ENTREPRENEURSHIP DEVELOPMENT (KMB402) UNIT3

 Introduction

An entrepreneur has an infinitely wide choice with respect to his project in different dimensions such as product/service, market, technology, equipment, scale of production, time phasing and location. Hence, the identification of investment opportunities (projects) calls for understanding the environment in which one operates, sensitivity to emerging investment possibilities, imaginative analysis of a variety of factors and also chance of luck.

 

Project Ideas

 

It is the first and foremost task of an entrepreneur to find out suitable business which is feasible and promising and which merit further examination and appraisal. Therefore, he has to first search for a sound workable business idea and give a practical shape to his idea. while doing so, the entrepreneur has to tackle the various problems from time to time to achieve the ultimate success. Since the good project ideas are elusive, a variety of sources should be tapped to stimulate the generation of project ideas.

 

Sources of Project Ideas

·         Project ideas could originate from the various sources viz.,

·         Success story of a friend/relatives

·         Experience of others in manufacture/sale of product

·         Examining the inputs and outputs of industries

·         Plan outlays and government guidelines

·         Suggestions of financial institutions and developmental agencies

·         Investigation of local materials and resources

·         Economic and social trend of the economy

·         New technological developments

·         Project profiles and industrial potential surveys

·         Visits to trade fairs

·         Unfulfilled psychological needs

·         Possibility of reviving sick units

 

The various sources from which the project idea can be generated are explained below:

 

Analyse the Performance of Existing Industries

A study of existing industries in terms of their profitability and capacity utilisation is helpful. The analysis of profitability and break even level of various industries indicates promising investment opportunities. Opportunities which are profitable and relatively risk free. An examination of capacity utilisation of various industries provides information about the potential for further investment. Such a study becomes more useful if it is done region wise, particularly for products which have high transportation costs.

 

Examine the Inputs and Outputs Of Industries

An analysis of the inputs required for various industries may throw up project ideas. Opportunities exist when (i) materials purchased parts, or supplies are presently being procured from different sources with attendant time lag and transportation costs and (ii) several firms produce internally some components/parts which can be supplied at a lower cost by a single manufactures who can enjoy economies of scale.

 

A study of the output structure of existing industries may reveal opportunities for further processing of output or even processing of waste.

 

Examine Imports and Exports

An analysis of import statistics for a period of five to seven years is helpful in understanding the trend of imports of various goods and the potential for import substitution. Indigenous manufacture of goods currently imported is advantageous for several reasons:

 

·         It improves the balance of payments situation

·         It provides market for supporting industries and services

·         It generates employment

 

Likewise, an examination of export statistics is useful in learning about the export possibilities of various products.

 

Plan Outlays and Government Guidelines

The government plays a very important role in our economy. Its proposed outlays in different sector provides useful pointers toward investment opportunities. They indicate the potential demand for goods and service required by different sectors.

Suggestions of Financial Institutions and Developmental Agencies

 

In a bid to promote development of industries in their respective states, state financial corporations state industrial development corpora-tions and other developmental bodies conduct studies, prepare feasibility reports and offer suggestions to potential entrepreneur. The suggestions of these bodies are helpful in identifying promising projects.

 

Investigate Local Materials and Resources

A search for project ideas may begin with an investigation into local resources and skills, various ways of adding value to locally available materials may be examined. Similarly, the skills of local artisans may suggest products that may be profitably produced and marketed.

 

Analyse Economic and Social Trends

A study of economic and social trends is helpful in projecting demand for various goods and services. Changing economic conditions provide new business opportunities. A great awareness of the value of time is dawning on the public. Hence the demand for time saving products like prepared food items, ovens and powered vehicles has been increasing. Another change that we are witnessing is that the desire for leisure and recreational activities has been increasing. This has caused a growth in the market for recreational products and services.

 

Identify Unfulfilled Psychological Needs

For well established, multi brand product groups like bathing soaps, detergents, cosmetics and tooth pastes, the question to be asked is not whether there is an opportunity to manufacture something to satisfy an actual physical need but whether there are certain psychological needs of consumers which are presently unfulfilled. To find whether such an opportunity exists, the technique of spectrum analysis may be followed. This analysis is done somewhat as follows.

 

a)      Important factors influencing brand choice are identified

b)     Respect of the factors identified in step

c)      Gaps which exist in relation to consumer psychological needs are identified.

 

Visit to Trade Fairs

Attending the National and International trade fairs provides an excellent opportunity to know about new products and new development.

 

The above said sources of project ideas may be generated by the Government agencies, credit institutions, non governmental organisations and also by public.

 

 

 

 

The Govt. have largest resources and have the necessary information to generate project ideas and it plays a predominant role in this sphere. The government has the required facilities and manpower to conduct detailed studies which may lead to making investment decisions. Banks and other financial institutions are actively involved in sharing the social responsibility of achieving the national objectives of economic development. The co-operatives and non governmental organisations as well as individual entrepreneurs are now actively participated in identification of projects.

 

The awareness of involving the people or the beneficiaries in project identification is now increasing fast. Since the local people have the first hand knowledge of the potentials and problems of the area to which they belong, more realistic project identification has become possible with their involvement. It needs no emphasis the project ideas would be generated in better manner both in the qualitative as well as quantitative terms when the knowledge and ideas of the Govt. functionaries, people, the financial institutions and other experts are pooled together.

 

Purpose and Need for Project Identification

 

The entire economic management planning is based on two fundamental assumptions. i.e. a) limited means and b) unlimited ends. A planner has to select few important needs to cut it into size of his/her means. This may be treated as fixing the priority is called identification of project. It helps in elimination process. Identification and selection of a project is a scientific process. This process is based on certain essential conditions. It may differ from project to project. The essential conditions which should be taken into consideration for identification and selection of production projects are as follows:

 

a)      Project should be in conformity with the economic needs of the area.

b)     It should take into account the depriving factors which might have adverse impact.

c)      The input-output ratio should be optimum.

d)     The purpose of the project is to increase the production and employment of the area.

 

Thus, the above said conditions will differ due to resources availability, use pattern and other relevant conditions of the area. Besides that, project should also consider certain national priorities.

 

Steps in Project Identification

 

Project ideas are like other ideas which don’t take concrete shape immediately. There are several stages of making propositions their considerations and scrutiny for their soundness.

 

An idea is first born, it is under incubation for sometime and subsequently it begins to take some definite shape. The project ideas to develop take almost the same course. This project identification may be broadly divided into four stages, viz.,

 

(A)         Conceptual stage - where project ideas are generated

(B)         Screening stage - at which unviable ideas are eliminated

(C)         Identification stage - at which viable projects are selected

(D)         Pre-feasibility state - at which pre-feasibility studies are taking up.

 

Conceptual Stage

A number of project ideas may be generated either by those officials or non-officials and entrepreneurs individually or collectively who are conversant with the area. In this context, one

 

 

 

 

has to examine the potentialities of development and the problems, needs and aspirations of the people of the concerned area.

 

Screening Stage

In the second stage project ideas generated above are screened in a preliminary exercise to weed out the bad or unviable ideas. All project ideas would not pass the screening test. Some project ideas may be imaginary to warrant any serious consideration.

 

The third & fourth stages may be called as investment opportunity study. This study is necessarily preliminary and the broad one and has a limited objective of providing planners with a choice of projects from which they can make a selection. Pre-feasibility study is an intermediate stage between an investment opportunity study and a detailed feasibility study and these can be differentiated mainly on the basis of information required for respective stages.

 

Screening of Project Ideas

After gathering the project ideas from the various sources as aforesaid, it is essential to eliminate ideas which prima facie are not promising. This process of eliminating the irrelevant and unviable ideas is called screening of project ideas. It can be done with the help of testing the following conditions of the propositions.

 

a.        Compatibility with the promoter

b.        Consistency with governmental priorities

c.         Availability of inputs

d.        Adequacy of market

e.         Reasonableness of cost

f.         Acceptability of risk level etc.

 

The project idea must be compatible with interest personality and resources of the entrepreneur. It should be accessible to him and also it offers him the prospects of rapid growth and high return on invested capital.

 

The project idea must satisfy or go along with the governmental priorities, National goals and governmental regulatory framework.

·         No contrary environmental effects to governmental regulations

·         Easily accommodating foreign exchange requirements

·         No difficulty in obtaining license.

 

The resources and inputs required for the project must be reasonably assured. This feature of the project can be assessed with the help of determining the following points relating to a project.

·            Capital requirement within manageable limit

·            Obtaining technical know-how

·            Availability of raw materials at a reasonable cost

·            Obtaining power supply

 

Identifying the adequacy of market is the key factor to select, the viable project idea. To judge the adequacy of market the following factors have to be examined.

·          Total present domestic market

·          Competitors and their market shares

·          Export market

·          Quality price profile of the product

·          Sale and distribution system

·          Projected increase in consumption

·          Barriers to the entry of new units

 

 

·          Economic social and demographic trends favourable to increased consumption

·          Patent protection

 

Reasonableness of cost is another factor to screen the project ideas. The cost structure of the proposed project must enable it to realise an acceptable profit with a competitive price. The following cost factors must be carefully considered to design a viable cost structure.

 

·            Cost of material inputs, labour costs, factory overheads.

·            General administration expenses, selling and distribution costs.

·            Service costs, economics of scale etc.

 

Acceptability of risk level is another factor which helps to screen the project ideas and hence determine the desirability of a project.

 

Methodology for Project Identification

To make a viable project it should be linked with the actual circumstances prevailing in the area. Without knowing the basic information relating to socio-economic conditions of the area, it is difficult to draw a suitable project for the area. Development needs and potentials vary from area to area. For specific area, before drawing a project, local condition and other relevant factors must be taken into consideration. Most of the project fail because they were not based on local problems. Assumptions based on macro level information may fail to watch at micro level. Survey is a technique to unearth the hidden information which are vital to identify the basic requisites of project i.e. need, resources and priorities. It also helps in making right choice between different alternatives. Secondly it presents lot of information to be used as bench mark information which will help at the later stage for evaluation of the project.

 

Project Identification for an Existing Company

Existing companies essentially large scale company form of organisations are continuously developing various projects for their developmental purposes. While doing so, the existing company has to make a more intensive analysis of its resources and environment and conceive of projects on the basis of its existing activities. An existing company which seeks to identify new project opportunities should undertake a “SWOT” analysis. It is an acronym law of strengths and weaknesses and opportunities and threats. This analysis evaluate all these four characteristics of existing company.

 

A brief summary of the points required for SWOT analysis is given below:

 

• Availability of internal financial reasons for new projects after taking into account the need for replacement expenditure, increase in working capital, repayment of borrowings and dividend payments.
• Capability of raising external financial resources.
• Availability of production facilities.
• Technological capabilities of the company.

·         Availability of infrastructural facilities.

·         Cost structure and profit margins of the company.

·         Distribution network of the company

·         Market share of the company.

·         Capability of top management of the company.

·         State of industrial relations in the company. Possibility of evolving new technology and its impact on the cost structure of the   company.

·    Existence and severity of competition

 

·         Impact of corporate laws on the growth of the company especially (MRTP ACT) etc.,

·         Availability of different sources of raw materials and its utilisation.

·         Likely changes in the governmental policies. .

·         Changes in the customers preferences, tastes etc.

 

By considering the above said information keenly the SWOT analysis helps to provide the basis for the corporate strategy to be followed and indicate the major areas of thrust. These may include expansion of the capacity of existing product range, vertical integration, diversification in related areas and mergers.

 

 

Project Formulation 

 

 

Introduction

Project formulation is an investigating process which precedes investment decision. The purpose is to present relevant facts before the decision-makers to enable them to decide as to whether to go ahead signal should be given for the project or not.

 

Formulation of projects involves scientific procedure. The task of any formidable project is too many. It has to present several information subjective and objective in nature. It explains the objectives, goals and justification for the acceptance of the project. The major task of a project is to assess the financial, technical and managerial involvement and its justification considering the resource constraint. The project formulation stage involves the identification of investment options by the enterprise.

 

Project formulation is designed to bring the project sponsoring authority and the agencies from whom it has to get concurrence, support etc., on one wavelength. Project formulation by providing a scientifically developed procedure for developing the content as well as the format of the investment proposition, seeks to streamline the process of appraisal of project at government and the aiding agencies level. So, the project formulation is a process involving the joint effort of a team of experts including the economists, the financial analysts and specialists in various fields a well formulated project provides a medium which cut across scientific, social and positional prejudices and provides a common meeting ground for all those who have a contribution to make in successful implementation of a project.

 

Stages in Project Formulation

A.      Feasibility analysis

B.       Techno-economic analysis

C.      Project design and network analysis

D.      Input analysis

E.       Financial analysis

F.       Social cost-benefit analysis and

G.      Project appraisal.

 

 

Feasibility Analysis

Feasibility analysis is the first stage in the process of project development. The purpose of the analysis is to examine the desirability of investing in pre-investment studies. For this purpose it is essential to examine project idea in the light of the available internal (inputs, resources

&                  outputs) and external constraints (environment). When a project idea is taken up for developmental three situations can arise. The project may appear to be feasible, project idea is taken up for development three situations can arise.

 

 

 

The project may appear to be feasible, project may turn out to be not feasible or the available data may not be adequate for arriving at reasonable decision regarding further investment. In the last mentioned case, investment in pre-investment studies will obviously have to be deferred till such time as adequate data regarding the project feasibility is available. The project sponsoring body will therefore have to invest in collecting additional data and refer the investment decision for the time being. In the second situation when the project is found to be not feasible, further investment in the project idea is completely ruled out. In the third situation, when the project idea is found to be feasible, the decision-makers can proceed to invest further resources in pre-investment studies and design development.

 

Techno-Economic Analysis

Techno-economic analysis is primarily concerned with the identification of project demand

potential and the selection of the optimal technology which can be used to achieve the project objectives. The analysis provides necessary material on which the project design can be based. It also indicates whether the economy is in a position to absorb the output of the project or not.

 

Project Design and Network Analysis

Project design is the heart of the project entity. It defines the individual activities which go into the corpus of the project and their inter-relationship with each other. It identifies the flow of events which must take place before a project can start yielding the results for which it has been set up. The inter-relationship between various constituent activities of a project is most conveniently expressed in the form of a network diagram.

 

Project design and network analysis are concerned primarily with the development of the detailed work plans of the project and its time profile, and the presentation of this plan is the form of a detailed network drawing. Project design and network analysis make available to the project formulation team a clear picture of the work elements of the project and also their sequential relationship. This presentation the way for detailed identification and quantification of the project inputs, an essential step in the development of the financial and cost-benefit profile of the project.

 

Input Analysis

he objective is to identify and quantify the project inputs and to assess the feasibility of a sustained supply of these inputs all through the effective life span of the project. Resources are consumed in project constituent activities. The best method of identifying the project constituent activities. The best method of identifying the project inputs is therefore to identify these activities determine the resources which each activity will consume individual requirements. Input analysis uses the network plans for developing the input characteristics of the project. If thereafter proceeds to evaluate the availability of the inputs both in quantitative as well as qualitative terms.

 

Resources required for a successful implementation of a project include not only the material inputs but also human resources which are necessary both for the setting up of the project as also its successful normalisation run. Resource requirements estimates form the basis of costs estimates of the project and are, therefore, essential for developing the financial profile and the cost-benefit profile of the project.

 

Financial Analysis

The objective of financial analysis is to develop the project from the financial angle and to identify these characteristics. Financial analysis concerns itself with the estimation of the project costs, estimation of project funds requirements. It also involves and appraisal of the financial characteristics of the project so as to establish the relative merits and demerits of the project as compared to other investment opportunities. Financial analysis reduces investment proposition in diverse fields of human activity to one common scale, thereby simplifying the project is developing project financial forecasts.

 

 

Cost Benefit Analysis

In judging the overall worth of the project, the effect which the project will have on society as a whole is very material. While financial analysis evaluates a project from the profitability point of view, social cost benefit analysis views it from the point of view of rational viability, the cost-benefit analysis however takes into account not only the direct costs and benefits which will accrue to the project implementing body but also total costs which all entities connected with the project will have to bear and the benefits which will be enjoyed by all such entities. The idea here is to evaluate the project in terms of absolute costs and benefits rather than in terms apparent costs and benefits.

 

 

Pre-Investment Appraisal

Pre investment appraisal is the process of consolidating the results of feasibility analysis, the techno-economic analysis, the design and network analysis, the input analysis, the financial analysis and the cost benefit analysis, so as to give the investment proposition a final and formal shape.

 

It naturally involves selection of appraisal format, the material which should go into pre-investment report and the form of presentation of various conclusions. The sum total of the pre-investment appraisal is to present the project idea in a form in which the project sponsoring body, the project implementing body and the outside agencies can take investment decision regarding the proposals.

 

Criteria to be Followed

The main criteria in the project formulation process are:

 

• Forecasting - understanding and precisely identifying the objectives/needs/goals (regional/ state/ national/ international) of the unit/society/economy on a sustained basis.
• Setting up priorities and choosing the goals that are more urgent
• Searching for alternations and carrying out feasibility studies to pick up projects that appear most beneficial and desirable.
• Carrying out detailed studies of the project so selected.
• Estimating the needed resources (human and physical) and finding the yearly cost and benefit of project.
• Arranging funds -both approval and allocation. The successful implementation of any project depends upon the timely availability of the required resources as per projections.
• Preparing of time schedule for all jobs so that the physical and financial targets of the projects are phased appropriately.
• Distributing the works to various departments or agencies having the appropriate technical expertise.
• Execution and controlling the project. This requires frequent reviewing, updating and constant action to restore the operation to its planned characteristics.
• Evaluating the performance of each project to ensure the worth of good or service for each rupee to be spent.

 

 

 

METHODS OF PROFITABILITY APPRAISAL

 

A)    PAY BACK METHOD: It is cash based technique. It is a period over which the investment would be paid back.

 

 

 

 

formula

 

 

 

 

 

DECISION RULE (or SELECTION CRITERION):-

According to pay back criterion, the shorter the payback period, the better the project.

 

ADVANTAGES OF PAY BACK METHOD

• It is simple to understand and easy to apply.
• It is very important for cash forecasting, budgeting and cash flow analysis.
• It minimizes the possibility of losses through obsolescence.
• It takes into account liquidity.
• It is easier for projects yielding returns in initial years.

 

DISADVANTAGES OF PAY BACK METHOD

• It ignores the time value of money.
• It completely ignores cash inflows after the payback period.
• This method does not measures profitability of projects. It insist only on recovery of the cost of the project.
• It does not measure the rate of return.
• It may become misleading because it is based on a single factor.

 

B)    AVERAGE RATE OF RETURN METHOD (ARR):-

 

It represents the ratio of the average annual profits to the average investment in the project. It is based on accounting profits and not cash flows. This is also known as Accounting Rate of Return Method or Return on Investment Method or Unadjusted Rate of Return Method. ARR is found out by dividing average income the average investment.

 

 

 

Formula

DECISION RULE (or SELECTION CRITERION)

The higher the ARR, the better the project. If the projects are mutually exclusive, the project with highest rate of return is selected. If the calculated ARR is equal to or more than the company’s target rate of return, the project will be accepted. If the calculated ARR is less than the company’s

target rate of return, the project will be totally rejected.

 

ADVANTAGE OF ARR

• It is simple to understand and easy to apply.
• It takes into consideration earnings over the entire life of the project.
• It considers profitability of the investment.
• Projects of different character can be compared.
• Rate of return may be readily calculated with the help of accounting data.

 

DISADVANTAGES OF ARR

• This method does not give any importance to the time value of money.
• It does not differentiate between the size of the investment required for each project
• It is based upon accounting profits, instead of cash flow.
• It considers only the rate of return and not the life of the project.
• It ignores the fact that profit can be reinvested.

 

 

C)    NET PRESENT VALUE METHOD (NPV):-

NPV method involves discounting future cash flows to present values. The cash outflow (i.e., initial investment whose present value is the same) is deducted from the sum of the present values of future cash inflows (returns or benefits). The balance amount is NPV which may be either positive or negative. If the NPV is positive, it means that the actual rate of return is more than the discount rate and it contributes to the wealth of the share holders. A negative NPV indicates that the project is not even covering the cost of capital. It means that the actual rate of return is less than the discount rate.

 

DECISION RULE (or SELECTION CRITERION): - In the case of mutually exclusive or alternative projects, (where only one project is to be selected) accept a project that has the highest positive NPV. In the case of individual investment, accept a project if it’s NPV is positive. If the NPV is negative, reject it.

 

ADVANTAGES OF NPV

• It takes into account the time value of money.
• It focuses attention on the objective of maximization of the wealth of the project.
• It considers the cash flow stream over the entire life of the project.
• It is highly useful in case of mutually exclusive projects.
• This method is most suitable when cash inflows are not uniform.
• This method is generally preferred by economists

 

DISADVANTAGES OF NPV

• It involves complicated calculations.
• It is difficult to select the discount rate.
• This method is not suitable in case of projects involving different amounts of investment.
• The relative desirability of project will change with a change in the discount rate.
• Not suitable in case of two projects having different useful lives.

D)  BENEFIT COST RATIO (PROFITABILITY INDEX METHOD): -

Two projects having different investment outlay cannot be compared by Net Present Value method because it indicates the NPV in absolute terms. In such a situation Benefit Cost Ratio should be applied. It is the ratio of benefits (cash inflows) to (cash outflows). It is the ratio present value of cash inflows to present value of cash outflows. Thus it measures present value of returns. This method is also known as Profitability Index or Present Value Index Method.

 

BENEFIT COST RATIO = PV of  cash Inflows

                                                PV of cash outflows

 

DECISION RULE (or SELECTION CRITERION)

 

“Accept the project if it’s PI (Profitability Index) is more than one and reject the project if its PI is less than one. In the case of mutually exclusive projects, the project with higher PI is to be selected. Higher the Profitability Index better is the project.

 

ADVANTAGES OF BENEFIT COST RATIO / PROFITABILITY INDEX

• It is very scientific and logical
• It is based upon the real profitability of projects.
• It is very useful to compare the projects having different investments.
• It reflects time value of money.
• It considers all cash flows during the life of the project.

 

DISADVANTAGES OF BENEFIT COST RATIO / PROFITABILITY INDEX

• It is comparatively difficult to understand and follow
• This method is not in accordance with accounting principals
• It cannot be used for comparing those projects having unequal lives.
• It is difficult to estimate effective life of a project.

 

 

E)    INTERNAL RATE OF RETURN (IRR):-

 

IRR was first introduced by Joel Dean. In IRR, we try discounting at different discount rates until we reach the rate at which the present value of cash inflows to present value of cash outflows (investment). Thus, internal rate of return is the rate at which total present value of future cash flows is equal to initial investment. In other words, it is the rate at which NPV is zero. This rate is called the internal rate because it exclusively depends on the initial outlay and cash proceeds associated with the project and not by any other rate outside the investment.

 

 

 

Formula

 

Calculation of IRR

 

NPV indicates the present value of the cash flows of a project at a particular discount rate. IRR attempts to ascertain the interest rate at which the present value of cash inflow is made equal to the initial investment. IRR is a time adjusted rate of return which equates present value of cash inflows, with original cash outflow

 

 

DECISION RULE (or SELECTION CRITERION): -

The calculated IRR is compared with the desired minimum rate of return. If the IRR is greater than the desired minimum rate of return, the project is accepted and if it is less than the desired minimum rate of return, then the project is rejected.

 

ADVANTAGES OF IRR

• This method considers all the cash flows over the entire life of the project.
• Cost of capital need not be calculated.
• IRR gives a true picture of the profitability of the project even in the absence of cost of capital.
• Projects having different degrees of risk can easily be compared.
• It takes into account the time value of money.

 

DISADVANTAGES

• It is difficult to understand and use in practice because it involves tedious and complicated calculation.
• Sometimes it may yield negative rate or multiple rates which is rather confusing.
• It is applicable mainly in large projects.
• It yields results inconsistent with the NPV method if projects differ in their expected life span, investment timing of cash flows.

 

 

ENTREPRENNEURIAL COMPETENCIES

                                  

Competency is a characteristic of a person, which results in effective and/or superior performance in a job. It is a combination of knowledge, skills and appropriate motives or traits that an individual must possess to perform a given task.

 

MEANING OF ENTREPRENEURIAL COMPETENCIES

 

It is defined as characteristics such as generic and special knowledge, motives, traits, self-image, social roles and skills which result in birth of a venture, its survival and/ or growth. In short, the competencies required by an entrepreneur for starting a business venture and carrying it on successfully are known as entrepreneurial competencies.

 

TYPES OF ENTREPRENEURIAL COMPETENCIES

 

It may be classified into two types:

 

A) PERSONAL ENTREPRENEURIAL COMPETENCIES: These are required to perform the tasks effectively and efficiently. This includes the following:

 

a)      Initiative: It is an inner urge in an individual to do or initiate something.

 

b)     Ability to See and Act on Opportunities: Entrepreneurs look for opportunities and take action on such opportunities.

 

c)      Persistence: It means the capacity or skill to take repeated and different actions to overcome obstacles.

 

d)     Information Seeking: A successful entrepreneur always keeps his eyes and ear open. He should accept new ideas which can help him in realizing his goals. He is ready to consult experts for getting their expert advice.

 

e)      Concern for High Quality of Work: Entrepreneurial persons act to do things that meet or beat existing standards of excellence.

 

f)       Commitment to Work: Successful entrepreneurs are prepared to make all sacrifices for completing the commitments they have made.

 

g)      Commitment to Efficiency: Entrepreneurial persons have to look and find ways for or find ways to do things faster or with fewer resources or at a lower cost. They should try new methods aimed at making work easier, simpler, better and economical.

 

h)     Systematic Planning: Entrepreneurial persons should be able to develop and use the logical step by step plans to reach goals.

 

i)        Problem Solving: Entrepreneurial persons are supposed to possess the skill of identifying new and potentially unique ideas to reach goals. They should generate new ideas or innovative solutions to solve problems.

 

j)       Assertiveness: They assert own competence, reliability or other personal or company’s qualities. They also assert strong confidence in own company’s product and services.

 

k)     Persuasion: Entrepreneurs should have the ability to successfully persue others to perform the activities effectively and efficiently.

 

l)        Use of Influence Strategies: Entrepreneurs should have the competence of using a variety of strategies to influence others. Such entrepreneurs can develop business contacts and use influential people to accomplish his/her own objectives.

 

A)    VENTURE INITIATION AND SUCCESS COMPETENCIES:

 

An entrepreneur must also posses the competencies required for launching the enterprise and for its survival and growth. These competencies may be further divided into two categories of competencies:

 

1.ENTERPRISE LAUNCHES COMPETENCIES: These include the following:

 

a)      Competency to understand the nature of business.

b)     Competency to comply with Government regulations.

c)      Competency to deal with the business.

d)     Competency to finance the business.

e)      Competency to locate the business.

f)       Competency to plan the marketing strategy.

g)      Competency to choose the type of ownership.

h)     Competency to obtain technical assistance.

i)        Competency to develop a business plan.

j)       Competency to determine the potential as an entrepreneur.

 

2.      ENTERPRISE MANAGEMENT COMPETENCIES: These include the following:

 

a)      Competency to protect the business.

b)     Competency to manage customer credit and collection.

c)      Competency to manage the finances.

d)     Competency to manage the business records.

e)      Competency to manage sales efforts.

f)       Competency to promote the products and services of the business.

g)      Competency to manage human resources.

h)     Competency to manage the business.

 

MOTIVATION

 

Motivation is the process of channeling a person‘s inner drives so that he wants to accomplish the goals of the organization. Motivation concerns itself with the will to work. It seeks to know the incentives for the work and tries to find out the ways and means whereby their realization can be helped and encouraged.

 

Motivation is a Latin word which means ‗to move‘. Human motives are internalized goals within individuals. Motivation may be defined as those forces that cause people to behave in certain ways.

 

According to Louis Allen, ―motivation is the work of a manager performs to inspire, encourage and impel people to take required action‖

 

In the words of William G Scott, ―motivation means a process of stimulating people to action to accomplish desired goals.

Thus motivation is a process by which a need or desire is aroused and a psychological force within our mind sets us in motion to fulfill our needs and desires. An unsatisfied need becomes the motive for a person to spend his energy in order to achieve a goal.

Characteristics of Motivation

 

Motivation has been derived from the English word ‘motive’. Motive is an inner state of our mind that moves or activates or directs our behaviours towards our goals. Motives are expressions of a person’s goals or needs. They give direction to human behaviour to achieve goals or fulfill needs. Motive is always internal to us and is externalized via behaviour.

 

Motivation as “the willingness to exert high levels of effort toward organizational goals, conditioned by the effort and ability to satisfy some individual need.”

 

Entrepreneurial Motivation may be defined as the process that activates and motivates the entrepreneur to exert higher level of efforts for the achievement of his/her entrepreneurial goals. In other words, the entrepreneurial motivation refers to the forces or drive within an entrepreneur that affect the direction, intensity, and persistence of his / her voluntary behaviour as entrepreneur. So to say, a motivational entrepreneur will be willing to exert a particular level of effort (intensity), for a certain period of time (persistence) toward a particular goal (direction).

 

The need for and significance of entrepreneurial motivation in running an enterprise can best be appreciated as: “While an organization is like a vehicle, entrepreneurships as driving and the entrepreneurial motivation as fuel or power that makes the organizational vehicle move or run.”

 

Nature of Motivation:

The nature of motivation emerging out of above definitions can be expressed as follows:

Motivation is internal to man:

Motivation cannot be seen because it is internal to man. It is externalized via behaviour. It activates the man to move toward his / her goal.

 

A Single motive can cause different behaviours:

A person with a single desire or motive to earn prestige in the society may move towards to join politics, attain additional education and training, join identical groups, and change his outward appearance.

 

Different motives may result in single behaviour:

It is also possible that the same or single behaviour may be caused by many motives. For example, if a person buys a car, his such behaviour may be caused by different motives such as to look attractive, be respectable, gain acceptance from similar group of persons, differentiate the status, and so on.

 

Motives come and go:

Like tides, motives can emerge and then disappear. Motives emerged at a point of time may not remain with the same intensity at other point of time. For instance, an entrepreneur overly concerned about maximization of profit earning during his initial age as entrepreneur may turn his concern towards other higher things like contributing towards philanthropic activities in social health and education once he starts earning sufficient profits.

 

Entrepreneurial Motivating Factors: Internal and External Factors

 

Internal Factors:

1. Desire to do something new.

2. Become independent.

3. Achieve what one wants to have in life.

4. Be recognized for one’s contribution.

5. One’s educational background.

6. One’s occupational background and experience in the relevant field.

 

External Factors:

1. Government assistance and support.

2. Availability of labour and raw material.

3. Encouragement from big business houses.

4. Promising demand for the product.

 

Motive interact with the environment:

The environment in which we live at a point of time may either trigger or suppress our motives. You probably have experienced environment or situation when the intensity of your hunger picked up just you smelled the odour of palatable food.

 

You may desire an excellent performance bagging the first position in your examination but at the same time may also be quite sensitive to being shunned and disliked by your class mates if you really perform too well and get too much of praise and appreciation from your teachers. Thus, what all this indicates is that human behaviour is the result of several forces differing in both direction and intent.

 

Importance and benefits of Motivation

 

Motivation is an effective device in the hands of a manager for inspiring the work force and creating confidence in it. By motivating the work force, management can achieve the organizational goals. The various benefits of motivation are

 

1. A manager directs or guides the workers actions in the desired direction for accomplishing the goals of the organization by motivating the workers.

 

2. Workers will try to be efficient as possible by improving upon their skills and knowledge so that they are able to contribute to the progress of the organization.

 

3. Ability to work and willingness to work are necessary for performing any task. These two things can be created only by motivation.

 

4. Motivation contributes to good industrial relations in the organization.

 

5. Motivation is the best remedy for resistance to changes. If the workers of an organization are motivated, they will accept any change whole-heartily for the organizational benefits.

 

6. Motivation facilitates the maximum utilization of all the factors of production and thereby contributes to higher production.

 

7. Motivation promotes a sense of belonging among the workers.

 

8. Motivation leads to lower turnover and absenteeism because a satisfied employee will not leave the organization.

 

Theories of Motivation

 

There are many internal and external variables that affect the motivation to work. Behavioral scientists started to search new facts and techniques for motivation. These are called as motivation theories. The most important theories are

 

1. Maslow‘s Need Hierarchy Theory
2. Herzberg‘s Two Factor Theory
3. Mc Clelland‘s Achievement Theory 
4. Mc Gregor‘s Theory X and Theory Y

 

Maslow’s Need Hierarchy Theory

 

Abraham Harold Maslow, an eminent US psychologist, gave a general theory of motivation known as Need Hierarchy Theory in 1943. According to him, there seems to be a hierarchy into which human needs are arranged. The needs are as follows

 

1. Physiological Needs – these needs are related to the survival and maintenance of life. These include hunger, thirst, shelter, sex and other bodily needs.

 

2. Safety or Security Needs – These consist of physical safety against murder, fire accident, security against unemployment etc.

 

3. Social or Love Needs – these needs are also called as affiliation needs. These consist of need for love, affection, belonging or association with family, friends and other social groups.

 

4. Esteem or Ego Needs – The esteem needs are concerned with self respect, self confidence, feeling of personal worth, feeling of being unique and recognition. Satisfaction of these needs produces feeling of self confidence, prestige, power and control.

 

5. Self Actualization or Self Fulfillment Needs – Self actualization is the need to maximize one‘s potential, whatever it may be. It is the need to fulfill what a person considers to be his real mission in life. It helps in individual to realize one‘s potentialities to the maximum.

 

Herzberg’s Two Factor Theory (Motivation – Hygiene Theory)

 

The motivation – hygiene theory was proposed by Fredrick Herzberg, a well known psychologist, in 1959. According to Herzberg, there are two separate factors that influence motivation. They are (i) hygiene or maintenance factors and (ii) motivational factors.

 

Hygiene Factors – Hygiene factors include: Company Policies and administrative policies, Technical supervision, Interpersonal relations with supervision, colleagues and subordinates, salary, Working conditions, Job security, personal life, Status They are also called as dissatisfies. The presence of these factors will not motivate people in an organization. Otherwise dissatisfaction will arise. Herzberg called these factors as maintenance factors because they are necessary to maintain a reasonable level of satisfaction in the employees. Any increase beyond this level will not provide any satisfaction to the employees; however, any cut below this level will dissatisfy them.

 

Motivation Factors – These factors are satisfiers. These are a set of job conditions which operate primarily to build strong motivational factors. According to Herzberg, the six motivational factors motivate the employees are achievement, recognition, advancement, challenging work, possibilities for growth and responsibility.

 

However, Herzberg model is not applied in all conditions. The classification as maintenance and motivating factors can only be made on the basis of level of persons‘ need satisfaction and relative strength of various needs.

 

Mc Clelland’s Achievement or Need Theory

 

David C Mc Clelland, a Harvard psychologist, has proposed that there are three major relevant motives, most needs in work place situations. According to him, the motives are

 

1. The Need for Achievement i.e., strives to succeed.
2. The Need for Affiliation i.e., warm relationship with others.
3. The Need for Power i.e., controls other people.

 

According to Mc Clelland, every motive is acquired except striving for pleasure and avoiding pain. He proposed that people acquire these needs for achievement, power and affiliation through experiences over the time. On the job, people are motivated by these needs, and the manager can learn to recognize these needs in workers and use them to motivate behavior.

 

Mc Clelland used the Thematic Apperception Test (TAT) to study human needs. The TAT process involves asking respondents to look at pictures and write stories about what they see in the pictures. The stories are then analyzed to find certain themes that represent various human needs.

 

Mc Gregor’s Theory X and Theory Y

 

The style adopted by a manager in managing his subordinates is basically dependent upon his assumption about human behavior. Theory X is negative, traditional and autocratic style while theory Y is positive, participatory and democratic. Thus these two theories are contrasting set of assumptions about human behavior.

 

Theory X – This is the traditional theory of human behavior which makes the following assumptions

 

1. The average human being has an inherent dislike of work and will avoid it if he can.
2. He lacks ambition, dislikes responsibility and prefers to be directed.
3. He is inherently self-centered, indifferent to organizational needs.
4. He is by nature resistant to change.
5. Working method of the people is generally traditional and hence there is little scope for the development and research.
6. People would be passive without active intervention by management. Hence they must be persuaded, rewarded, punished and properly directed.
7. He is gullible, not very bright.

 

Theory Y – As a result of many psychological and social researches Mc Gregor developed an opposing theory- theory Y. According to Mc Gregor, Theory Y is based on the following assumptions

 

1. Work is natural as play or rest, provided the conditions are favorable. The average human being does not inherently dislike work.
2. External control; and the thrust of punishment are not the only means for bringing about efforts towards organizational objectives. Man will exercise self direction and self control in the service of objectives to which he is controlled.
3. Commitment to objectives is a result of the rewards associated with their achievement.
4. The average humans being, under proper conditions learn not only to accept responsibility but also to seek it.

 

5.   He has capacity to exercise a relatively high degree of imagination, ingenuity and creativity in the solution of organizational problems in widely, not narrowly distributed in the population.

 

6.   Under conditions of modern industrial life the intellectual potentialities of people are only partially utilized.

                                             

 

 

 

 

Difference between Theory X and Theory Y

 

	Theory X	Theory Y
1	Theory  X  assumes  human  beings  inherently	Theory Y assumes that work is as natural
	dislike work and arte dissatisfied with towards	as play or rest
	work.
2	Theory X emphasizes that people do not have	Theory  Y  assumes  just  reverse.  Given
	ambition and they shrink responsibility.	proper conditions, people have ambitions
		and accept responsibility.
3	Theory X assumes that people in general have	According to Theory Y, the creativity is
	little capacity for creativity.	widely distributed in the population.
4	According  to  Theory  X,  people  lack  self	In Theory Y people are self directed and
	motivation and require be externally controlling	creative and prefer self control.
	and   closely  supervising   in   order   to   get
	maximum output.
5	Theory  X  emphasizes  upon  centralization  of	Theory   Y   emphasizes   the   decentra-
	authority in decision making process	lization   and   greater   participation   in
		decision making process.

 

 

Reasons why startups fail

Startup culture is growing rapidly in India with startups coming up all over the country. Bangalore, New Delhi and Mumbai remain the key startup hubs but other areas like Hyderabad, Chennai, Pune, etc. are not too far behind. There are a lot of positives but the fact remains that 80% of startups fail in the first three years. It's harsh but a fact.

 

1. Building a wrong product

Building a product without actually validating the product idea through potential customers is a bad move. And so is building a product that solves a trifle problem in a customer’s life rather than one which is the major pain source for them.

 

2. Not being able to build the right team

Often in a hurry to launch their product early, startups tend to build teams with people who have little or no interest in the product idea. This leads to product failure as the people working never give their best for the product.

 

3. Lack of unique value propositions

If your product fails to deliver one or more UVP as compared to similar products available in market already, your product is bound to fail. Before you start building your product, figure out at least four UVP which will help you stand out and give a competitive advantage increasing your profits.

 

4. Lack of persistence

If the startup founder does not have a strong passion for their product, they will not be able to persist through the bad times, which is a given in a startup run, more often than good times. Bad times question the faith of founders in their product. Lack of faith often leads to discontinuity of the product, which leads to startup failure.

 

5. Failing to pivot/change direction

Often due to the love for their initial/first product, startups, despite knowing that they are building a wrong product, do not pivot. This leads to wastage of time, resources and money too, eventually leading to failure.

 

6. No mentors or advisers

It is always good to have a mentor for your startup. Going alone there are more chances of you making mistakes that may lead you to failure. Mentors can guide you in your day to day decisions to avoid falling off the cliff.  

 

7. Slowness to launch 

Firstly, every idea dies if it is not implemented on time. This is because of the simple fact that we start losing interest and start under prioritizing as time passes. Secondly, in today's fast moving business world, everyday thousands of products are solving the same problem. In such a scenario, delaying the launch of your product might actually leave you behind the competition, which will eventually lead to product failure.

 

8. CEO / founder(s) unable to make decisions

A founder must always be clear of what his vision is for his startup. This helps in making quick and efficient decisions in critical times. Often startup founders are not clear of what they want to achieve with their product; about where they want to go etc. Unclear of their own path, these founders face problem while making decisions, many making wrong decision all along.

 

9. No business plan

You might wonder why I have put this at number nine.  But it is indeed comparatively less important than the above listed eight reasons. Every startup once sure of their vision, and having got a mentor, must create a business plan to articulate every single aspect viz. customer segment, distribution channels, cost and revenue models etc. of their business. Business plan will give you a clear idea of your operations. Failing to create a business plan might lead you to lose one or other important aspects of your startup.

 

10. Unaware of competitors and changing market condition

Having figured out everything listed above helps an entrepreneur kick off the startup for a sustainable long run. But there is one more thing which should be addressed regularly and carefully, and that is market condition and competitor’s current performance. Many times, startups blinded by the passion for their product, forget to address this aspect of business, thereby launching something which is already there in market or over pricing products which are available at cheaper rates etc. A good market study, along with competitor analysis, can help startups to accelerate their growth by providing product and services which are still missing in the market.

 

 

 

Few more reasons

Out of control growth

Poor accounting controls

Not enough cash cushion

Operational ineptitude

Operational inefficiencies (spending too much)

Declining market

Obscure or marginal niche

Lack of succession and/or exit planning

Single founder

Bad location

Inability to change direction quickly

Making bad hires

 

Challenges Faced By Startups   

 

1. Fierce Competition

The corporate world is quite fierce. There is always a competition going on between the giants. Competition poses one of the biggest challenges for the survival of startup businesses.  And if you have an online business startup, the competition gets tougher.

The competitive environment keeps the startups on their toes, as there is no margin of error available. Both B2B and B2C organizations always tend to feel the heat of the fierce competition. In order to survive in this competitive business environment that covers both traditional and online businesses, the startups need to play aggressively, and punch above their weight to gain the much needed recognition amongst the clusters of ever challenging and expanding businesses.

 

2. Unrealistic Expectations

Success does not come alone. It brings expectations with it. Most of the times, these expectations seem realistic, But in the real sense of the word, are merely unrealistic. This same concept holds true for young startups.

 

Startups tend to face challenges when they set ‘unrealistic expectations’ following a booming success. Remember, success is short-lived and expectations never end. This is where startups need to translate what the real expectations are? Sustainability is the name of the game. And sustainability requires consistent efforts.

 

In order to succeed in a competitive business world, startups need to have high but controlled expectations, keeping view of the resources available, the extent of growth potential, and other market factors as well.

 

3. Hiring Suitable Candidates

One of the most important factors that define organizational culture within a startup company is the synergy of the team. A team comprises of individuals with similar capabilities and identical focus. In order to develop a highly successful team culture, organizations in general – and startups in particular – need to hire suitable candidates.

 

There is a huge pool of aspiring individuals available. Selecting a suitable candidate that fits the job well enough is a peculiarly tricky task. It is one of the biggest challenges facing the startup businesses in this digital age. When hiring a suitable candidate, organizations must remember one golden rule: Birds of a feather flock together.

 

4. Partnership Decision Making

Partnership is the essence of success. And this logic holds true for startups as well. In this ever-expanding and ever-changing digital era, where organizations need to battle hard for their survival, startups also find it difficult to find trustworthy partners. It’s really a big challenge for startups today. And as far as tech startups are concerned, stakes in partnership are much higher for them.

 

Going into a partnership pays great dividends for the startups, but they need to consider a variety of factors before making any decision to collaborate with another company working in the same ecosystem. To reap out maximum benefits out of a partnership, startup businesses should look for organizations that enjoy a sound presence within the market and a good reputation amongst the industry giants.

 

5. Financial Management

Money begets money. Remember the fact that when income increases, the expenditures also increase. There is no doubt about it. One of the biggest challenges that startups face today relates to financial management.

 

It is a fact that small startups rely heavily on financial backups from the so called investors. At times, when there is a cash influx, small firms, most importantly startups tend to find it really hard to properly manage their finances, and they bog down against the pressure.

 

In order to address this kind of situation, startups need to play a safe and cautious hand, by keeping all the cards close to their chests. Taking help from a reputed financial consultancy firm may really help out in managing financial crises facing today’s startup businesses.

     

6. Cyber Security

This is the digital age. And surviving the challenges in this age requires small startups – especially the ones operating online – to be super agile to counter the so called online security threats. Hackers are everywhere, and they are going to take advantage of any loophole within the systems installed within a startup firm.

 

The rate of cyber crimes has increased dramatically during the past couple of years. The percentage is going to increase in the coming years as well. Startups that are active online do face online security threats. Be it unauthorized access to startup’s sensitive information, employee records, bank accounts’ information, or any other related information that is deemed important for the survival of a tech startup, they are at risk.

 

In order to safeguard the all important online data, startups need to have robust and military-grade security systems in place. A virtual private network (VPN) connection serves the purpose of protecting a startup’s information, and employee records, by offering the much needed encryption and data security to the startup’s employees, thereby restricting unauthorized access to organizational data over the web.

 

7. Winning Trust of Customers

Customer is the king. And that’s absolutely right. Winning a customer’s trust is one of the most important challenges that businesses in general – and startups in particular – face today. With a highly satisfied and loyal customer base, startups can scale and make progress towards excellence.

 

Customers are the real force behind a startup’s success. Their word-of-mouth power and their presence on social media can give tech startups an edge against all the traditional businesses.

 

To win customers’ trust and loyalty, startups need to work aggressively to implement a customer-centric working philosophy, so as to enable them to succeed in their pursuit of attaining the height sustainable growth and progress they desire to achieve in this tech-savvy and challenging business world.