EntrepreneurshipEntrepreneurshipEntrepreneurshipEntrepreneurship
A N BhattacharyaA N BhattacharyaProfessor & Chair, Professor & Chair, Marketing Leadership Program,Marketing Leadership Program,School School ofof Inspired Leadership, Inspired Leadership,
GurgaonGurgaon [email protected] [email protected]
DefinitionsDefinitionsDefinitionsDefinitions
“Entrepreneurship is the process of creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risks, and receiving the resulting rewards of monetary and personal satisfaction of independence.”… Robert Hisrich
Entrepreneurship Entrepreneurship vs vs IntrapreneurshipIntrapreneurship
Intrapreneurship is entrepreneurship by employees in
existing organisations Antoncic and Hirsh, 2003
Entrepreneurship is an act of initiative, drive, commitment, diligence, perseverance, organized effort, and achievement outlook, to undertake some specific functions of performing productive activities and the capacity to bear and associated with the investment.
Economic Policy Paper on Entrepreneurship Development
• India is ninth in the Global Entrepreneurship Monitor (GEM) survey of entrepreneurial countries
• It is highest among 28 countries in Necessity based entrepreneurship, while 5th from the lowest in opportunity based entrepreneurship.
• Entrepreneurship in India is basically necessity based. Number of individuals taking entrepreneurship as a career choice is much lower as compared to forced entrepreneurs
Some Facts About India…….Some Facts About India…….
• 38.8% of the Indian labour force is illiterate, 24.9% of the labour force has had schooling up to the primary level and the balance 36.3% has had schooling up to the middle and higher level.
• About 80% of the workforce in rural and urban areas does not possess any identifiable marketable skills.
• No Indian University in the top100 universities of the world. • US- 37, UK-17 and China-5 Universities in top 100 universities of the world• IIT- Delhi: 154th position. IIT-B: 174th, IIT-K: 242nd, Delhi University: 274
ENTREPRENEURS ENTREPRENEURS VSVS MANAGERS MANAGERS
High
Inventor
Entrepreneur
Promoter
Manager,
administrator
Low
Creativity and Innovation
General management skills, business know-how, networksHighLow
ENTREPRENEURIAL CAREER CHOICE: DETERMINANT FACTORS ENTREPRENEURIAL CAREER CHOICE: DETERMINANT FACTORS
WHAT IS ENTREPRENEURSHIP?WHAT IS ENTREPRENEURSHIP?
Economists tend to agree that entrepreneurs, associated with innovation, are the driving forces of economical development
Psychologists, sociologists and anthropologists underline the entrepreneur’s personal characteristics of creativity, risk-taking, need for achievement, internal locus of control
Operations management specialists see entrepreneurs as good distributors and coordinators of resources
Finance specialists define entrepreneurs as people able to evaluate and calculate financial risks
Management specialists think that entrepreneurs develop visions to organize their activities and excel at organizing people and using resources
Marketing specialists define entrepreneurs as people who identify opportunities, differentiate themselves and adopt customer-oriented thinking.
What are the qualities of an entrepreneur?What are the qualities of an entrepreneur?
Functions of entrepreneurFunctions of entrepreneur
Organization:•An organizer mentally first of all decides certain things like what, how, and how much to produce. He estimates the demand for the commodity and initiates the production. He decides the location of the industry, scale of production and estimates the availability of raw materials, labor, capital etc.
Then he co-ordinates the other factors like land, labor and capital in proper proportion, so that he can minimize the cost of production and reap more and more profit by producing more and more quantity at a cheaper price. He supervises the entire production activity. After production is over, he finds proper market for his product and sells them.
Functions of entrepreneur……….Functions of entrepreneur……….contd.contd.
Risk bearing:• An entrepreneur not only organizes the entire production process but also
undertakes risks and uncertainties. An organizer starts production with an anticipation of demand for his product. But when he actually brings the product to market, there may or may not be demand for his product. This is a non-insurable risk he has to undertake. Thus a brave organizer has to shoulder certain insurable and non-insurable risks also.
Innovation:• An entrepreneur must be an innovator to survive in the market and to
retain the same position for his product. Innovation means introducing new changes in production or technology or market for the product. Profit as a reward for innovation is not a stable one. It appears, disappears and reappears. Only the imaginative skillful few will remain in the industry for ever.
Role of entrepreneurRole of entrepreneur
• An innovator who combines technical innovations and financial finesses.
• Important role in producing competitive products, processes, and services.
• Generation of new employments.
• Local and regional economic development.
• Improved allocation of resources and transfer of technologies.
Who is manager?Who is manager?
• A manager is someone whose primary activities are a part of the management process. In particular, a manager is someone who plans and makes decisions, organizes, leads, and controls human, financial, physical, and information resources.
• Managers in any organization are responsible for the performance of one or more of their subordinates. Managers must mobilize people and resources to accomplish tasks within their department and are also held accountable for the results of their department. Further,their goal is to help the organization achieve a high level of performance through management. Management involves the process of planning, organizing, leading, and controlling the use of resources.
Roles of a Manager Roles of a Manager
Interpersonal Role: • Figurehead-performs activities like greeting visitors, give awards to employees etc • Leader- Lead and motivate subordinates • Liaison- He is a link between organisation and outsiders.
Informational Role: • Monitoring- Collects information.• Disseminator- Distributes information.• Spokesperson- Represents his unit/organisation while interaction with outsiders.
Decisional Role: • Entrepreneur- Assumes risk in terms of results, due to dynamic factors of business. • Disturbance Handler- Tries to control forces that tend to disturb smooth
functioning of the organisation. • Resource Allocator- Allocates human, financial and physical resources according to
needs.
Motive:The main motive of an entrepreneur is to start a venture by setting up an enterprise
for his personal gratification.The main motive of a manager is to render his services in an enterprise already set
up by someone else.Status: An entrepreneur is the owner of the enterprise. A manager is the servant in the enterprise owned by the entrepreneur.Risk-bearing:An entrepreneur assumes all risks and uncertainty involved in running the
enterprise.A manager as a servant does not bear any risk involved in the enterprise.Objectives:Entrepreneur’s objective is to innovate and create and he acts as a change agent.A manager’s objective is to supervise and create routines. He implements the
entrepreneur’s plans and ideas.
Difference between Entrepreneur and ManagerDifference between Entrepreneur and Manager
Rewards: The rewards an entrepreneur gets for bearing risks involved in the enterprise is profit which is
highly uncertain.A manager gets salary as rewards for the services rendered by him in the enterprise. Salary of a
manager is certain and fixed.Fraudulent behavior:An entrepreneur is not induced to involve in fraudulent behavior where as a manger does. A manager may cheat by not working hard because his income is not tied up to the performance
of the organizationInnovation: Entrepreneur himself thinks over what and how to produce goods to meet the changing
demands of the customers. He acts as an innovative ‘change agent’.Manager simply executes the plans prepared by the entrepreneur. Thus, a manager simply
translates the entrepreneur’s ideas into practice. Qualification:An entrepreneur possesses qualities and qualifications like high achievement motive, originality
in thinking, risk-bearing ability and so on.A manager possesses distinct qualifications in terms of sound knowledge in management theory
and practice.
Difference between Entrepreneur and Manager………………………..……..Difference between Entrepreneur and Manager………………………..……..contd.contd.
“An entrepreneur could be a manager but a manager cannot be an entrepreneur”. An entrepreneur is intensely dedicated to develop business through constant innovation. He may employ a manager in order to perform some of his functions such as setting objectives, policies, rules etc. A manager cannot replace an entrepreneur in spite of performing the allotted duties because a manager has to work as per the guidelines laid down by the entrepreneur.
On the downside, typical manager brings professionalism into working of an organization. They bring fresh perspectives, ideas and approach to trouble shooting which can be invaluable.
Difference between Entrepreneur and Manager………………………..……..Difference between Entrepreneur and Manager………………………..……..contd.contd.
CATEGORIES OF ENTREPRENEURSCATEGORIES OF ENTREPRENEURS
Why People Become Entrepreneurs
Potential drawbacks of entrepreneurshipPotential drawbacks of entrepreneurship
• Uncertain income
• Risk of losing entire invested capital
• Long hours hard work
• Low quality of life until business gets established
• High levels of stress
• Complete responsibility discouragement
THE ENVIRONMENT FOR ENTREPRENEURS:THE ENVIRONMENT FOR ENTREPRENEURS:Factors Supporting & Expanding Opportunities for Entrepreneurs Factors Supporting & Expanding Opportunities for Entrepreneurs
CHARACTERISTICS OF ENTREPRENEURSCHARACTERISTICS OF ENTREPRENEURS
Observed characteristics of entrepreneurs: Observed characteristics of entrepreneurs: The 10 I’s modelThe 10 I’s model
• Independence• Interest• Insight• Ideas• Invention
• Inspiration• Involvement• Instigation• Insistence• I - will
Mapping the ten ‘I’ characteristicsMapping the ten ‘I’ characteristicsPlotting overall average scores for a sample of 20 successful entrepreneurs. Indicated by
1 Independence2 Interest3 Insight4 Ideas5 Invention6 Inspiration7 Involvement8 Instigation9 Insistence 10 I will
10
9
8
76
5
4
3
21
0
Teaching, Learning & Assessment (TLA) framework 1Teaching, Learning & Assessment (TLA) framework 1
Context & Group Formation
Self Awareness
Idea/Concept Generation
Idea/Concept Selection
Project Management
Proposal
Business plan andpresentation
Business planning
Intellectual Property Rights
Business strategy and
risk
Market and competitor analysis
Marketing strategy
The management team
Operations and commercial
strategy
Financial forecasting
The pitch
Teaching, Learning & Assessment (TLA) framework 2Teaching, Learning & Assessment (TLA) framework 2
Businesses as legal entities – A classificationBusinesses as legal entities – A classification
Unlimited liability• Sole traders/Propreitors• Partnerships (can also have Ltd. status)
Limited liability (Incorporated)• Private: Shares not traded in public. Have company name and suffix Pvt
Ltd• Public: Shares traded in public have company name and suffix Ltd
Co-operative
Owned and controlled by members, incorporated under the Cooperatives/Societies Act
What is a business plan?What is a business plan?
A document that explains and justifies the business concept.It attempts to answer three questions:
• Where are we now?• Where do we intend going?• How do we get there?
Three basic objectives of business plans Three basic objectives of business plans
• To identify the nature and the context of the business opportunity – why does the opportunity exist?
• To present the approach the entrepreneur will take to exploit the opportunity
• To recognise the factors that will determine whether the venture will be successful
Role of business planning in business successRole of business planning in business success
1. It enables the entrepreneur to understand an opportunity and what it will take to exploit
2. It provides a framework for managing the business in the future
3. It will help recruit partners and management team4. It should be capable of attracting new capital to the venture5. It can refocus and rejuvenate a business after start up
Typical requirements of business plans :1Typical requirements of business plans :1
• To clearly identify product, service and unique selling point (USP)
• Justify its competitive advantage through patent search data and competitor analysis
• Determine market attractiveness i.e. size and potential growth through identification of potential customers, market trends
• Determine route to commercialisation including technical development, patenting, licensing and marketing
Typical requirements of business plans: 2Typical requirements of business plans: 2
• Justify potential income and expenditure for products, IPR, licenses, human resources, patenting, equipment and running costs
• Demonstrate credibility of management team• Demonstrate financial rewards and loan requirements for
potential investors
Making a Business PlanMaking a Business Plan
"In preparing for battle I have always found that plans are useless, but planning is indispensable."
-Dwight Eisenhower
“Those who fail to plan, plan to fail.”-George Hewell
The Basic Steps of a Business PlanThe Basic Steps of a Business Plan
• Executive Summary
• Company Overview
• Market Environment
• Marketing and Sales Strategy
• Operations
• Financial Plan
What does your Business Plan say...What does your Business Plan say...
• Discuss a particular market opportunity.• Examine the markets that you will compete in, and explain
who your customers will be.• Describe the products or services that your company will
provide.• Your competition, and how you will defend against it.• The operation that you will put in place in your company.• The management team that will implement the plan.• The size and profitability of your company.
Executive Summary
• The written version of the “60 second pitch.”
• Many people who read your plan, will only read your Executive Summary...
• ...and then they may read your financials.
• NOT an introduction, but a short version of the whole plan.
Company OverviewCompany Overview
• Explanation of history, structure, and organization of your company.
• Strategic direction– Mission statement.– Goals and objectives.– Values and vision.
• People– Relevant skills and expertise of management team.– Directors.– Relationships with experts in the field.
Market EnvironmentMarket Environment
• All factors of the market that are outside your direct control:
– Market structure
– Market trends
– Competition
– Opportunities/Threats
Marketing and Sales StrategyMarketing and Sales Strategy
• Products or services offered.• Follow-on products.• Intellectual property or other defendable positions.• Market research.• Marketing plan.
– Product strategy.– Brand strategy.– Distribution strategy.– Pricing strategy.– Promotion.
OperationsOperations
• Practical details required to meet the plan.
• Facilities.
• Manufacturing or out-sourcing.
• Personnel.
• Varies widely depending on type of business.
Financial PlanFinancial Plan
• Three key reports, in a five-year plan:– Income statement.– Balance sheet.– Statement of cash flows.
Entrepreneurial Goals & Choice of VenturesEntrepreneurial Goals & Choice of Ventures
• Entrepreneurial motivations, goals, expectations and capabilities vary across individuals
• Likewise, opportunities also vary in their characteristics and critical success factors
• Opportunities are to be screened for both viability and ‘fit’ with the entrepreneurs before they are pursued
Entrepreneurial StrategyEntrepreneurial Strategy
HeuristicsHeuristics
Heuristics
Venture Characteristics *Typology of
Ventures
Entrepreneurial Fit*Personal goals*EntrepreneurialCapacity
Strategy to Exploit*Research & Analysis*Process*Resources*Growth
Iterative
Contributed by:K. Kumar, Faculty & Chair Person NSRCEL -IIM B, India
Types of New VenturesTypes of New Ventures
• Revolutionary ventures
• Niche ventures
• Ventures that are propagators of new technology or innovations
• Hustle ventures
• Speculative (deal) ventures
Revolutionary VenturesRevolutionary Ventures
• A revolutionary idea, innovation or concept• A new process or manufacturing technique• Can shake up/create a matured/new industry
CharacteristicsCharacteristics
• Large investments spread over time with uncertain outcomes• Building organizational capabilities and sustainability• Requires a lot of creativity and exceptional managerial capabilities to
execute
• Suits those who want to win or lose on a grand scale• New entrepreneurs can attempt but should be clear about their role in
the future growth of the venture• Entrepreneurs should have extraordinary organizing capabilities
Critical Success FactorsCritical Success Factors
Entrepreneurial FitEntrepreneurial Fit
Niche VenturesNiche Ventures
• Need not be a radical concept or idea• Serve segments with a unique need not served by mainstream
offerings
CharacteristicsCharacteristics
• Existence of a niche that can be economically serviced• Simple and easy to use product or service • Modest managerial and leadership skills
Critical Success FactorsCritical Success Factors
• Ideal for entrepreneurs with insightful knowledge of the larger market and the niche in particular
• Suits entrepreneurs with moderate growth/wealth ambitions and limited resources
Entrepreneurial FitEntrepreneurial Fit
Propagatory VenturesPropagatory Ventures
• Propagate an emerging technology or a productCharacteristicsCharacteristics
• Superior execution – speed and efficiency• Nimbleness rather than a great strategy• Investment and Managerial capacity to attempt market dominance
Critical Success FactorsCritical Success Factors
• Ideal for entrepreneurs with proven superior capability to execute• Suits entrepreneurs with competence in deal making and fund
raising to support growth• Entrepreneurs should want be excited by high growth
Entrepreneurial FitEntrepreneurial Fit
‘‘Hustle’ VenturesHustle’ Ventures
• Extraordinary ability to execute• Meticulous selection and grooming of resources• Vision and values of the organization
Critical Success FactorsCritical Success Factors
• Suits entrepreneurs with limited resources and modest growth ambitions• Fits those who value professional satisfaction and do not seek high growth
• Ideal for entrepreneurs who seek a lifestyle business and satisfactory cash
flow as against high growth and wealth creation
Entrepreneurial FitEntrepreneurial Fit
• Does not need an innovative approach• No avenues to build proprietary assets• Low capital requirements • Limited exit options
CharacteristicsCharacteristics
Speculative VenturesSpeculative Ventures
• Risk Taking Ability• Insight and Timing• Speculative Instinct
Critical Success FactorsCritical Success Factors
• Suits those who want quick profits• Those who are willing to take commensurate risks• Those who have the financial strength and staying power to go through
the deal
Entrepreneurial FitEntrepreneurial Fit
• An opportunity to buy low and sell high• Financial risks depend on the terms of the deal• No staged commitments- fully exposed once the deal is made
CharacteristicsCharacteristics
Acquiring ResourcesAcquiring Resources
• Acquiring resources for a new venture is a task of enlisting stakeholders
Customers Financiers Employees Suppliers
What Are the Challenges?What Are the Challenges?
• Uncertainty surrounding the venture• Downside risk perceived by the stakeholder
(resource provider)
Desirable Attributes in StakeholdersDesirable Attributes in Stakeholders
• Well diversified• Experienced and specialized• Has excess capacity• Demonstrated risk seeking disposition
Customers Financiers Employees Suppliers
Sources of FinanceSources of Finance
• Own funds• Outside equity• Debt• Internal generation
Marketing PlanMarketing Plan
SWOT AnalysisSWOT Analysis
• A basic marketing plan begins with SWOT analysis about your company and the SWOT should be :
• A summary of the key elements in your business • Brief, concise and interesting, without being too
abbreviated• Focused on the real issues facing your company• Action-oriented, so that positive proposals can be
envisaged
• Strengths- You can bank upon these.
• Weaknesses- Definitely need to be corrected
• Opportunities- Help you in setting the target where you want to reach.
• Threats- Make necessary contingency plan to combat threats which would automatically become a part of the marketing plan.
Scope of Marketing ResearchScope of Marketing Research
• Identifying Target Market• Identifying Market Characteristics• Measurement of Marketing Potential• Competitors Analysis• Sales Analysis• Identify and forecast Business Trends• Sales Forecasting• New Product/Service Acceptance and Potential• Long Range Forecasting of Marketing Mix Variables• Pricing Strategies and Studies
Marketing Research – Marketing Research – Analyse Complexity of Buying BehaviourAnalyse Complexity of Buying Behaviour
CULTURALBELIEFS &
VALUES, LIFE STYLES
SOCIOLOGICALSOCIAL CLASS,
STRUCTUREFAMILY/GROUP INFLUENCE,LIFECYCLE, OPINION
LEADERSHIP
ECONOMICPRICE, DELIVERY,
PAYMENT TERMS,SALES SERVICE
INDIVIDUAL PSYCHOLOGICAL FACTORSCOGNITION, LEARNING PROCESSES,
INTERPERSONAL RESPONSE, ATTITUDESMOTIVATION, PERSONALITY THEORIES
BUYING PROPOSITION PRODUCT OR SERVICE
Marketing Strategy to be Based on Marketing Strategy to be Based on
WHO MAKES THE BUYING DECISIONS• DECIDER• INFLUENCER• BUYER• USER
Understanding Consumer CharacteristicsUnderstanding Consumer Characteristics
CHARACTERISTICS Innovators
2-3%
Early Adopters
12-15%
Early Majority
33%
Late Majority
34%
Laggards
12-15%
PERSONAL
Social,
Income, Occupation,
Education,
Housing,
Family Influence,
Time orientation
PSYCHOLOGICAL
Nature of needs, Perceptions,
Self-concept, Aspiration Groups, Reference Groups
Changing PrioritiesChanging Priorities
Stage Priorities Major Purchases
Fledging : Teens & early 20s Self,Socialising, Education Appearance Products, Clothing, Automobiles, Recreation, Hobbies, Travel
Courting :20s Self & Other, Pair bonding,Career
Furniture & Furnishing, Entertainment, Savings
Nest Building:20s &early 30s Babies & Career Home, Garden,,Baby Care products, insurnce
Full Nest 30-50s Children, Career, Midlife crisis
Children Food, clothing, education, transportation, life counseling
Empty Nest 50-70 Self & others, relaxation Furniture, Entertainment, Travel, Hobbies, Luxury Automobiles, Investments
Sole survivor 70-90 Self, health,loneliness Health care , Diet, Security, Comfort, TV, Books, Long distance telephone services
Why some Plans fail ?Why some Plans fail ?
• Lack of a real plan (particularly regarding goals & objectives)
• Inadequate situational analysis – There is no point in deciding where you want to go if you do not know “where you are?” and “where you have been?”
• Lack of Goal Clarity and Unrealistic Goals – This generally happens due to lack of understanding of the situation.
• Unexpected competitive moves, product deficiencies, Delay in Getting Finance, and acts of God.
