
professional investor, such as a friend, a relative, or a business associate, who
funds start-up companies.
Venture capital is Capital/Money provided by investors to the boost up the

Venture/ concept/idea of the entrepreneur which is a start-up firm and small
businesses with perceived long-term growth potential but not having any
asset to get bank finance or not having past track record or having limited
operating history to justify the venture revenue.
Stages of Venture Capital Financing include: Seed Stage, Start Up Stage,
Expansion Stage, Bridge/ Pre IPO stage. Initial public offering is the process
by which a private company can go public by sale of its stocks to general
public.
Debt financing involves borrowing a fixed sum from a lender, which is then
paid back with interest. Bonds, debentures, leases, certificates, bills of
exchange and promissory notes are examples of debt instruments.
Some other creative sources of finance are: Business incubators, Government
grants and subsidies, Crowdfunding, etc.
9.9 KEY WORDS

Angel Investor: A private, non-professional investor, such as a friend, a
relative, or a business associate, who funds start-up companies.
Bootstrapping: Operating a business as frugally as possible and cutting all

unnecessary expenses, such as borrowing, leasing, and partnering to acquire
resources.
Debt capital: Money raised by taking out loans, which must be repaid with
interest.
Equity: An ownership in a business.
Equity capital: Cash raised for a business in exchange for an ownership

stake in the business.
209
Business Idea Venture capital: A source of equity financing for small businesses with
Selection and
Feasibility exceptional growth potential and experienced senior management.
Venture capitalists: Individual investors or investment firms that invest
venture capital professionally.

A) 4. i.True, ii.True, iii.True, iv.False, v.False
5. i. Business Process Reengineering; ii. Business Process; iii. Business

Process Modelling; iv. Proximity to market; v. Competitors
B) 4. i.True, ii.True, iii.False, iv.True, v.False
5. i. Angel Investors; ii. Venture capital funds; iii. Business incubators;

iv. maximum production; v. workplace layout.

1) What do you mean by a business process? How is it designed? Explain
with the help of an example.
2) What is Location Layout? What are the factors affecting location
decisions?
3) How can political and climate conditions play an important role for
selection of a location decision?
4) What do you mean by business plan?Discuss various elements of
business plan?
5) What are the sources of funds available for new investors?
6) What do you mean by Equity financing? Explain the types of equity
financing.
7) What do you mean by Debt Financing? Explain the types of debt
financing.

x Crowd-funding
x Business process re-engineering
x Bootstrapping
x Angel investors
x Venture capitalists
210
Business Plan
FURTHER READINGS Implementation

three, Chapter 8).



211
Business Idea
Selection and
Feasibility

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Entrepreneurial

5.2 BUSINESS OPPURTUNITY

1) Wearable Trend: As the cost and size of microprocessors continue to

2) Green Trend: The green sector continues to brimming opportunities

3) Payments: The dynamic payments industry continues to expand and

4) Maker Trend: The maker movement is a trend in which individuals or

Figure 5.1 Trends

5.4 A GOOD BUSINESS IDEA

In other words, ideas are referred to as problems expressed by the people in

5.5 SOURCES OF BUSINESS IDEAS

5.5.1 Internal sources

1) Research and Development: R&D can be carried out in-house or

Hobbies and Interests

INTERNAL SOURCES Intrapreneurship

Research and Development

Existing Products and Services

Trade Journals, Business

Trade Fairs and Exhibitions

Figure 5.2 Sources of Idea Generattion

5.5.2 External Sources

3) Distribution Network: Members of distribution partner like dealers,

4) Trade Journals, Business Magazines and Newspapers: Statistical

Check Your Progress A

2) Distinguish between entrepreneurship and intrapreneurship.

3) List out five trends.

4) List out four external sources of idea generation.

5.6 TECHNIQUES OF IDEA GENERATION

1) Brainstorming: Brainstorming is a creative problem-solving technique

Heuristic Ideation Technique

Figure 5.3 Techn

5) Heuristic Ideation Technique: HIT is an idea generation technique that

6) SCAMPER: SCAMPER is an activity-based thinking process that helps

8) Free Association: Free association is a method of developing

x The second is Centred association, (which is close to classical

5.7 SCANNING AND SCREENING OF BUSINESS

3) Practicality: Is it something that really can be done? A workable idea is

5) Ability to Combat Competition: Is there competition in the market and

5.8 SELECTION OF WORKABLE BUSINESS

1) Market Survey and Assessment of Market Potential: The majority of

4) Availability and Access to Raw Materials: Different products require

5) Availability of Funds: Whether the required amount of funds is

6) Differentiation: The extent to which an entrepreneur can establish a

10) Government Objectives and Schemes: The government policies can

The Future of Producct

Figure 5.4 Selection Criteria for New Producct or Service

5.9 NEW PRODUCT DEVELOPM

2) STAGE 2 - Idea Screening

Figure: 5.5 New Prroduct Development Stages

Price Coffee_Brew_Time Capacity

4) STAGE 4 - Marketing strategy

5) STAGE 5 - Technical and Marketing Development

While the technical development is under way, the marketing department is

6) STAGE 6 - Test Marketing and Validation

7) STAGE 7±Commercialization

5.10 CRITICAL FACTORS OF THE NEW

Figure 5.6 Critical Factoors of New Venture development

2) Investment: The capital iinvestment in every business varies

5) Customer Knowledge about their requirements (customer connect):

Check Your Progress C

5.11 LET US SUM UP

5.12 KEY WORDS

5.13 ANSWERS TO CHECK YOUR PROGRESS

5.14 TERMINAL QUESTIONS