ENTREPRENEURSHIP

2018
1. Concept of entrepreneurship
An entrepreneur is the sole owner and manager of his business. Actually,
the word translates to “the one who undertakes” in French.
From an economics point of view, an entrepreneur is the one who bears
all the risk of a business. And in return, he gets to enjoy all of the profits
from the business as well.
Innovation and risk-bearing are regarded as the two basic elements
involved in entrepreneurship
2. Define
Micro:
A microenterprise is a small business that employs a small
number of employees. A microenterprise will usually operate
with fewer than 10 people and is started with a small amount of
capital. Most microenterprises specialize in providing goods or
services for their local areas.

 A micro enterprise is an enterprise where investment in plant and

machinery does not exceed Rs. 25 lakh;
 A small enterprise is an enterprise where the investment in plant and
machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore;
 A medium enterprise is an enterprise where the investment in plant and
machinery is more than Rs.5 crore but does not exceed Rs.10 crore.

Small and medium:

 3. What is feasibility analysis?
A feasibility study is an analysis that takes all of a project's relevant
factors into account—including economic, technical, legal, and
scheduling considerations—to ascertain the likelihood of completing
the project successfully. Project managers use feasibility studies to
discern the pros and cons of undertaking a project before they invest a
lot of time and money into it. Feasibility studies also can provide a
company's management with crucial information that could prevent the
company from entering blindly into risky businesses.

4. What is Venture Capital?

Venture capital is financing that investors provide to startup companies

and small businesses that are believed to have long-term
growth potential. Venture capital generally comes from well-off
investors, investment banks and any other financial institutions.
However, it does not always take a monetary form; it can also be
provided in the form of technical or managerial expertise.

5. What do you mean by industrial estate?

An industrial estate is a place where the required facilities and
factory accommodation are provided by the government to the
entrepreneurs to establish their industries there. In India,
industrial estates have been utilised as an effective tool for the
promotion and growth of small-scale industries. They have also
been used as an effective tool to decentralise industrial activity to
rural and backward areas.
 The main objective of establishing Industrial estates is to attract
industries to industrially backward areas, which will make the
country a regionally well-balanced one.
6. SIDBI
Objectives:
1. To promote marketing of products of small scale sector.
2. To upgrade technology and also undertaking modernization of
small scale units.
3. To provide more financial assistance to small scale ancillary and tiny
sector.
4. To encourage employment oriented industries.
5. To coordinate all the other institutions involved in the promotion of
small scale industries.

Functions:

1. SIDBI refinances loans extended by the primary lending

institutions to small scale industrial units, and also provides
resources support to them.
2. SIDBI discounts and rediscounts bills arising from sale of
machinery to or manufactured by industrial units in the small
scale sector.
3. To expand the channels for marketing the products of Small Scale
Industries (SSI) sector in domestic and international markets.
4. It provides services like leasing, factoring etc. to industrial
concerns in the small scale sector.
5. To promote employment oriented industries especially in semi-
urban areas to create more employment opportunities and thereby
checking migration of people to urban areas.
6. To initiate steps for technological up-gradation and
modernisation of existing units.
7. SIDBI facilitates timely flow of credit for both term loans and
working capital to SSI in collaboration with commercial banks.
8. SIDBI Co-Promotes state level venture funds in association with
respective state government.
9. It grants direct assistance and refinance loans extended by
primary lending institutions for financing exports of products
manufactured by small scale units.

Long answers:
1. Tax benefit and concessions available
Some of the tax
benefits available to small scale industries in India are:

1. Tax holiday - The

small scale industries need not pay income tax on a certain
percentage of
profits for five years from the date of commencement of
production.

2. Depreciation -
They are entitled to a deduction of maximum Rs. 20 lakhs for
depreciation on
plant and machinery.

2. Rehabilitation allowance –
A rehabilitation allowance is granted to them in case their
business is discontinued due to a natural calamity, civil
disturbance or
accidental fire.

3. Investmentallowance –
They are given an investment allowance at the rate of 25%
of the
cost of acquisition or installation of a new plant or machinery.

4. Expenditure on scientific research –

They are entitled to deductions in respect of expenditure
on scientific research.

5.Amortization of preliminary expenses –

They are allowed to write off their preliminary and

developmental expenses.

7. In the backward or rural area -

A small scale unit set up in a backward or rural area is given a
deduction of 20% on its profits.

8. Expenditure incurred by the small scale industries in obtaining

a patent and copyright is deductible from their income.

9. If a small scale industry earns profits from the publication of

books, 20% of the profits earned can be deducted from the gross
total income.

10. Deductions can also be availed for royalties from any

company in India, royalties from certain foreign companies, inter-
corporate dividends, income of co-operative societies and carry
forward and set-off business losses.

Concession pg 424

5. Factors that motivate people to become entrepreneurs

Sometimes a single motive can influence to become strong and
powerful entrepreneurs, these motives may come from various factors
as follows.

 Internal factors
 External factors

Internal factors

a. Need for self-actualization

It is explained by Maslow and it is the top level need refers to the

desire for self-fulfillment. Need for freedom and self-fulfillment
makes the individuals or employees of the organization make
them become powerful leaders or entrepreneurs.

b. Optimism

Individuals having positive mindset get motivated by finding

opportunities during critical situations also. Positive attitude and
perception motivate an individual to work out for the best even
during unfavorable and tough situations also.

c. Positive attitude

The positive attitude is the most important factor which motivates the
individuals to become successful entrepreneurs. Habituating positive
attitude can lead an individual to develop constructive thinking; it
motivates them to become powerful entrepreneurs, finally, the positive
attitude can prove that how valuable they are.

d. Self-motivation
 Most of the successful and powerful entrepreneurs are self-
motivated; here they fulfill the desired objectives by motivating
themselves. Though many individuals have ideas but they cannot
put those for business development; however self-motivated
people can take decisions to implement ideas.

e. Enthusiasm

Enthusiasm motivates in finding better solutions, finally, it stabilizes

the ideas and makes them become creators and innovators which result
in successful entrepreneurs.

f. Commitment

Commitment towards a goal can make to achieve success. It motivates

entrepreneurs by inspiring and developing emotional attachment
towards an objective.

g. Education

Education is the most important factor it motivates a person to innovate

and create new products, this result in establishing an organization or a
new business venture. The knowledge acquired during the course of
time and innate skills highly motivates a person to become a successful
entrepreneur.

h. Background

Family background, occupational background and a person’s own

experience in a job motivates him/her to become an entrepreneur.
Having entrepreneurial background acts as a clear path to becoming
a successful and powerful entrepreneur.
 i. Financial background

Finance is the scarce resource which motivates and enables a

person to become an entrepreneur. Money can make many things
it is the major thing in deciding one’s status and development,
strong financial background facilitates to start a business.

External factors

a. Influence

Influence of family members, friends, and society motivates the

individuals to become entrepreneurs. The extent of influence shows an
effect on the character, behavior, and development, it comes from the
external environment. Here people get influenced by seeing successful
entrepreneurs or by the words of others.

b. Availability of resources

Resource availability motivates at a high extent to become

entrepreneurs, availability of land, labor, money, machinery, and
materials make individual to start a new business. Though there is
creativity, intelligence, commitment and enthusiasm in the individuals,
but the unavailability of resources becomes an obstacle for new entrants
or entrepreneurs.

c. Product’s demand

Higher demand for a particular product motivate entrepreneurs to

produce innovative and value added products, here product’s demand
motivates the individuals to become entrepreneurs. The hope of success
makes them produce innovative products or substitute products, some
entrepreneurs fulfill the market demand by producing complementary
goods also. So the increase in products demand highly motivates to
become entrepreneurs.

d. Government policies

Subsidies and benefits given by the government motivate entrepreneurs

to produce new products or motivates individual to become
entrepreneurs. Government policies show higher influence on
establishing new firms and it leads to economic development. In the
case of small scale industries, rural people are encouraged by the
various training programs, financial support, and subsidies; it is one of
the main reasons for the establishment of new firms and arrival of new
entrants.

e.Information availability

Market knowledge and information motivate individuals to enter into

the markets and to become entrepreneurs. If there is abundant
information then it automatically creates interest in the minds of
enthusiastic people to become entrepreneurs. Availability of
information facilitates research and producing innovative and value
added products, and it creates a scope to become entrepreneurs.

3. Failure of an entrepreneur:

1. They Have No Written Plan

A business plan will be needed and people underestimate this. Written
plan helps you to develop your ideas into a real business in market. You
must have the plan.

2. No Revenue
Most small business begins the effort without setting revenue on their
effort. This is a bad start. You need revenue and even the smallest one
needs revenue to make more stabile company.
3. Business Opportunities are Limited
Sometimes, a good idea cannot be a great business too. This is maybe
caused by the people not wanting to buy your service or product. Do
market research first.

4. Unable to Execute
Idea is not the one that worth the money. It is about the execution. You
must be able to make even the hardest decision and taking the risks
wisely.

5. Competition is Too Much

If you do not have competitor then your idea is maybe out of market.
However, too much competition kills a business all the time too
because the team cannot handle it.

6. They Have No Intellectual Property

You need to be more than registered. You also need to make your
property patented, and you need to have trademarks and copyrights.

7. Inexperienced Team
Having a team will be a great start but you also need people with
enough experience to work with you. They will know what to do and
how to handle things. So, look for someone experienced when you
make vacancy ads.

4. Internal and external source of finance

Internal Source of Finance:

1. Retained Equity Earnings:
This implies retaining the earnings of the shareholders for internal
reinvestment. Every rupee retained is a rupee with-held from
distribution to existing shareholders. While doing so, management
must do something to maintain the interest of shareholders.

2. Depreciation Provisions:
Depreciation provisions represent the maintenance of a capital stock to
replace the existing machinery when it becomes uneconomical to use.
Depreciation provision is a major source of internally generated funds.

3. Deferred Taxation:
Due to the time-lag between the earning of profit and payment of the
appropriate taxation, the funds, represented by the tax liability, are
available for use.

4. Personal Funds Saved or Inherited:

In order to win confidence of external financiers, it is very necessary
that the would-be owner must have assets of his own to invest in the
firm.

External Source of Finance:

1. Savings:
People save a percentage of their salary for a ‘rainy day’. With the
money thus saved, people purchase life insurance, buy stocks and
bonds, buy shares or deposit in a bank. Thus saved money is made
available to business enterprises for further use and investment. It may
be said that almost all capital for investment in business and industry
comes from savings of people.

2. Loans:
Money can be borrowed from the following sources for starting or
expanding the business:
(i) Friends and relations,

(ii) Money lending institutions, and

(iii) Commercial and other banks, etc.

When money is borrowed, it becomes obligatory that the interest
should be paid in time and the loan be paid back on the mutually agreed
date.

3. Shares:
Funds are collected by issuing shares to public. The number of
authorized shares that can be issued and the value of each share is
specified. This is decided on the basis of the capital to be collected by
issuing shares. Shares are issued for raising funds either when starting
a new concern or when it is decided to expand and improve upon the
existing one.

Business corporations having good record of earnings and favourable

prospects of expansion, in search for outside (external) funds to support
operations and growth, may raise capital by borrowing it on a formal
document known as a Debenture. Debenture is a certificate of
indebtedness issued by the corporation.

A fixed rate interest is paid on debentures and the amount is repayable

after the stated number of years.

6. Public Deposits:
Public may be asked to deposit their money directly with the company
for a fixed long/short period ranging from half a year to seven years.

7. Taking in Partners:
Capital may be raised by adding partners in the business who are ready
to invest in the firm.

8. Bank Loans:
Short term loans are easily available from commercial and other banks
on reasonable interest rates.

9. Hire Purchase:
The hirer makes a deposit, he gets the machinery (goods), etc., he needs
and then he pays a number of periodical money installments. At the end
of a period when all the installments have been paid, the possession of
the goods passes to the hirer.

12. Profit Plowback:

The whole profit is not distributed to shareholders or owners as
dividends, rather a portion of it is retained in the business and used to
finance expansion and growth of the concern.

13. Credit Facilities:

A useful source of short-term finance is to obtain goods and services
on credit.

5. Need and objectives of project report

1. Selection of Best Investment Proposal

Project formulation is an important decision from the view of the
investment proposal.

Hence, the project report is required to take the decision regarding the
best investment and also to know, which investment is not good.

As a result, the expected profits may be gained.

2. Registration and Approval of Project

The need for preparation of the project report is also to facilitate easy
registration and approval of the project.

For that, the project reports are essentially required to be sent to the
Directorate of industries, other government departments, and district
industries centre. also, get Project Report Examples & Samples.
3. Financial Assistance

The enterprise gets financial assistance on the basis of its project report.

For availing financial assistance, project report is required to be sent to

various specific Financial Institutions, banks and investment
corporations.

Otherwise, they will neither be able to study the profitability and

feasibility of the investment proposal, nor they will get satisfied with
it.

Hence, preparation of project report is necessary to satisfy them for

getting financial assistance.

4. Solving of Various Doubts and Inquests

We know that the project report is a brief description, account, and
mirror of the project to be started.

It presents solutions of various doubts and inquests relating to the

project.

Hence, it is necessary to prepare the project report.

5. Appropriate Basis
The project report is an appropriate basis for getting infrastructure
facilities, incentives, and concessions in various taxes from
Government and other Institutions.

Hence, its preparation is in the interest of the enterprise.

6. Testing of Business Profitability and Soundness

The objective of preparation of the project report is also to test the
business profitability and soundness of the project.

The comparative review of estimated costs and possible income is

possible by the project report.

Significance of project report

Serves as a Master Plan-

For successful management, effective planning is absolutely essential.
A project report serves as a business plan indicating the objectives or
goals of the enterprise & states in detail how these objectives are going
to be achieved at various stages of the enterprise.

Describes Direction / Road Map-

A project report is like a road map. It describes the direction in which
the enterprise should go & how to reach the goal. Without well defined
goals & operational methods as stated in the report, most enterprises
land in troubled waters & flounder on the rocks of hard times.

Shows Feasibility-
A project report also shows the feasibility of the proposed project & the
probability of achieving profit. Whether a project is feasible from
different angles- economic, financial, commercial, social etc. can be
ascertained while preparing a project report.

Foresees requirements-
A project report enables an entrepreneur to realize what he needs for
implementing the project well in advance. It also gives a general idea
of his various resource requirements like raw materials, manpower,
finance, infrastructure facilities etc. and also the means of procuring
them. Thus, it enables an entrepreneur to foresee his requirements in
advance & helps him to take suitable decisions accordingly.

Indicates Profitability-
It gives an indication of likely & benefits which a prospective
entrepreneur can get from his venture. This profitability indication will
help an entrepreneur to take an important investment decision. Thus,
the financial rewards can be visualized in advance.

Helps in Decision Making-

Crucial decisions have to be made at various stages of production. How
much to produce to achieve Break-Even-Level? How to fix the
repayment schedule? Such important decisions can be taken with the
help of a project report prepared well in advance. It also anticipates
problems in advance so that suitable decisions can be taken then &
there to solve those problems. Thus, it helps to visualize action tasks
also.

Paves way for Financial Assistance-

The preparation of a project report is absolutely essential for those
enterprises which apply for financial assistance from different financial
institutions & banks. It is on the basis of project report, that the
financial institutions could be given or not. In most cases, the quality
of the firms project report weighs heavily in taking lending decisions.
Thus, it paves the way for financial assistance which is the life blood
of an enterprise.

Assess Profitability-
Project report assesses the demand potential of the proposed product,
works out the cost of capital invested & operational costs & side by
side expected profitability of the proposed project.
To Evaluate Organisational Goals-
A project report helps to evaluate the organization objectives, to what
extent they are achievable. For this purpose, an entrepreneur is
expected to consider the input data, analyse the data, predict outcome,
choose best alternatives, take action, measure results with predictions.
To Quantify Objectives-
Project report helps to quantify the objectives. It makes them to be
measurable, tangible, verifiable & attainable.
To gain Financial Support-
Project report ensures to avail financial support from the financial
institutions. This report helps to evaluate the desirability of financing
the project.
Banks & Financial Institutions-
Commercial banks & financial institutions are the interested parties in
project report which is prepared for direct submission to banks &
financial institutions for getting loans. Financial institutions & banks
require project report for granting financial assistance. It will help the
bankers in appraising the project report & offer financial assistance.
6. Challenges face by SSI
1. Finance:-
Finance is one of the most important challenge to small
scale industries. Finance is the life bold of an organization
and no organization can function properly in the absence of
adequate funds. The scarcity of capital and inadequate
availability of credit facilities are the major causes of this
factor also entrepreneurs due to weak economic base, have
lower credit worthiness. Neither they are having their own
resources nor are others prepared to lend them. Compare to
MNCs.
2. Raw Material :-
Small scale industries normally tap local sources for
meeting raw material requirements. These units have to face
numerous challenges like availability of inadequate
quantity, poor quality and even supply of row material is not
on regular basis. All these factors adversely affect to
functioning of these units.
3. Marketing :-
These small scale units are also exposed to marketing
challenge. They are not in a position to get fist hand.
Information about the market i.e. about the
competition.Taste, liking, disliking of the consumers and
prevalent fashion. They are producing less of inferior
quality and that too at higher costs. Therefore, in
competition with better equipped large scale units they are
placed in a relatively disadvantageous position.

4. Under Utilization of Capacity :-

 Most of small scale units are working below full potential or
there is gross under utilization of capacities. Large scale units
are working for 24 hours a day. i.e. but small scale units are
making only 40 to 50 percent use of their installed capacities.
Various reason attributed to this gross under- utilization of
capacities are problem of finance, raw material, power and
under developed markets for their products.
5. Skilled Manpower :-
A small scale unit located in a remote backward area may
not have problem with respect to unskilled workers but
skilled workers are not available there. The reason is firstly,
skilled workers may be reluctant to work in these areas and
secondly, the enterprise may not afford to pay the wages and
other facilities demanded by these workers as compare to
MNCs.
6. Project Planning :-
Small scale entrepreneurs is poor project planning. These
entrepreneurs do not attach much significance to viability
out of mere enthusiasm and excitement. Project feasibility
analysis covering all these aspects in addition to technical
and financial viability of the projects, is not at all given due
weight age. Moreover, due to limited financial resources
they cannot afford to avail services of project consultants.
This result is poor projects planning and execution.
7. Infrastructure:-
Most of the small units and industrial estates found in towns
and cities are having one or more problems like lack of
power supply, water and drain age problem, poor roads, raw
materials and marketing problem. Thus absence of adequate
infrastructure adversely affect the quality, quantity and
 production schedule of the enterprises which ultimately
results in under utilization of capacity.
8) Managerial:
Managerial inadequacies pose another serious problem for small scale
units. Modern business demands vision, knowledge, skill, aptitude and
whole hearted devotion. Competence of the entrepreneur is vital for the
success of any venture. An entrepreneur is a pivot around whom the
entire enterprise revolves.

(9) Technology:
Small scale entrepreneurs are not fully exposed to the latest technology.
Moreover, they lack requisite resources to update or modernise their
plant and machinery Due to obsolete methods of production, they are
confronted with the problems of less production in inferior quality and
that too at higher cost. They are in no position to compete with their
better equipped rivals operating modem large scale units.

Short notes on:

a. Objectives of Entrepreneurship Development Programmes

Understand the need of entrepreneurial discipline.

7. To let the entrepreneur set or reset the objectives of his business and
work individually and along with his group.
8. Analyze the environment set up relating to small industry and
business.
9. Develop passion for integrity and honesty.
10. Develop and strengthen the entrepreneurial quality, i.e.
motivation or need for achievement.
11. Understand procedure of small scale industries.
12. Develop wide vision about the business
13. Develop passion for integrity and honesty
14. To analyze active investment of finance.
 15. To help in assessing industrial development of rural and less
developed areas where local entrepreneurship is not readily
available and to which entrepreneurs from nearby cities and town
are not easily attached.
16. To understand rules,process,procedure and regulations for
running the enterprise.
17. To enhance managerial capacities of the entrepreneurs.
18. To develop feeling of social responsibility on entrepreneurs.
19. To develop industries in rural and backward areas.
20. To help in balanced regional development.
Stages of EDP:

 Pre-training phase
 Training phase
 Follow-up phase

1. Pre-training phase:
Pre-training phase consists of all activities and preparation to launch
training programme. Pre-training phase of EDP consists of the
following activities :

 Selection of entrepreneurs for the training protgramme.

 Arrangements of infrastructure are for the programme like selection of
place of training.
 Deciding guest faculty for the programme from education industry and
banks.
 Taking necessary steps for inauguration of programme.
 Formation of selection committee to select trainees from the
programme.
 Making provision with regard to publicity and campaigning for the
programme.

2. Training Phase:
 The primary objective of training programme is to develop motivation
and skill or competency amongst the potential entrepreneurs. Care
should be taken to impart both theoretical and practical knowledge to
various trainees. The training phase of EDP will be so designed that it
will answer the following questions:

(a) Whether the attitude of the entrepreneur has been tuned towards the
proposed project or no.

(b) Whether the trainee has been motivated to accept entrepreneurship

as a career.

(c) How the trainee behaves like an entrepreneur.

(d) Whether the trainee has sufficient knowledge on resources and

technology or not.

(e) What kind of entrepreneurial traits he lacks and what steps should
be taken to set it.

3. Follow-up Phase:
Follow up phase of EDP has been termed as post-training phase. The
ultimate objective is to develop competent entrepreneurs.

So that they can start their project. Post-training phase is a review phase
of training programme. It consists of reviewing of work in the
following manner:

 Review of pre-training work

 Review of actual training programme
 Review of post training programme so that cost effectiveness of the
present programme can be evaluated.
b. Advantages of Franchising

 Cost-Effective Expansion – Franchisees handle the research and

funding for outlets in your chain, which means you do not have to
spend your own capital or request additional funding from banks
or investors in order to grow your business.
 Marketing Support – Every franchise location uses the same
tried and true marketing plans, which helps eliminate the costly
guess work when starting an independent business. You will also
have the power of a national and/or regional advertising fund.
 Additional Sources of Revenue – As the franchisor, you will
receive additional income in the form of on-going royalties paid
by your franchisees, depending on your franchise agreement.
Royalties typically include a monthly fee including a percentage
of the franchisees gross sales.
 Acquiring Talented Managers – The managers chosen to run
each franchised location will have a vested interest in its success,
unlike a salaried employee, and will be responsible for handling
any issues related to employees, workers’ compensation, etc.
 Scalability – Depending on your needs and goals, you can
customize your franchise agreement to focus on large volume
national growth or low volume regional growth.

Disadvantages of Franchising

 Capital Investment – Establishing a franchise requires

investment of time and money in business development, a flagship
store, legal document preparation, marketing and packaging plans,
and recruiting franchisees.
  Less Control – The franchisees will agree to follow your training
and instructions, but you may not be able to make changes without
running into disagreements. Your franchisees are still independent
businesses and negotiations may be necessary.
 Costly Legal Action – In the event that a franchisee refuses to
cooperate or proves unprofitable, legal action may be required,
which can be both costly and damaging to your reputation among
other franchisees.
 Regulation – Franchises are regulated by state and federal laws,
requiring the development of a Franchise Disclosure Document
(FDD) and other Regulatory Documents with the help of an
attorney.

c. Project formulation

The project formulation is a systemic expression of such plan with

detailed estimates within certain parameters. Such estimates in order to
be more realistic and reliable are based on actual experiences,
environments along with the trends forecasted for the coming years. All
these are formulated in a ‘project report’. The project formulation needs
lot of functional support from the specialists in their relevant fields.

Once the project has been identified necessary steps are taken to
explore and assess the viability of the project.

It involves a study in one or more or all of the following areas:

(i) Technical:
a. Whether the technology involved in the project is appropriate to meet
the objectives, to ensure that

b. It is not an obsolete technology;

c. The technical collaborator is capable to impart such technology often
assured by a term of buy-back of part of the production;

d. The other terms for the know-how are reasonable and acceptable as
per norms.

(ii) Economical:
a. The investment for the project is justified considering the overall
economical situation and, in particular, relevant to the industry for
which the project is being planned.

b. The project cost is justified as against the economic benefit to be

derived from it.

(iii) Financial:
a. The necessary resources will be available in time during the
implementation of the project and its subsequent operation. Experience
indicates that many projects, after being partially carried out, are
stopped (particularly in the public sector) due to lack of funds leading
to delay in its implementation and cost escalation.

b. The estimated revenue to be generated from the project after being

implemented is sufficient to justify the project capital cost.

(iv) Social:
a. The objective of the project is to serve common people through rural
development, education, health-care etc. It should be ensured that
sufficient funds are available to maintain such project e.g. a hospital
built-up and equipped with necessary machineries/apparatus could not
be run in the absence of funds to pay the doctors, nurses/maintenance
staff etc.

Every such study is a costly affair, and it is not a must that a project
should pass through all such studies. The status of the studies and
reliability of the forecasted details in the report (pre-feasibility,
 feasibility etc.) improve with the managerial decision to dig in further
as well as more detailed information available with the passage of time.

d. Types of entrepreneur

1. Innovators

Innovators are the types of entrepreneurs who come up with completely

new ideas and turn them into viable businesses.

In most cases, these entrepreneurs change the way people think about
and do things. Such entrepreneurs tend to be extremely passionate and
obsessive, deriving their motivation from the unique nature of their
business idea.

Innovative entrepreneurs also find new ways to market their products

by choosing product differentiation strategies that make their company
stand out from the crowd. And sometimes it is not just standing out
from the crowd but actually creating a new crowd.

Advantages of Being An Innovate Entrepreneur:

 Get all the glory for the success of the business (and take all the
arrows)
 Create the rules
 Face minimal competition during the initial days

Disadvantages of Being An Innovate Entrepreneur:

 You will need a lot of capital to bring a new idea to life

 Often face resistance from shareholders
 The timeframe for success is longer

2. The Hustler Entrepreneur

  Unlike innovators whose vision is the gas in their engine, hustlers
just work harder and are willing to get their hands dirty. Hustlers
often start small and think about effort – as opposed to raising
capital to grow their businesses. These types of entrepreneurs
focus on starting small with the goal of becoming bigger in the
future.

Hustlers are motivated by their dreams and will work extremely

hard to achieve them. They tend to be very focused and will get
rid of all forms of distractions, favoring risks over short-term
comfort.

Advantages of Being A Hustler

 They will outwork most

 Tend to have thick skin – they don’t give up easily
 See disappointment and rejection as just a step in the process

Disadvantages of Being A Hustler

 Usually prone to burn out

 Wear out their team members who don’t have the same work ethic
 Often don’t see the value of raising capital as opposed to just
working harder

3. Imitators

Imitators are the types of entrepreneurs who copy certain business ideas
and improve upon them. They are always looking for ways to make a
particular product better so as to gain an upper hand in the market.

Imitators are part innovators and part hustlers who don’t stick to the
terms set by other people and have a lot of self-confidence.
Advantages of Imitators

 Refining a business idea is easier and less stressful

 You can easily benchmark your performance with the original
idea
 Can learn and avoid mistakes that were made by the originator

Disadvantages of Imitators

 Their ideas are always compared to the original idea

 Always have to play catch-up

Taking an existing idea and refining and improving it can be a great

way to develop a business. It certainly does not have as much risk as
the innovator but it might just not be as sexy.

4. Researcher

Even after having an idea, researchers will take their time to gather all
the relevant information about it. To them, failure is not an option
because they have analyzed the idea from all angles.

Researcher entrepreneurs usually believe in starting a business that has

high chances of succeeding because they have put in detailed work to
understand all aspects.

As a result, these types of entrepreneurs usually take a lot of time to

launch products to make decisions because they need the foundation of
deep understanding. These entrepreneurs rely much more on data and
facts than instincts and intuition.

For a researcher, there should be no room for making mistakes.

Advantages of Being a Researcher Entrepreneur

 Plan for as many contingencies as possible

  Write detailed, well-thought-out business and financial plans
 Focus on data and information rather than gut feeling
 Won’t start unless they feel like they know the market
 Will minimize the chances of failing in the business

Disadvantages of Being a Researcher Entrepreneur

 Typically moves slow

 Doesn’t like risk and that can hamper progress in a new venture

Even though these types of entrepreneurs spend a lot of time

researching and digging into the data to ensure the success of their
business, they can fall into the habit of obsessing over the numbers and
focusing less on the running of the business.

5. Buyers

One thing that defines buyers is their wealth. These types of

entrepreneurs have the money and specialize in buying promising
businesses.

Buyer entrepreneurs will identify a business and assess its viability,

proceed to acquire it and find the most suitable person to run and grow
it.

Advantages of being a Buyer

 Buying an already established venture is less risky

 Doesn’t have to worry so much about innovation
 Can focus on building on something that has already gone
through building a foundation
 Already has a market for your products
 Disadvantages of being a Buyer

 Usually pays a high price for good businesses

 Will face the risk of buying businesses that have problems that
you think you can turn around

e. Objectives of NSIC

 To enhance reach of the Corporation resulting in growth in its

business
 To achieve operational efficiency and self-sustenance by
attaining better productivity and profitability.
 To upgrade the professional skills of all employees keeping in
pace with business needs.
 To provide safe, clean, hygienic & congenial work environment
for effective contribution by every employee.
 Additional NTSC/NTSECs Objectives are as below:
-To provide training for skill upgradation of trainees leading to
opportunities for their employment/self employment.
-To provide common facility services to industries for enhancing
their competitiveness and quality.

Functions of NSIC

1. Provides financial assistance by way of hire-purchase scheme for

purchase of machinery and equipment, required for the setting up
industries.
2. To develop small scale units are ancillary units to large-scale
industries.

3. To provide machines and equipments to SSI’s on hire-purchase

basis.
 4. To help enterprises to participate in the stores purchase
programme of the Central government.
5. To assist small industries in marketing their products.

6. To make available the basis raw materials through their depots.

7. To import and meet the requirement of components and parts to
actual small scale users in specific industries.
8. To construct Industrial Estates and establish and run prototype
production-cum training centers to carter the need of prospective
entrepreneurs.
9. Sets up small scale industries in other developing countries on
turn-key basis.

10.Purchases huge quantity of important raw materials and distribute

the same to SSIs at reasonable rates.

f. Objectives of SIDBI
1. To promote marketing of products of small scale sector.
2. To upgrade technology and also undertaking modernization of
small scale units.
3. To provide more financial assistance to small scale ancillary and
tiny sector.
4. To encourage employment oriented industries.
5. To coordinate all the other institutions involved in the promotion
of small scale industries.

Functions of SIDBI

(i) It refinances loans and advances provided by the existing lending

institutions to the small-scale units.
 (ii) It discounts and rediscounts bills arising from sale of machinery to
and manufactured by small-scale industrial units.

(iii) It extends seed capital/soft loan assistance under National Equity

Fund, Mahila Udyam Nidhi and Mahila Vikas Nidhi and seed capital
schemes.

(iv) It grants direct assistance and refinance loans extended by primary

lending institutions for financing exports of products manufactured by
small-scale units.

(v) It provides services like factoring, leasing, etc. to small units.

(vi) It extends financial support to State Small Industries Corporations

for providing scarce raw materials to and marketing the products of the
small-scale units.

(vii) It provides financial support to National Small Industries

Corporation for providing; leasing, hire purchase and marketing help
to the small-scale units.

g. Major Causes of Sickness in Small Scale Industries

1. Inadequacy of working capital

Some units turn out sick due to inadequacy of working capital. There
may exists delay in sanction of working capital by financial institutions.
Industrial units find it difficult to meet out day to day operations due to
the time gap between sanction of term loan and working capital needs.
Shortage of Working Capital is one of the main reasons for sickness.

2. Non-availability of credit
Sickness in SSI sector may be attributed to non-availability of credit.
Delay in getting loans may result in stoppage of work or lead to
production loss. Low production may lead to reduced sales which in
turn may lead to financial loss.
3. Poor and obsolete technology
Some industrial units use technology which is outdated. Out dated
technology may affect the quantity and quality of production. This
results in production loss and reduces demand for the goods.
4. Non availability of raw material
Some units may require raw material which are scarcely available.
Sometimes, the raw material required by the unit may not be available
in abundance. Hence, this affects the production and the sales of the
goods. If the raw material is not abundantly available, then the
industrial units have to spend a large amount of money to buy them.
This may result in financial loss.

5. Marketing problems
Sometimes, the industrial units may not know as to how to create
demand for the products. Lack of marketing knowledge may result in
less demand for the goods. Similarly, there may be less demand for the
goods produced by the SSI due to competition or change in the taste of
the buyers.

7. Labour problems
The relationship between the employer and the employees may not be
cordial. Some of the labour problems such as strike, lay off, lock out
may lead to industrial sickness.

8. Poor Management
The entrepreneur must be a good planner, organizer and a manager. If
the Industrial Unit promoters lack managerial skills, then it may lead to
several problems.

Remedial measures to overcome Sickness

1. Identifying sickness at initial stage
Sickness in Small Scale Industries are not a sudden phenomenon but it
is a gradual process taking 5 to 7 years eroding the health of a unit
beyond cure. Therefore, the identification and detection of the sickness
at incipient stage is the first and foremost measure to detect and reduce
industrial sickness. Sickness must be identified at initial stage.

2. Financial assistance
Lending agencies need to relax their lengthy process and other norms
for extending credit to the SSIs. To combat the incidence of sickness
financial institutions should grant credit without delay to SSI sector.

A number of initiatives can be undertaken to overcome credit problems

such as:.

1. Increasing Working capital limit.

2. Enhancing the powers of bank managers of specialized bank
branches in offering credit to SSI.
3. Strengthening the mechanism for discounting bills.
4. Reduced rate of interest.
These measures would improve the flow of credit and keep a check on
the incidence of sickness.

3. Improving Infrastructure
Infrastructure facilities can be improved by setting up industrial estates.
Common testing centres etc., infrastructural problems can be solved by
improving the roadways, waterways, establishing telecommunication
systems.
4. Technology Up-gradation
Funds may be provided by the financial institutions for adoption of
advanced technology. Similarly, some sort of training may be provided
for use of the latest technology to overcome technological problems.
Technological up-gradation can help to overcome technological
obsolescence.

5. Marketing assistance
Marketing assistance may be provided to entrepreneurs for marketing
the goods produced by them. Government must help to market the
goods. Government and Non Government Organizations (N.G.Os) can
come forward for marketing the goods produced by the SSI sector. The
problem of poor marketing of the products can be solved by
coordinated efforts of entrepreneurs and promotional agencies.
6. Government Interventions
Interventions must be made by the government to prevent sickness.
Periodic review of financial statements can help to identify and prevent
sickness at initial stage.

7. Training
A proper environment must be created where an entrepreneur will be
educated and will have a proper knowledge, skill and experience about
internal and external environment of business to compete with large-
scale industries and multinational companies.

2017

5 MARKS ANSWERS:
a. Qualities of a Successful Entrepreneur
1. Disciplined
These individuals are focused on making their businesses work, and
eliminate any hindrances or distractions to their goals. They have
overarching strategies and outline the tactics to accomplish them.
Successful entrepreneurs are disciplined enough to take steps every day
toward the achievement of their objectives.

2. Confidence
The entrepreneur does not ask questions about whether they can
succeed or whether they are worthy of success. They are confident with
the knowledge that they will make their businesses succeed. They
exude that confidence in everything they do.

3. Open Minded
Entrepreneurs realize that every event and situation is a business
opportunity. Ideas are constantly being generated about workflows and
efficiency, people skills and potential new businesses. They have the
ability to look at everything around them and focus it toward their
goals.

4. Self Starter
Entrepreneurs know that if something needs to be done, they should
start it themselves. They set the parameters and make sure that projects
follow that path. They are proactive, not waiting for someone to give
them permission.

5. Competitive
Many companies are formed because an entrepreneur knows that they
can do a job better than another. They need to win at the sports they
play and need to win at the businesses that they create. An entrepreneur
will highlight their own company’s track record of success.

6. Creativity
One facet of creativity is being able to make connections between
seemingly unrelated events or situations. Entrepreneurs often come up
with solutions which are the synthesis of other items. They will
repurpose products to market them to new industries.

7. Determination
Entrepreneurs are not thwarted by their defeats. They look at defeat as
an opportunity for success. They are determined to make all of their
endeavors succeed, so will try and try again until it does. Successful
entrepreneurs do not believe that something cannot be done.

8. Strong people skills

The entrepreneur has strong communication skills to sell the product
and motivate employees. Most successful entrepreneurs know how to
motivate their employees so the business grows overall. They are very
good at highlighting the benefits of any situation and coaching others
to their success.

9. Strong work ethic

The successful entrepreneur will often be the first person to arrive at
the office and the last one to leave. They will come in on their days off
to make sure that an outcome meets their expectations. Their mind is
constantly on their work, whether they are in or out of the workplace.

10. Passion
Passion is the most important trait of the successful entrepreneur. They
genuinely love their work. They are willing to put in those extra hours
to make the business succeed because there is a joy their business gives
which goes beyond the money. The successful entrepreneur will always
be reading and researching ways to make the business better.

b. Inter relation between industry trade commerce

1. Industry , commerce and trade are closely related to each other. For
example industry provides goods and services which are distributed
through commerce. No commercial activity is possible in the
absence of industry and production.

2. At the same time industry and production cannot work unless goods
and services are distributed among consumers through commerce.
 Therefore, industry provides the base of commerce and commerce
serves as the backbone of industry.

3. Trade involves buying and selling of goods. It is the nucleus of

commerce because all business activities revolve around transfer or
exchange. Trade provides the solid support to upon which the
superstructure of commerce has been raised it provides necessary
support to industry and maintains a smooth flow of commerce.

c. What is EDP?

EDP is a programme meant to develop entrepreneurial abilities among

the people. In other words, it refers to inculcation, development, and
polishing of entrepreneurial skills into a person needed to establish and
successfully run his / her enterprise. Thus, the concept of
entrepreneurship development programme involves equipping a person
with the required skills and knowledge needed for starting and running
the enterprise.

d. Contribution of entrepreneurship to the national economy

How does an entrepreneur help the society?

 Donations – A business person donates a lot of money for charity
purposes. From his or her earnings, he or she would like to help
the downtrodden and try to improve their living conditions.
 Charitable institutions – A businessman or woman sets up
various educational, medical and vocational training institutions
to provide the less privileged with benefits which they normally
cannot afford. The fees may be less or waived in the case of a
meritorious student. Hospitals are also run by these charitable
institutions.
 Sponsorship – Many business people sponsor a candidate for
higher education or fund a child in an orphanage. In fact, many
orphanages are backed by these business people. Scholarships are
provided to a poor student for him or her to avail of better
educational opportunities.
 Welfare programs – A businessman or woman financially
contributes to various welfare programs, like helping the blind,
orphans, widow etc. In times of crisis, they help by donating items
such as blankets, clothes, medicines etc.
 Advisors to respective government – Many successful business
people participate in government activities in order to promote the
well-being of the citizens. The government often seeks their
advice on certain social and economic activities.

Economy
 Investment – Then entrepreneur has to invest in what is required
for the economy. Economic progress will much depend upon his
or her contributions. Any entrepreneur will invest in products and
services which the people need. His or investment will ensure a
better life for the people. More goods and services will be at their
disposal.
 Employment – An entrepreneur by setting up various businesses
and establishments is generating employment in the economy.
People need jobs. This is a major contribution that an employer
can make to provide income to an employee who can meet his or
her needs.
 Diversity in products and services – An entrepreneur can
provide various types of goods and services to the consumer. The
latter has much to choose from. A consumer after all would like
to have a good bargain, and if his or her choices are more than he
or she can get these products or services at reasonable rates. Also
personal desires are met if there are products and services to
choose from. A person may like a particular type of tie and he can
perhaps locate it in his local market. His desire to purchase a tie
of his choice is thus met.
 International trade – An entrepreneur promotes international
trade by selling his or her products abroad. Any entrepreneur
would like a wider market. If there are more consumers to
purchase his or her products, the higher his profits.
  Contributes to gross national product – An entrepreneur
makes much contribution to the national exchequer and to the
national economy as whole. The GNP of the country is calculated
based upon the total number of products and services available in
a respective country. The more products and services available
the higher the GNP. It indicates the economic prosperity of the
country.

e. Consequences of Industrial Sickness

Huge Financial Losses to the Banks and the Financial
Institutions:
The banks and the financial institutions provide substantial funds to
start an industry. Obviously, the locking up of substantial funds in
the sick industrial units impinges on the future lending capacity of
the banks and the financial institutions.

Further, recovery of overdue takes an unduly long period of time

and in many cases only a small portion of overdue amount is finally
recovered. Thus, these bear an adverse effect on the financial health
of the banks and the financial institutions.

Loss to Employment Opportunities:

One of the serious consequences of industrial sickness has been loss
to employment and, thereby, aggravating the most dangerous socio-
economic problem of unemployment in a labour surplus economy
likes ours. According to an estimate, nearly 30 lakhs of workers are
likely to be affected by the closure of sick and weak units.

Emergence of Industrial Unrest:

The closure of sick units causes not only unemployment, but leads to
industrial unrest also. Whenever the workers are retrenched and
rendered out of jobs, the trade unions oppose it and resort to
 industrial strikes. Such disturbances threaten the peace and
tranquility of the industrial environment. This results in setback to
industrial production.

Adverse Effect on Prospective Investors and Entrepreneurs:

Industrial sickness adversely affects the prospective investors and the
entrepreneurs also. Due to sickness, the share price of the unit tumbles
down which, in turn, adversely affects the stock market of the country.
In this way, industrial sickness creates a psychology of despair for
investments amongst the prospective investors.

Wastages of Scarce Resources:

In an under-developed economy like ours, the resources are already
scarce. If these scarce resources are locked up in sick units, it becomes
the wastage of scarce resources which otherwise invested would have
yielded substantial returns to the economy.

Loss of Revenue to the Government:

The government raises a substantial portion of its revenue from

industrial units by way of various taxes and duties levied on them. But,
when a large number of industrial units become sick, the possibilities
for raising substantial revenue from the sick units by way of various
levies are greatly reduced. Thus, industrial sickness results in loss of
revenue to the Government also. The shortage of revenue ultimately
affects the functioning of the economy as a whole.
f. ‘Venture Capital’ is an important source of finance for those small
and medium- sized firms, which have very few avenues for raising
funds. Although such a business firm may possess a huge potential
for earning large profits in the future and establish itself into a
larger enterprise. But the common investors are generally
unwilling to invest their funds in them due to risk involved in these
types of investments. In order to provide financial support to such
entrepreneurial talent and business skills, the concept of venture
capital emerged. In a way, venture capital is a commitment of
capital, or shareholdings, for the formation and setting-up of small
scale enterprises at the early stages of their lifecycle.
The term venture capital comprises of two words, namely, ‘venture’
and ‘capital’. The term venture literally means a course or proceeding,
the outcome of which is uncertain but which is uncertain but which is
attended by the risk of danger of ‘loss’. On the other hand, the term
capital refers to the resources to start the enterprise. However, the term
venture capital can be understood in two ways.

Sources of venture capital

Primary Sources of Venture Capital

1. The private person having wealth.

2. Pension Fund, trust, Insurance Company, banks, etc.

Institutional Sources of Venture Capital

1. All India Financial Institutions
1. Venture Capital division of Industrial Development Bank of India.
2. Venture capital and technological Finance Corporation, a
subsidiary company of industrial Finance Corporation of India.
3. Fund of 20 crores created jointly by industrial credit and
Investment Corporation of India and Unit Trust of India.
2. By State Finance Corporation

 Venture capital Limited sponsored by Gujarat Finance

Corporation (GVFL).
 Andhra Pradesh Industrial Development Corporation venture
capital Limited (APIDC).

3. By Banks

1. CAN Bank Venture Capital Fund sponsored by CANFIN and

Canara Bank.
2. SBI venture capital fund.
3. The investment fund of India sponsored by Grindlays Bank.
4. Infrastructure leasing sponsored by Central Bank of India.

4. Private Sector Companies

 Indus venture capital fund sponsored by Mafat Lal and Hindustan
Lever.
 20th-century venture capital Corporation Limited.
 Venture capital fund is sponsored by V. V. Desai.

1. Equality capital
 This is the major source of venture capital.
 In India, most of the venture capital funds provide assistance in
equity shares.
 But, the form of the type of assistance is not more than 49% of
the total equity capital.
 It is to be remembered here that the objective of purchasing equity
shares of any enterprise by venture capital fund is to ultimately
sale them for earning profits.

2. Conditional Debt
The salient characteristics of the Debt are as follows:
 1. Such debt is reimbursable in the form of royalty when the project
reaches the stage of making sales.
2. Interest is not paid on such debt.
3. The royalty of about 2 to 15 percent is charged by venture capital
funds.
4. In such type of sources, the alternative of payment of high interest
is offered to the entrepreneur in comparison to some fund royalty,
when the project becomes commercially perfectly sound.

3. Income Note
This is such a source of venture capital, in which the entrepreneur
has to pay the royalty on sale also, along with interest. The funds
are provided as unsecured interest in various development stages
at 9% interest

4. Establishment of Shares in the Market

This facility is provided to those small entrepreneurs, who cannot have
access to the public for finances, due to the high cost of issue of shares
and not having developed infrastructure.

In India, such type of facilities provided by the State Bank of India.

These institutions purchase the shares of the Enterprises, after proper

assessment, according to their laws, bye-laws, and guidelines of the
Government of India, with the intention that when the company will
reach the stage of profitability after 1-2 years, then it will have its own
public issues.

5. Public Proposal in Phases

The government of India has provided this facility for companies
running in profits.

For that, arrangements are made to issue the share of profit-bearing

companies to the public, in phases, so that capital of people may reach
the market.
But, for such companies, it is compulsory to issue 60% shares at stock
exchanges for listing.

6. Public Deposits
Since last few years, importance of public deposit is increasing in the
corporate sector in India.

So the entrepreneurs may have financial arrangements for new

projects.

But, the guidelines issued by the government will have to keep in view,
so that the public may not be deceived.

Various documents required for venture capital.

(1) Deal Orientation : At this stage, a letter of introduction

is necessary from the referring party sent to the Venture Capital
Company. It should present details about the potential venture, its
technical viability and good image of the entrepreneur.
(2) Screening : Screening of proposals is necessary to save the time
and money cost. Only proposals which clear screening test
are considered for evaluation. At this stage the Venture Capital
Company may ask for technology and product profiles as well as
venture or investment profile depending on the criteria used in the
screening process.
(3) Evaluation or Due Diligence : Evaluation or due diligence means
careful and proper detailed analysis, The proposals that have
successfully passed through the screening process are then subjected to
a detailed evaluation process called due diligence. Most of the venture
coming to a venture capitalist are new ventures being set up by first-
time promoter, neither the ventures have any track record nor the
entrepreneur are have any operating experience. In such cases, the
venture capital company uses a subjective but comprehensive
evaluation. At this stage the Business Plan is an important document
upon which the evaluation is based. Most venture capitalists ask for
a business plan to make an assessment of the possible risk and return on
the venture. Well prepared plan is the best introduction of
the entrepreneur who is going to set up a new venture. A detailed
and well-organized business plan is the only way to gain the attention
Of the venture capitalist and to obtain the needed funds.
(4) Deal Structuring : If the proposed venture and its business plan are
found as viable, then venture capitalist and the entrepreneur negotiate
the terms of the deal, such as : the amount Of money to be invested, the
form of investment (equity or debt), the price of Investment, exit
period, etc. This process is termed as deal structuring. At this stage, a
written agreement is prepared between the entrepreneur and the venture
capitalist. This contains all the terms and conditions agreed between
them. This agreement is written on a stamp paper, signed by both and
is registered with the government agency. It is treated as a valid
evidence before a court of law in case of a dispute.

Features of Venture Capital

1) For New Entrant: Venture Capital investment is generally made in

new enterprises that use new technology to produce new products, in
expectation of high gains or sometimes, spectacular returns.

2) Continuous Involvement: Venture capitalists continuously involve

themselves with the client’s investments, either by providing loans or
managerial skills or any other support.

3) Mode of Investment: Venture capital is basically an equity

financing method, the investment being made in relatively new
companies when it is too early to go to the capital market to raise funds.
In addition, financing also takes the form of loan finance/ convertible
debt to ensure a running yield on the portfolio of the venture capitalists.

4) Long-term Capital: The basic objective of a venture capitalist is to

make a capital gain on equity investment at the time of exit, and regular
return on debt financing. It is a long-term investment in growth-
oriented small/medium firms. It is a long-term capital that is an injected
to enable the business to grow at a rapid pace, mostly from the start-up
stage.

5) Hands-On Approach: Venture capital institution take active part in

providing value – added services such as providing business skills, etc.,
to investee firms. Thy do not interfere in the management of the firms
nor do they acquire a majority / controlling interest in the investee
firms. The rationale for the extension of hands- on management is that
venture capital investments tend to be highly non- liquid.

6) High risk- return Ventures: Venture capitalists finance high risk-

return ventures. Some of the ventures yield very high return in order to
compensate for the heavy risks related to the ventures. Venture
capitalists usually make hug capital gains at the time of exit.

7) Source of Finance: Venture capitalists usually finance small and

medium- sized firms during the early stages of their development, until
they are established and are able to raise finance from the conventional
industrial finance market. Many of these firms are new, high
technology- oriented companies.

8) Liquidity: Liquidity of venture capital investment depends on the

success or otherwise of the new venture or product. Accordingly, there
will be higher liquidity where the new ventures are highly successful.

Advantages of Venture Capital

 They bring wealth and expertise to the company

 Large sum of equity finance can be provided
 The business does not stand the obligation to repay the money
 In addition to capital, it provides valuable information, resources,
technical assistance to make a business successful
Disadvantages of Venture Capital

 As the investors become part owners, the autonomy and control

of the founder is lost
 It is a lengthy and complex process
 It is an uncertain form of financing
 Benefit from such financing can be realized in long run only

2016

Short notes;

a. Industrial estate

Industrial estate is one, which consists of well-constructed

factories that are offered to entrepreneur for establishing an
enterprise. It is normally established in the industrially backward
areas so as to minimize the regional imbalances. It provides all
infrastructural facilities such as power, transport, water and
lighting at a reasonable cost.

The main objective of establishing Industrial estates is to attract

industries to industrially backward areas, which will make the
country a regionally well-balanced one.

Objectives of Industrial Estates

The principal objectives as pointed out by Prof P.C. Alexander are:
1. To minimize congestion of industries in the cities.

2. To dispense industries in different regions in order to eliminate

regional imbalances.

3. To encourage small entrepreneurs to establish their industries in

specified areas by offering various incentives and other facilities.
4. To create a favorable atmosphere for the healthy growth of SSI.

5. To accelerate employment opportunities.

Merits of Industrial Estates

1. Provision of Premises and Amenities at a Reasonable Cost
Industrial estate provides premises i.e. Land and Factory Shed for the
establishment of a new industrial undertaking and also other amenities
such as power, water, transport etc. at a reasonable, cost. Hence the
entrepreneur is able to produce goods at cheaper costs.

2. Availability of Service Centers

As each and every SSI unit established in an industrial estate cannot
afford to have their own service centers, the industrial estate itself
provides for a repair shop, a testing laboratory etc. for the common
benefit of all SSI units situated there.

3. Minimum Initial Capital

Since reasonable sheds are offered to the industrialists either on hire
purchase basis or on rental basis, they need not spend a huge amount
initially for the construction of the factory building etc. Thus the initial
capital investment is less.

4. Avoidance of Unnecessary Delays

While starting an industrial unit an entrepreneur is required to comply
with various rules and regulations regarding the location of factory
sheds and obtaining infrastructural facilities. But if an entrepreneur
obtains a ready-made premises in an industrial estate, he need not worry
about all these things as they are constructed by the Government itself
by taking into consideration all these formalities well in advance.
Hence the unnecessary delay is avoided.

5. Cordial Relationship between the Industrialists

A rapid growth of the industrial units is made possible by fostering
complementary relationship among them. For instance, some units may
obtain raw materials and semi-finished goods as inputs from other units
in the same estate or offer a part of the production to the ancillary units
in the same area.
Types of Industrial Estates
Traditionally, there are 2 types of industrial estates namely,

1. Functional Estate, and

2. Ancillary Estate.
Functional estate is one where a particular industrial activity is
concentrated. On the other hand, ancillary estates are those, which are
engaged in the manufacture of ancillary items required by large
industrial units.
But in India, 4 types of industrial estates have been established, the
basis of which are:

1. Type of industrial activity.

2. Sponsorship.
3. Location.
4. Co-operative industrial estates.
On the basis of location, industrial estates can be classified into three
categories namely,

1. Urban Estates,
2. Semi-Urban Estates, and
3. Rural industrial Estates.
On the basis of sponsorship, industrial estates can be classified into four
types viz.,

1. Government.
2. Co-operative.
3. Municipal.
4. Private Estates.
Reasons for Poor performance of Industrial Estates in India
1. Absence of Pilot Surveys
No techno-economic surveys were conducted by some State
Governments before establishing industrial estates. Hence, most of the
industrial estates have less growth potential and have proved to be a
waste of time and money spent on them.
 2. Lack of Clear Policy
There is no vigorous policy for the dispersal of industries on the part of
the State Government in India. There is no clear demarcation of
industrially backward region in various States also. All these factors
led to poor performance of the industrial estate.

3. Delays in Providing Infrastructure

Improper planning of the estates and poor execution of the plan often
leads to considerable delays in providing the infrastructural facilities
such as water, electric power, roads, drainage etc.

4. Inefficient Follow Up
There is no effective machinery to follow up and supervise the day-to-
day operations of the industrial estates with a view to make it
successful.

b. Franchising

Franchising is basically a right which manufacturers or businesses give

to others. This right allows the beneficiaries to sell the products or
services of these manufacturers or parent businesses. These rights could
even be in terms of access to intellectual property rights.

The individual or business that grants the right to the franchise is called
the franchisor, while the beneficiary of the right is called the franchise.
Franchising is a business marketing strategy to cover maximum market
share.

Franchising is a business relationship between two entities wherein one

party allows another to sell its products and intellectual property. For
example, several fast food chains like Dominos and McDonalds operate
in India through franchising.

Features of Franchising

1. Under a franchising agreement, the franchisor grants permission to the

franchise to use its intellectual properties like patents and trademarks.
2. The franchise in return pays a fee (i.e. royalty) to the franchisor and may
even have to share a part of his profits. On the contrary, the franchisor
provides its goods, services, and assistance to the franchise.

3. Both parties in a franchise sign a franchising agreement. This agreement

is basically a contract that states terms and conditions applicable with
respect to the franchise.

Advantages and Disadvantages of Franchising

Advantages to Franchisors

 Firstly, franchising is a great way to expand a business without

incurring additional costs on expansion. This is because all expenses
of selling are borne by the franchise.
 This further also helps in building a brand name, increasing goodwill
and reaching more customers.

Advantages to Franchisees

 A franchise can use franchising to start a business on a pre-

established brand name of the franchisor. As a result, the franchise
can predict his success and reduce risks of failure.
 Furthermore, the franchise also does not need to spend money on
training and assistance because the franchisor provides this.
 Another advantage is that sometimes a franchisee may get exclusive
rights to sell the franchisor’s products within an area.
 Franchisees will get to know business techniques and trade secrets
of brands.

Disadvantages for Franchisors

 The most basic disadvantage is that the franchise does not possess
direct control over the sale of its products. As a result, its own
 goodwill can suffer if the franchisor does not maintain quality
standards.
 Furthermore, the franchisee may even leak the franchisor’s secrets
to rivals. Franchising also involves ongoing costs of providing
maintenance, assistance, and training on the franchisor.

Disadvantages for Franchisees

 First of all, no franchise has complete control over his business. He

always has to adhere to policies and conditions of the franchisor.
 Another disadvantage is that he always has to pay some royalty to
the franchisor on a routine basis. In some cases, he may even have
to share his profits with the franchisor.

Long answers:

a. Measures to promote small scale enterprise/ benefits taken by govt.

1. Government should ensure that adequate financial assistance is

provided to SSls through banks and financial institutions. The rate of
interest on loans should be low. Financial assistance must be provided
to SSI through unsecured loans or after obtaining minimum security.

2. Insurance coverage must be extended to new and existing small scale

industries.

3. The gap that exists between consumers and small business must be
bridged through effective marketing. Lot of industrial fairs, exhibitions
must be organized by the government to encourage the sale of SSI
products.
4. The infrastructural facilities must be improved and measures must
be taken to enhance the supply of water, electricity to backward and
rural areas.

5. Technological support must be provided to SSI to import machinery

at lower cost.

6. Many industrial estates must be established by the government.

7. The informal money market should be regulated to avoid

exploitation by money lenders on small scale industrialists.
8. Training must be provided to entrepreneurs in technological,
managerial, financial and marketing areas.

9. Awareness campaigns must be carried out in full swing to encourage

youngsters to become first generation entrepreneurs.

10. The sick industries must be rejuvenated instead of liquidation.

11. The licensing procedure must be simple and at ease.

12. Fair Incentives and subsides must be given to SSI units and an
awareness must be made about the incentives available to new
entrepreneurs

13. Export promotion schemes must be devised in such a way that

encourages SSI to export their goods.

b. Role/function of SIDO

SIDCO supplies scarce raw materials:

Some of the scarce raw materials are procured by the corporation

either from the domestic market or from abroad and are provided to
the needy small scale industries. For this purpose, SIDCO has a
number of raw material depots and these depots are procuring
various scarce raw materials, as per the requirements of small scale
industries in the state.
SIDCO provides marketing assistance:

In order to provide an efficient marketing support to small scale

industries, the corporation has taken up various schemes. In fact, the
corporation participates in the tenders floated by the state
government departments and also with the DGS & D (Director
General of Supplies and Disposal). SIDCO makes advance
payments for obtaining orders and distribute them among the various
small scale units. SIDCO also arranges for buyer — seller meets
frequently.
SIDCO assists in Bills discounting:

When small scale units supply goods to government departments,

there is a delay in receiving payments. In such a situation, the bills
drawn on government departments will be discounted by SIDCO
and upto 80% of the bill value is given to the supplier. This helps the
SSI units in solving their working capital crisis.
SIDCO provides Export marketing assistance:

To promote export marketing among the small scale industries,

SIDCO has developed websites because of which it is able to display
the products of the small scale industries in foreign markets and
obtain export orders. Once an export order is obtained, the Common
export manager of SIDCO will make arrangements for extending
various services for export of the product. SIDCO also helps in the
small scale units taking part in the international trade fair at New
Delhi, Pragati Maidan so that the products of small scale industries
of Tamilnadu are displayed.

SIDCO set up Captive power plants:

In order to provide uninterrupted and good quality power

supply, SIDCO has taken up a plan to set up captive power plants in
major industrial estates. It is now planning to set up these plants in
10 industrial estates.
SIDCO promotes skill development centres:
 In an effort to supply skilled laborers to various small scale
industries, skill development centres are being set up in various
industrial estates which will be training workers in varied industrial
activities and they will be trained in modern skill.

SIDCO promotes women entrepreneurs:

In addition to the above, in order to promote women entrepreneurs,
a separate industrial estate for women has been set up at
Tirumullaivoyal, near Chennai, where women entrepreneurs are
trained in various fields of small scale industries.

In addition to SIDCO, there are various corporations that assists in the

promotion of small scale industries such as, Small Industries Promotion
Corporation of Tamilnadu (SIPCOT), Tamilnadu Small Industries
Corporation (TANSI), Industrial and Technical Consultancy
Organisation of Tamilnadu (ITCOT) and Tamilnadu Industries
Investment Corporation (TIIC).

2015

Long answers

a. Service sector enterprise

An industry made up of companies that primarily earn revenue through

providing intangible products and services.
Service industry companies are involved in retail, transport,
distribution, food services, as well as other service-dominated
businesses. Also called service sector, tertiary sector of industry.

half done
b. Personal financing

Personal finance is the process of planning and managing personal

financial activities such as incomegeneration, spending,
saving, investing, and protection. The process of managing one’s
personal finances can be summarized in a budget or financial plan. This
guide will analyze the most common and important aspects of individual
financial management.

The main areas of personal finance are

income,

spending,

saving,

investing, and

protection.

1 Income
Income refers to a source of cash inflow that an individual receives and
then uses to support themselves and their family. It is the starting point
for our financial planning process.

Common sources of income are:

 Salaries
 Bonuses
 Hourly wages
 Pensions
 Dividends
 These sources of income all generate cash that an individual can use to
either spend, save, or invest. In this sense, income can be thought of as
the first step in our personal finance roadmap.

2 Spending
Spending includes all types of expenses an individual incurs related to
buying goods and services or anything that is consumable (i.e., not an
investment). All spending falls into two categories: cash (paid for with
cash on hand) and credit (paid for by borrowing money). The majority
of most people’s income is allocated to spending.

Common sources of spending are:

 Rent
 Mortgage payments
 Taxes
 Food
 Entertainment
 Travel
 Credit card payments

The expenses listed above all reduce the amount of cash an individual
has available for saving and investing. If expenses are greater than
income, the individual has a deficit.

3 Saving
Saving refers to excess cash that is retained for future investing or
spending. If there is a surplus between what a person earns as income
and what they spend, the difference can be directed towards savings or
investments. Managing savings is a critical area of personal finance.

Common forms of savings include:

 Physical cash
 Savings bank account
 Checking bank account
 Money market securities
Most people keep at least some savings to manage their cash flow and
the short-term difference between their income and expenses. Having
too much savings, however, can actually be viewed as a bad thing since
it earns little to no return compared to investments.

4 Investing
Investing relates to the purchase of assets that are expected to generate
a rate of return, with the hope that over time the individual will receive
back more money than they originally invested. Investing carries risk,
and not all assets actually end up producing a positive rate of return.
This is where we see the relationship between risk and return.

Common forms of investing include:

 Stocks
 Bonds
 Mutual funds
 Real estate
 Private companies
 Commodities
 Art

Investing is the most complicated area of personal finance and is one

of the areas where people get the most professional advice. There are
vast differences in risk and rewards between different investments, and
most people seek help with this area of their financial plan.

5 Protection
Personal protection refers to a wide range of products that can be used
to guard against an unforeseen and adverse event.

Common protection products include:

 Life insurance
 Health insurance
 Estate planning
This is another area of personal finance where people typically seek
professional advice and which can become quite completed. There is a
whole series of analysis that needs to be done to properly assess an
individual’s insurance and estate planning needs.

The main components of the financial planning process are:

 Assessment
 Goals
 Plan development
 Execution
 Monitoring and reassessment

c. Role of NABARD