Entrepreneurship , Marketing and Financial Management

transcript

Praveen Kumar JainSchool of Agriculture

IGNOU, New Delhi

Contents

• Entrepreneur and Entrepreneurship• Development of entrepreneurial skills• Business and development of business plan• Project Report and Project appraisal • Finance and material procurement • Concept of marketing and marketing

management

Self Employment

• Start any economic activity of our own for being self-employed.

• Once the activity grows it can also generate wage-employment for others, then it is called entrepreneurship.

Example: Small business, Manufacturing unit or Service-cum-repair unit

Benefits to self-employed

• Gainful use of one’s own capabilities and time

• Develops initiative and ability to plan and manage business activity

• Learns many things ‘on the job’ • Learns to be innovative and growth-

oriented

Need for entrepreneurship

• Increases national production• Balanced area development• Dispersal of economic power• Reinvestment of profit for the welfare of the

area of profit generation • Development is a function of motivation and

human resource

Who is Entrepreneur

• organize activities, and manage and run an enterprise

• Independence and having control over one’s own life

• innovative and reaching towards excellence• creating job opportunities for others• Sensing economic opportunities

Setting Challenging Goal – Risk Taking• Trade off between Challenging Goal and Risk Taking • Entrepreneurs are Moderate or calculated risk-takers. • This involves a number of processes:• Understanding the situation• Gathering as much information as possible• Assessing one's own resources• Setting challenging goals for oneself, on the basis of

the information and resources• Testing one's own abilities• Modifying the goals set on the basis of previous

Experience (one's own and others).

Entrepreneur and GamblerGambler: • takes risks, the pay off is solely determined by the result of a

“chance”• Operates without using earlier experience• Learning is not possible

Entrepreneur: • Also stakes and hopes, but continuously intervenes to influence the

outcome. • Entrepreneur takes only such risks where one cannot control the

outcome• risk-taking is mainly governed by learning

Sensing Opportunities

What is opportunity?• It may be a chance to do something new; • it may also be a way of getting something for

nothing? or • it may be a job or admission to a school or

college. • Another type of opportunity: Problem

Sensing Opportunities......

• Entrepreneurs perceive opportunities quickly, synthesize the available information and analyze emerging patterns that escape others.

• Opportunity available in the environment• It is also possible to create or craft business

opportunity.

Sources of Ideas for business opportunities

• Natural resources• Existing products or services• Market-driven or demand-driven

ideas • Trading related ideas• Service sector ideas

Creating Efforts for Business Opportunity

• Develop a new product or service.• Improve an existing product or service.• Find a new process or resource for

manufacturing a product.• Find a new use for a product or service.• Find new markets for existing products or

services.

SWOT AnalysisStrengths

The Pickle can be made tasty

Low investment Skills easily available Simple technology

Weakness Seasonality of raw

materials (needing large stocks)

Product is perishable Licensing formalities are

cumbersome

Opportunity Large Market Brand selling possible Variety could be made to

suit customers ‘Tastes’

Threats Large no. of competitors Establishing brand is

difficult Customer tastes may

change

FOOD PROCESSING BUSINESS To be self-employed in food processing, you should know and needs to do.

First• Where one could get trained in food processing • Where one could get training in business management. • Where one could get awareness on business aspects of

the project.Second • Raw materials• Availability of raw material in local market• Availability of the raw material outside local market• Price• Transport• Equipment

Third • Packaging• Type of packaging• Attractive labellingFourth• Storage• Preservatives• SpaceFifth• Marketing the Product• Distribution• PublicitySixth• Preparation of Project Report• Arranging Finance

FOOD PROCESSING BUSINESS

Entrepreneurship

Entrepreneurship is the quality and skill required to become an entrepreneur.

It refers to identifying and innovating ideas and services; mobilizing resources; organizing production and services; and finally marketing them, covering the risk by constantly trying for growth and development.

Once you are motivated you will start your business- in order to start a business you need to have three things:

Knowledge - processes, kind of fruits, season,

Skills - using of machinery

Attitude - right mind set and willingness

What is Required to Be an Entrepreneur?

Entrepreneurial skills

• The ability and the capability of an entrepreneur to initiate, launch and sustain the process of enterprise building.

• These skills are not necessarily born but can be developed.

• However, these entrepreneurial skills are the result of certain set of values, attitudes and motivation.

Values

• One’s own belief towards life in general.• Helps an individual to focus towards goal.

• Innovativeness• Independence• Seeking perfection, and• Respect for work

AttitudesTendency to think and act in a particular way.

• Use imagination/intuition• Take moderate risk• Enjoy freedom of expression & action• Look for economic opportunities• Find satisfaction from successful completion of tasks• Believe that one can change the environment• Take initiative• Analyse situation & plan action• Involve in work

Motivation• Driving force towards the attainment of the

goal. • Motivation developed because of certain

values and attitudes Attaining certain standard of excellence. Set some standard and to excel it. Excel the standard already set by others. Achieving something unique. Achieving long-term career goals. Need to influence environment, individuals &

situation for achieving set goals.

Entrepreneurial skills• Positive self concept• Creativity and innovation • Risk taking • Using feedback• Opportunity seeking • Information seeking• Concern for standard/quality of work• Problem solving orientation• Faith in planning• Persuasive and influencing quality• Long term commitment• Coping with stress

Developing Entrepreneurial Skill

• Right mindset• appropriate knowledge • required skill

Strategy to develop right mind set up

• To Know “What You Are?”- Ideal Self-Real Self• To Know Your Destination• To Believe that You Are The Master of Your

Own Destiny• To Develop a Positive Self Image

Achievement Planning and Business Goal

Through planning, you will be able• to clearly specify your goals,• identify various activities• anticipate obstacles• enlist resources• anticipate consequencesTherefore, to be a successful entrepreneur, you

need to develop skill and insight in planning and firm faith that planning is a must to ensure success in accomplishing goal.

How to Plan it involves nine steps:

• Analysis of Situation;• Goal Setting;• Enlisting Activities;• Anticipation of Potential Obstacles;• Location of resources;• Generating alternatives;• Anticipation of consequences; and• Action Planning.

Business, Business Ideas, Business Plan and

Project Repot

Business

• Business is an institution organized and operated to provide goods and services to society under the incentive of private gain. (B.O. Wheeler)

• Business is any trade, commerce or manufacture or any venture in the nature of trade, commerce or manufacture. (Income Tax Act, 1961)

Features of business

1. Economic activity2. Profit motive3. Goods or services: Consumer Goods and

Producer Goods 4. Production of goods and services5. Distribution of goods and services 6. Risk 7. Sale, transfer and exchange

Forms of business activities ...... • Agricultural activities – growing of crops,

preparing harvest for the market, preservation etc.

• Manufacturing activities – manufacture of pickles, jams, papads, biscuits, chutneys, spices, sauces, pump sets, agricultural implements, spare parts etc.

• Trading activities – buying and selling in wholesale, retail or barter

Forms of business activities• Service activities – transportation,

warehousing, insurance etc.• Reproducing and multiplying activities –

nurseries which multiply and sell plants, plant materials

• Mining activities – exploration, extraction of minerals, iron ores, gold, diamonds etc.

• Constructing activities – construction of buildings, warehouses, cold storages, silos, etc.

Business Opportunity Identification

• If there are unsatisfied needs and wants, there are opportunities.

• Identification of such opportunities requires imagination, sensitivity and realistic assessment of what a businessman can do.

Opportunity assessment• To choose the relevant opportunities• To evaluate the sales potential of each

opportunity • To evaluate the financial aspect of each

opportunity • To evaluate the technical aspect of each

opportunity• To evaluate the marketing aspect of each

opportunity

Sources of Business Idea 1. Customers2. Researchers3. Competitors 4. Salesmen 5. Owners 6. Government publications 7. Business journals and financial newspapers8. Financial institutions9. Market research agencies10. Trade fairs and trade exhibitions11. Dealers and suppliers12. Performance of existing industries

Generation of Business Idea • Product imitation• Manufacturing of a new product (Product innovation)• Manufacturing of an existing product but after adding

more value to it or improving it • Manufacturing of a product after listening to the needs

and wants of the customers • Finding new uses for an old product • Own problems and use of hobby• Untapped natural resources • Latest fashion and changing life styles• Research and development programmes• Consumption in foreign countries

Evaluation of Business Idea • Evaluate one-self• Collection of information• Reviewing the limitations • Detailed investigations- capital requirement, location, source of

raw materials &labour, availability of techniques, machinery, power

• Consistency with government priorities • Cost reasonableness• Adequacy of the market • Assessment of risks • Scale of operation • Form of business ownership • Compliance with legal formalities

BUSINESS PLAN

• A business plan involves step by step investigation and development of a sound business idea.

• It is comprehensive course of action with guidelines for a new venture.

• Covers the full range of business planning activities. • Helps the entrepreneur to make better decisions. • Also called feasibility plan. It is the systematic

development of a project idea for the eventual purpose of arriving at an investment decision.

Why a business plan is needed

• Provides framework • Initiates development • Helps in arranging financial assistance • Helps in selecting appropriate technology • Helps in securing clearances from the

government • Provides knowledge about government

regulations

Features of an Ideal Business Plan

• It should be written in simple language.• It should be informative.• It should clearly identify the products, services,

markets and promoters of the business.• It should be complete and accurate.• It should be convincing so that the bankers are able

to sanction loans.• It should be dynamic in nature.• It should have a pragmatic approach.

Inputs Required for a Business Plan

• Information about the Industry• Information about the Enterprise• Information about Product/Service• Information about Market Research• Information about Market Plan• Information about Operation Plans• Information about Finance

Project report

• A project report is a formal version of a business plan.

• It gives a complete analysis of inputs and outputs of the project.

• It enables the entrepreneur to understand at the initial stage whether the project is sound on technical, commercial, financial and economic parameters.

Aspects of a Project Report

Economicaspect

Ecological aspect

Marketing aspect

Technical aspect

Financial aspect

Managerial aspect

Contents of the Project Report ......• General details about the industrial concern, project

and financial assistance applied for• Bio-data of promoters• Particulars of the industrial concern • Particulars of the project • Cost of the Project• Means of Financing.• Marketing and selling arrangement. • Government consents.• Requirement of raw material.• Particulars of machinery to be imported.

Contents of the Project Report ......

• Margin money for working capital.• Source of funds in respect of expenditure already

incurred.• Cash Flow Statement.• Projected Balance Sheet.• Projected Income Statement.• Calculation of wages and salaries at maximum

production.• Unit cost of production.• Declaration

Project appraisal

Assessment of a project by a bank/term-lending institution

Economic viabilityEcological viabilityTechnical viabilityMarketing viabilityManagerial viabilityFinancial viability

Financial viability• Cost of project• Sources of finance • Projected income statement : Net sales figures and details of

direct expenses, Profit & loss • Projected balance sheet: assets and liabilities of the business

unitBreak-even analysis

• Financial ratios: To apprise the liquidity position, solvency position

• Projected cash flow statement: cash inflows and cash outflows • Pay back period • Discounted cash flows • Internal rate of return

Financial and Marketing Management

ARRANGING THE INPUTS

Five M’s• Money• Material• Men• Methods • Machines

Finance

• To start a business;• To expand, renovate and modernize the business. Types of Capital

Fixed capitalWorking capital

Types of FinanceLong term financeShort term finance

Sources of Finance .......• Owned capital; and • Borrowed capital.

Sources for Long Term Finance• Owned capital• Retained Profits• Funds borrowed from friends and relatives.• Loans from Commercial banks• Loans from National-level Financial Institutions• Loans from various State-level Financial Institutions

Sources of Finance .......Short Term Sources of Finance• Bank Overdraft• Cash Credit• Discounting of Bills of Exchange• Short term loans • Trade Credit from suppliers• Accounts Payable • Advances from customers • Accruals• Factoring• Co-operative Credit Societies • Indigenous Bankers

Evaluation of the sources of finance ...

Advantages of Owned Capital• Supply of long term capital• Control• No charge on assets • No repayment of liability• No fixed cost

Evaluation of the sources of finance....

Disadvantages of Owned Capital• Investment of the personal savings• Limited scope of expansion• Danger of over-capitalisation

Advantages of Borrowed Capital• Availability of funds• Long term source• Scope for expansion• Tax Benefit• Non-interference in the management

Disadvantages of Borrowed Capital• Financial burden• Charge on assets• Borrowing capacity

Factors Affecting the Choice of the Source of Loan

• Rate of interest• Repayment period• Margin requirement• Processing charges• Time-period involved in sanctioning the loan

Material procurement

Principles of Purchasing• Right Source – – Location of the supplier– Financial position of the supplier– Terms of Supply– Production facilities at supplier’s end

• Right Quantity• Right Quality• Right Price• Right Time

Purchase Procedure

• Purchase requisition• Inviting quotations• Purchase order • Receiving of material • Initiating payment

Marketing

Concept of Marketing …….

Needs, Wants, Products, and Exchange

Need: a state of felt deprivation of some generic satisfaction arising in the human conditions.

Want: Wants are desires for specific satisfiers of the ultimate needs.

Product: Any object, service, activity or place through which a need or a want may be satisfied.

Concept of Marketing …….

Exchange process: The product can be made available to any person through the process of exchange. • Barter system •Money

Concept of Marketing ……. • Market :The word market has its origin in the Latin word

“Marcatus”. It means merchandise, ware or trade.

It is the set of all actual and potential buyers of a product. Whenever there is a need or a want and the wanted product is available for sale or exchange - a potential for trade: there is a market.

• Marketing: “Social process by which individuals and groups obtain what they want through creating, offering and freely exchanging products and services of value with others. (Philip Kotler)

How to Assess Market for any Business Idea .......

• To Know Your Interest - Personal, physical, mental, education & training, tackling customers, competition oriented qualities, moral, managerial qualities.

• To Know the Type of Target Market - Producer and Consumer

• To Know the Suppliers- Money, manpower, material, machines, information

How to Assess Market for any Business Idea .......

• To Know the Marketing Intermediaries- Merchant middlemen, Agent and Facilitator

• To Know the Competitors- Number of firms, market share, homogeneity and differentiation in product, entry barriers, substitutes, policies

• To Know the Customers- What do, when do consumers buy, what do consumer want, how do consumer buy.

What Constitutes the Market for Your Business Idea

• Consumers• Consumers are heterogeneous in nature • They may differ in age, geographical location,

income, education level, taste, product requirements, buying attitudes etc.

• The heterogeneous market can be broken down into a number of homogeneous units.

Market segmentation• Can not serve all customers•Widely scattered too many customers • some competitors will be in a better position to

serve the customers in the market.

• If the resources are limited, then the business unit should try to identify those market segments that it can best serve in terms of segment preferences, patterns of competition and the strength of the business.

Ways of Market Segmentation

• Geographical segmentation (Geographical markets)

• Demographic segmentation • Buying behaviour segmentation• Benefit segmentation • Volume segmentation • Economic segmentation • Psychographic segmentation

Market targeting• Market segmentation leads to market targeting.• Market targeting is the process of fixing target market. • Market targeting is the act of evaluating and

comparing different identified groups. • After evaluation and comparison the businessman

may select one or more of the identified groups as the prospective customers with the highest potential.

• Thereafter a suitable marketing mix may be devised that will give the best return on sales.

Market Size for Your Business Idea • Market size means the actual volume that is currently

being purchased by the customers.• It can be measured in terms of rupees or units and It is

always smaller than the total market potential.

Assessment of market size1. Market demand: - demand forecasting

Survey method- Leading indicator method- Statistical methods

2. Price: size of market vary with price

Marketing functions- Utilities• Form utility- Goods are to be processed into

different forms to suit the needs of the consumers.

• Place utility- Goods are required to be transported from the place of production to the place of consumption.

• Time utility -Surplus goods are also required to be stored in warehouses for deferred consumption.

• Possession utility- Sale and transfer of goods create.

Classification of marketing functions

• I) Functions of Exchange: activities performed in the transfer of ownership from sellers to buyers.

• II) Functions of Physical Supply- activities involved in the physical movement of the goods.

• III) Facilitating Functions- activities involved in helping the process of exchange.

Functions of exchange

Buying function: Transfer of ownership of the product from seller to buyer. E.g. manufacturer buys raw material from the suppliers.Five R’s of best buy- Right source, Right quantity, Right quality, Right price, Right time

Buying, Assembling and Selling

2. Assembly function:Gathering of products purchased from different producers/manufacturers at some central place.

Some times firms assemble goods in big lots, grade them and give their own brand name after packing the goods.

3. Selling function:“Effecting transfer of ownership in goods by the seller to the buyer in exchange for money”. Involves - locating buyers, finding their preferences, persuading them to buy, negotiating the terms of sale, receiving payment and making delivery, and providing appropriate after sale services.

1. Transportation- Physical movement of material and goods from one place to another. It includes decisions like: mode of transport, Routing, Freight, Vehicle scheduling

2. Storage (i.e. warehousing)- making of proper arrangements for retaining the goods in a perfect state till the time consumers need them for consumption. Goods get protected from the fire, theft, leakage, pests, rodents and insects, weather changes, moisture etc.

3. Inventory management- The firm needs to maintain a particular level of stock to ensure product availability as and when customers demand.

4. Order processing- Receipt of order, Acknowledgement to the customer, customer credit check, inventory scheduling i.e. collection, packing etc., dispatch of goods.

Functions of physical supply

Facilitating functions

• Marketing research• Standardisation and Grading• Financing• Risk taking

Marketing Research

“gathering, recording and analysing of all facts about any problem relating to the transfer and sale of goods and services from the producer to consumer.”Uses of marketing research – • To recognise the needs of the customers • To understand the buying motives• To decide the brand name, size of the package,

method of advertisement

Classification of marketing research problems

• Product • Markets• Consumers • Advertising and Promotion,• Distribution• Pricing• Sales Methods • Competition

Steps involved in marketing research

1. Defining and Analysing the problem2. Developing a research design 3. Collection of data4. To analyse the data collected: 5. Report preparation and implementation

Standardisation and Grading

• Standardisation: Standardisation means production of such goods as will be uniformly of the same specifications with regard to shape, size, colour, material, performance etc.

• Grading: Grading is division of product into classes made of units possessing similar features of size, shape, colour and quality.

Financing

Finance is required for marketing the various goods and services. It may be for short-term purposes or long-term purposes.

The various sources of finance are:• Own Capital• Friends and relatives• Commercial banks• Co-operative banks• Agricultural credit societies• Government agencies etc.

Risk takingBusiness risks refer to the possibility of inadequate profit or even

losses due to unexpected events, which are beyond control.

Some of the examples :• Risk due to fire• Risk due to theft and negligence• Accidents• Change in government policies• Drought, famine, lightning and earthquakes• Wrong estimation• Change in tastes and fashion• Technology changes• Trade cycle risks etc.

MARKETING MIX

The business firm usually develops a marketing plan to achieve its various marketing objectives.

• Marketing mix is a plan designed to analyse the marketing problems.

• Marketing mix is the ingredients or variables, which the marketer mixes in order to interact with a particular market.

Marketing Mix VariablesProduct

Place (Distribution)

Promotion

Pricing

Goods, services, or ideas that satisfy customer needs

The ready, convenient, and timely availability of products

Activities that inform customers about the organization and its products

Decisions and actions that establish pricing objectives and policies and set product prices

Marketing Mix - Product

A combination of various features relating to the product or service to be offered for sale. It also refers to total number of products and items a businessman offers to the market.

Sub-elements of product mix1. Nature of product

Product Line : Group of products- butter, ice-creamProduct width: Number of product lineProduct length: number of items in the product line

2. Features of a product - Size, Colour, Flavour, Weight, Durability, Shape

3. Branding - Brand Name, Brand Mark, Trade Mark.

4. Packaging- all the activities involved in designing and producing the containers or wrappers for a product. Material used in packaging -wooden boxes, metal containers, plastic, glass bottle, etc.

5. Labelling - putting labels on the package or the product. small slip to provide information to the customers

MARKETING MIX PRICE

•Price is the exchange value of a product.•Most important decision-area of marketing, area from where revenue is earned, crucial to profit.

Factors influencing pricing policy

• Consistency • Public image• Purchasing power of the

consumers • Price control measures• Pricing policy of the

competitors

• Availability of substitutes

• Ability to postpone purchase

• Cost of production• Demand and Supply• Current fashion and

tastes etc.

Decisions regarding terms of sale

• Ex-works price • Ex-warehouse price • Cash sale price • Credit sale price • Instalment facility etc.

Decisions regarding discounts and rebates

• Trade discount • Cash discount • Off-season rebate • Festival rebate • Rebate for cash down

purchase etc.

Marketing Mix- Price

Marketing Mix- Promotion

• Effective communication flow between the business firm and the consumer.

• Involves informing the potential customers about the availability of product and stimulating them to buy it.– Advertising– Sales promotion– Personal selling– Publicity

Marketing Mix- Promotion ....

Advertising- It is any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor.

Sales promotion- Sales promotion is an effort to

stimulate consumers to purchase more and more of a particular commodity. It draws quick response from the target audience.

Marketing Mix- Promotion .....

Personal selling- It is the oldest method of selling a product. It means selling personally. It is oral, face-to-face interaction between a seller and prospective customers for the purpose of making sales.

Publicity- to build a favourable and positive public image of the firm.

Marketing Mix- Place (Distribution)

Place mix involves decisions to be taken in order to make the product available to the customers.

1) Development of channels of distribution 2) Physical distribution of product

Competitors present in the Market ....

• Market leader- A market leader is the one, who has reached the place where others want to reach. maximum share

• Market challenger- The firm that occupies a place next to the market leader There may be one or more challenger or runner-up.

• Market followers- Usually small sized firms. lower market share. They are actively trying to expand their share through highly aggressive tactics.

Competitors present in the Market ....

• New entrants- who has just stepped into that industry. direct competition to the already in the business form.

• Very small firms - These firms are very small in size. They cannot attack the larger firms.

• Powerful suppliers• Powerful buyers • Substitute products

Marketing Strategies vis-à-vis Competitors

1. Innovations2. Prices3. Promotional

strategies4. Quality strategies5. Product size 6. New brand

7. Heavy advertisement 8. Competent sales force 9. Manufacturing

efficiency 10. Efficient and extensive

dealership system 11. Credit policy12. Better after-sales

services

Thank You

Entrepreneurship , Marketing and Financial Management

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