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Avishek Jha Classes

ENTREPRENEURSHIP DEVELOPMENT
UNIT – 4 (Mobilising Resources)

Mobilizing Resources for entrepreneurship, Need for finance in entrepreneurship; Micro,

Small and Medium Enterprises: meaning, advantages and disadvantages; Startup: mobilizing
resources for startup: Accommodation and utilities; Preliminary contracts with the vendors,
suppliers, bankers, principal customers, basic startup problems, methods to solve startup
problems.

Meaning of Resource

A resource is anything that can be used to fulfill a need or achieve a goal. It can be a tangible object
like food or water, or intangible assets like knowledge or time. Resources are essential for human
survival and the functioning of society.

Resource Mobilisation And its Importance [v.imp]

Resource mobilisation refers to all activities involved in securing new and additional resources for the
organisation. It also involves making better use of and maximising, existing resources. Resource
mobilisation is often referred to as "New Business Development".

IMPORTANCE OF RESOURCE MOBILISATION

(i) It ensures the contribution of enterprises service provision to clients.

(ii) It supports any organisational sustainability.

(iii)It allows for improvement and scale-up of products and services of the enterprise currently

provides.

(iv)It helps all types of enterprises, both public and private, generating new business to stay in
business

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Need For Finance in Entrepreneurship [imp]

The needs of finance in entrepreneurship are crucial for the establishment, growth, and sustainability
of a business venture. Here are five key aspects:

1. Startup Capital: Entrepreneurs often require initial funding to cover the costs associated
with starting a business, such as market research, product development, and initial marketing
expenses. Startup capital is needed to turn an idea into a viable business.

2. Operational Expenses: Once the business is up and running, ongoing financing is necessary
to cover day-to-day operational expenses such as rent, utilities, salaries, and inventory
replenishment. This ensures that the business can continue to function smoothly and meet its
obligations.

3. Expansion and Growth: Finance is essential for expanding operations, entering new markets,
or scaling up production. This may involve investing in new equipment, hiring additional staff, or
launching new product lines. Access to capital enables entrepreneurs to seize growth opportunities
and take their businesses to the next level.

4. Risk Management: Entrepreneurship involves inherent risks, and financial resources are
needed to mitigate these risks. Having access to funds allows entrepreneurs to weather economic
downturns, adapt to changing market conditions, and respond to unexpected challenges or
emergencies.

5. Investment in Innovation and Research: In today's competitive business landscape,

innovation is essential for staying ahead of the curve. Financial resources enable entrepreneurs to
invest in research and development, acquire new technologies, and innovate their products or
services. This fosters long-term competitiveness and sustainability.

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Micro, Small and Medium Enterprises [imp]

MSME stands for Micro, Small, and Medium Enterprises. These are businesses classified based on
their size and investment in plant and machinery or equipment. MSMEs play a crucial role in driving
economic growth, promoting entrepreneurship, and generating employment opportunities. They
often benefit from government support and incentives aimed at fostering their development and
sustainability.

Types of MSMEs

As per the Micro, Small, and Medium Enterprises Development (MSMED) Act of 2006 in India,
MSMEs are defined based on their investment in plant and machinery or equipment for
manufacturing enterprises, and on investment in equipment for service enterprises. Here are the
criteria outlined in the MSMED Act:

1. Micro Enterprises:

- Manufacturing Enterprises: Investment in plant and machinery not exceeding INR 25 lakh.

- Service Enterprises: Investment in equipment not exceeding INR 10 lakh.

2. Small Enterprises:

- Manufacturing Enterprises: Investment in plant and machinery ranging from more than INR
25 lakh but not exceeding INR 5 crore.

- Service Enterprises: Investment in equipment ranging from more than INR 10 lakh but not
exceeding INR 2 crore.

3. Medium Enterprises:

- Manufacturing Enterprises: Investment in plant and machinery ranging from more than INR 5
crore but not exceeding INR 10 crore.

- Service Enterprises: Investment in equipment ranging from more than INR 2 crore but not
exceeding INR 5 crore.

As of July 1, 2020, the MSME definition in India was revised by the Government of India

1. Micro Enterprises: Firms with investment in plant and machinery or equipment up to Rs. 1 crore
and turnover up to Rs. 5 crore.

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2. Small Enterprises: Businesses with investment in plant and machinery or equipment up to Rs. 10
crore and turnover up to Rs. 50 crore.

3. Medium Enterprises: Enterprises with investment in plant and machinery or equipment up to Rs.
50 crore and turnover up to Rs. 250 crore.

Advantages of MSME’S

The advantages of Micro, Small, and Medium Enterprises (MSMEs) are numerous and contribute
significantly to the economic development of a country. Here are five key advantages:

1. Employment Generation: MSMEs are known for their ability to create employment
opportunities, especially in rural and semi-urban areas. They typically have lower capital
requirements and are more labour-intensive, making them ideal for absorbing surplus labour in the
economy. By providing jobs to a large segment of the population, MSMEs contribute to poverty
reduction and social stability.

2. Promotion of Entrepreneurship: MSMEs serve as a breeding ground for entrepreneurship by

offering a platform for individuals with innovative ideas and skills to start their own businesses. The
relatively low barriers to entry and flexible organizational structure of MSMEs encourage aspiring
entrepreneurs to take risks and pursue their business ventures.

3. Contribution to GDP Growth: MSMEs make a significant contribution to the Gross Domestic
Product (GDP) of a country. Despite their small size individually, collectively, they account for a
considerable share of industrial output and value addition. Their agility and adaptability enable them
to respond quickly to market demands, thereby stimulating economic growth and development.

4. Regional Development: MSMEs play a vital role in fostering regional development by

decentralizing economic activities and promoting industrialization in rural and backward areas. They
often utilize local resources and employ local labour, leading to the balanced growth of different
regions within a country. This helps in reducing regional disparities and promoting inclusive growth.

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5. Innovation and Flexibility: MSMEs are often more innovative and flexible compared to larger
corporations. With fewer bureaucratic hurdles and hierarchical structures, they can quickly adapt to
changing market trends, customer preferences, and technological advancements.

Disadvantages of MSME’s

Disadvantages of MSMEs (Micro, Small, and Medium Enterprises) can include:

1. Limited Access to Finance: MSMEs often face challenges in accessing affordable financing
options from banks and financial institutions due to limited collateral, lack of credit history, and
perceived higher risk by lenders. This can hinder their ability to invest in expansion, technology
upgrades, and innovation.

2. Vulnerability to Economic Fluctuations: MSMEs are more susceptible to economic

downturns and market fluctuations compared to larger enterprises. They may lack the resources and
diversification strategies to withstand adverse economic conditions, leading to financial instability
and potential closure.

3. Limited Bargaining Power: MSMEs may face difficulties in negotiating favourable terms with
suppliers, customers, and other stakeholders due to their smaller size and lower market influence.
This can result in higher input costs, lower selling prices, and unfavourable contract terms, impacting
profitability and competitiveness.

4. Resource Constraints: MSMEs often operate with limited human, technological, and
managerial resources, which can impede their ability to compete effectively in the market, innovate,
and adapt to changing consumer preferences and technological advancements.

5. Regulatory Compliance Burden: MSMEs may find it challenging to comply with complex
regulatory requirements, including taxation, licensing, environmental regulations, and labour laws.

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Meeting these obligations can be time-consuming and costly, diverting resources away from core
business activities and hindering growth opportunities.

Startup [imp]

A 'Startup' has been defined by Department of Industrial Policy & Promotion (DIPP):

(i) An entity incorporated or registered in India.

(ii) Not older than 5 years.

(iii) Annual turnover does not exceeding INR 25 crore in any preceding financial year.

(iv) Working towards innovation, development, deployment or commercialisation of new products,

processes or services driven by technology or intellectual property.

Provided that such entity is not formed by splitting up or reconstruction of a business already in
existence.

Types of Resource Required for Startups

Types of resources required for a startup typically include:

1. Financial Resources: Funding is crucial for covering startup costs, such as product
development, marketing, hiring, and operational expenses. Financial resources can come from
various sources, including personal savings, loans, investments from friends and family, venture
capital, or crowdfunding.

2. Human Resources: Skilled and motivated employees are essential for executing the startup's
vision and driving growth. This includes founders with relevant expertise, as well as employees with
specialized skills in areas such as product development, marketing, sales, and finance.

3. Intellectual Property: Protecting intellectual property rights, such as patents, trademarks,

copyrights, and trade secrets, is vital for startups with innovative products or technologies. These
assets can provide a competitive advantage and create barriers to entry for competitors.

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4. Physical Resources: Startups may require physical assets such as office space, manufacturing
facilities, equipment, and inventory. Depending on the nature of the business, physical resources can
vary significantly in scale and complexity.

5. Technological Resources: In today's digital age, technology plays a crucial role in startup
success. This includes hardware, software, and IT infrastructure needed to develop, deliver, and scale
products or services, as well as tools for communication, collaboration, and data analysis.

6. Network and Relationships: Building a network of mentors, advisors, partners, suppliers,

and customers is essential for gaining insights, accessing resources, and establishing credibility in the
market. Networking can also provide valuable support, guidance, and opportunities for collaboration
and growth.

7. Time and Effort: Finally, startups require a significant investment of time, effort, and
perseverance from founders and team members. Building a successful startup often involves long
hours, hard work, and the willingness to overcome challenges and setbacks along the way.

Preliminary Contracts [imp]

Preliminary contracts are the contracts entered into by the entrepreneur before the formal
commencement of the enterprise to bring it into running mode. They are also called
preincorporation contracts and are usually entered into by the promoters of the enterprise/company
for acquiring some property or right for the company which is yet to be incorporated. Usually an
entrepreneur enters into the preliminary contract with the following parties:

(a) Vendor

(b) Suppliers:

(c) Financial Intermediary (Bankers):

(d) Principal Customers

Basic Startup Problems [v.imp]

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Certainly, here are ten basic startup problems that entrepreneurs often encounter:

1. Lack of Market Validation: Startups may struggle to validate their product or service idea in
the market, leading to uncertainty about demand and customer preferences.

2. Limited Funding: Securing adequate funding is a common challenge for startups, as they may
face difficulty accessing capital from investors or lenders, especially in the early stages.

3. Talent Acquisition: Hiring and retaining skilled employees can be challenging for startups
competing with larger companies for talent while offering limited resources and benefits.

4. Product Development Challenges: Startups may encounter difficulties in developing and

refining their product or service, including technical challenges, resource constraints, and delays in
the development process.

5. Marketing and Customer Acquisition: Startups often struggle to build brand awareness,
reach their target audience, and acquire customers cost-effectively due to limited marketing budgets
and competition.

6. Scaling Operations: Scaling a startup requires careful planning and execution to manage
growth effectively, including expanding production capacity, hiring additional staff, and entering new
markets.

7. Regulatory Compliance: Startups must navigate complex regulatory requirements, including

licensing, taxation, data privacy, and industry-specific regulations, which can be time-consuming and
costly to comply with.

8. Cash Flow Management: Managing cash flow is critical for startups to cover operating
expenses, invest in growth initiatives, and maintain financial stability, especially during periods of
fluctuating revenue.

9. Competition and Differentiation: Startups face competition from established players and
other startups in their industry, requiring them to differentiate their offerings, innovate continuously,
and carve out a unique value proposition.

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10. Leadership and Decision-Making: Startups may struggle with leadership challenges,
including setting strategic direction, making critical decisions, and fostering a culture of innovation
and accountability within the organization.

Methods to solve Startup Problems [imp]

1. Maintain a positive attitude, since startup problems are normal: If you feel angry or exhibit
a negative attitude to the team about problems, you will jeopardize the potential success of your
startup. Successful problem-solving is often more a state of mind than any particular skill or process.

2. Remember that learning requires listening more than talking: The first challenge for many
aspiring entrepreneurs is to put aside their passionate advocacy long enough to acknowledge an
existing problem. That means practicing non-defensive listening to key advisors, team members and
customers. You can't solve a problem if you don't see one.

3. Openly communicate about each problem and commit to fix it: Entrepreneurs who solve
problems well don't hide them from their teams or make excuses and publicly take responsibility for
a timely resolution. It's smart to outline initial actions, but not so smart to promise any specific
solution until you have had time to investigate the source.

4. Don't hesitate to call in an experienced advisor or mentor to help: Very few startup
problems are unique. An experienced advisor, board member or investor has seen them all. You can
save yourself countless hours of frustration and failed efforts by swallowing your pride, asking for
help and following expert suggestions.

5. Follow a disciplined analysis before jumping to conclusions: Make sure you have all the
facts, as well as insights from relevant sources and outside experts. Don't let your passions and
emotions drive you to a quick judgment, and remember that there are always at least two sides to
every question. Practice active listening to get all input.

6. Track every problem: Problems become crises when affected people hear nothing or sense
that no attention is being paid to the issue. Thus a visible system is required for reporting to all
relevant parties, which also keeps your focus on the problem until it is resolved.

7. Set deadlines and measure and pay for performance: Remember the old adage that you get
what you pay for. If everyone is incented to find new customers, there will be little focus on resolving
problems with current ones. Make sure there are metrics for problem counts, resolution time and
revenue impact.

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