Unit - 1 : Entrepreneurial Opportunities TOPIC-1 Sensing Entrepreneurial Opportunities Revision Notes • Entrepreneurs perceive opportunities quickly, synthesize the available information and analyse emerging patterns that escape the attention of other people. • Entrepreneurs are themselves responsible for the success and failure of the enterprise. • Peter F. Drucker defined entrepreneur as one who always searches for an opportunity. The basic test of a successful entrepreneur is the identification of business opportunity in the environment and initiating steps to produce and sell goods and services to make the best use of that opportunity. • Entrepreneur has two basic roles: (i) Sensing Opportunity; (ii) Spotter and Project Champion. • Entrepreneurship is the function which involves grabbing of an opportunity, organizing the resources and undertaking the production and other activities. • A business opportunity is an attractive economic idea which could be implemented to create a business, earn profits and ensure further growth. • Sensing Entrepreneurial Opportunities is a process of perceiving the needs and problems of people and society and arriving at creative solutions, initially converting these solutions into opportunity and then into an enterprise. • Sensing Opportunities Factors: (i) Ability to perceive and preserve basic ideas; (ii) Ability to harness different sources of information; (iii) Vision and Creativity. • There are five sources to obtain ideas: (i) Problems (ii) Change (iii) Inventions (iv) Competition (v) Innovation • Elements of business opportunity: (i) Assured market scope; (ii) An attractive and acceptable rate of return on investment; (iii) Practicability of the idea; (iv) Competence of the entrepreneur; (v) Potential of future growth. • Various stages in the Enterprise Process Diagram: (i) Spotting an opportunity by analyzing the needs and problems that exist in the environment. (ii) Evaluating the ideas received from different sources to find a creative solution. (iii) Identifying a product or service through innovation. (iv) Setting up a project and nurturing it to success.
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• Peter F. Drucker definedentrepreneurasonewhoalwayssearchesforanopportunity.Thebasictestofasuccessfulentrepreneuristheidentificationofbusinessopportunityintheenvironmentandinitiatingstepstoproduceandsellgoodsandservicestomakethebestuseofthatopportunity.
• Entrepreneur has two basic roles:
(i) SensingOpportunity;
(ii) SpotterandProjectChampion.
• Entrepreneurship is the function which involves grabbing of an opportunity, organizing the resources andundertakingtheproductionandotheractivities.
• Abusiness opportunity is anattractiveeconomic ideawhichcouldbe implemented to createabusiness, earnprofitsandensurefurthergrowth.
(i) Socio Cultural Factor:Adetailedanalysisofsocio-culturalfactorswillinvolveaclosestudyofthelifestyles,beliefs,customs,conventions,practices,etc.
(ii) Political Factor: For entrepreneurship to thrive, a conducive political climate is necessary. The rules andregulationsandthe laws thatmonitorandregulate themarket forcesare framedandpromulgatedby thegovernment.
(iv) Legal and Financial Factors:Legalscanningoftheenvironmentdemandsanalyzingthelegalrequirementsintheestablishmentoftheproject,managementoftheprojectandalsoingettingassistancefromdifferentsources.
(v) Developmental and Institutional Support Factors: There aremany governmental andnon-governmentalagenciesthatextendsupport,guidanceandexpertisetoentrepreneurs.
• Environmental factors affecting the micro internal environment are:
(i) Suppliers
(ii) Customers
(iii) Intermediaries
(iv) Competitors
(v) GeneralPublic• The benefits of understanding the relevant environment of business are:
(iv) Technological: It is influenced by government spending on research, new discoveries and development,governmentandindustryfocusoftechnologicaleffort,speedoftechnologicaltransferandratesofobsolescence.
• Generation of ideas refers to a conscious endeavour to collect ideas fromdifferent sources for thepurposeoffindingacreativeanswertoaneedoraproblem.Ideascanbegeneratedinthefollowingways:(i) Brainstorming (ii) Doingmarketresearch(iii)Gatheringinformationfrompublications (iv) Seekingassistancefromentrepreneurs(v) Usinghobbiestogenerateideas (vi) Talkingandlisteningtopeople(vii)Daydreamingandfantasizing
• Trend spotting means identification of new trends which helps entrepreneur to understand the market andproducegoodsorprovideservicesinsyncwiththemarkettrends.Waysinwhichanentrepreneurspotstrends:(i) Readtrends (ii) Talktrends(iii)Watchtrends (iv) Thinktrends
• Theentrepreneurshouldlookintovariousfactorsbeforedecidingontheopportunity.Eveniftheopportunitylooks promising, an entrepreneur should look into the environmental factors before choosing the bestopportunity.
• Private individuals thus could start a venture as:
(i) Sole-Proprietorship
(ii) Partnership
(iii) JointHinduFamilybusiness
(iv) Co-operativeorganisations
(v) Company• Public sector enterprises:Whenbusinessenterprisesareowned,controlledandoperatedbypublicauthorities,withwelfareasprimaryandprofitassecondarygoals,theyarecalledaspublicsectorenterprises.
• These enterprises have the following forms of organisation:
(i) Departmentalundertakings
(ii) Publiccorporations
(iii) Governmentcompanies
(iv) Jointsectorenterprises• Joint sector is a form of partnership between the private sector and the government where management isgenerallyinthehandsofprivatesector,withenoughrepresentationonBoardofDirectorsbytheGovernmenttoo.
• Sole Proprietorship: One of the oldest, simplest and most commonly used form of business organizationwhich is owned financed, controlled andmanaged by only oneperson is called as sole proprietorship, singleentrepreneurshiporindividualproprietorship.
• Characteristics of Sole Proprietorship:
(i) Individualownership
(ii) Individualmanagementandcontrol
(iii) Individualfinancing
(iv) Noseparatelegalentity
(v) Unlimitedliability
(vi) Solebeneficiary
(vii) Easyformationandclosure
(viii) Limitedareaofoperation• Suitability of Sole Proprietorship form of business:
(iii) Limitedcontinuity• A Partnershipisanassociationoftwoormorepersonstocarryon,asco-owners,abusinessandtoshareitsprofitsandlosses.Thus,twoormorepersonsmayformapartnershipbymakingawrittenororalagreementtocarryabusinessjointlyandshareitsproceeds.
• Public Company:UnderSection2(71)oftheCompaniesAct,2013,“publiccompany”meansacompanywhich:(i) isnotaprivatecompany.(ii) hasaminimumpaid-upsharecapitaloffivelakhrupees(subjecttochange).(iii) Theminimumnumberofmembersisseven.
• Joint Hindu Family/Firm (HUFs):JointHinduFamilyorHinduUndividedFamilyBusinessisauniqueformofbusinessorganisationprevailingonlyinIndia.ItisgovernedbyHindulawandrepresentsaformwhichisowned,managedandcontrolledbythemalemembersofaJointHinduFamily.
• Characteristics of Hindu Undivided Family(i) Creation:ItarisesbystatusoroperationofHinduLaw.(ii) Membership: Amalemember becomes amembermerely by his birth. By adoption, an outsider can be
• Operation Plan is the soul of businessplan. It is that part of businessplanwhichdescribes list of company’soperationsinadvancethatwasacquiredbymanagementforsmoothandco-ordinatedflowofwork.
Know the Terms• Economic Activities: Activitiesundertaken to earnmonetarygains are called economic i.e. activitiesprimarilyconcernedwithProduction,Distributionand/orConsumptionofgoodsandservices.
• Non-Economic activities: Activities done out of love, care, affection, self-satisfaction, emotions, sympathy,patriotismetc.butnotformoney,areknownasnon-economic.
• Employment: An activity inwhich an individual works regularly for others and get remuneration in return,undertakingpersonalservicesaspertheagreementofemployment.
• Penetrating PricingMethod is just opposite to the Skimming PricingModel. In thismodel, the price is fixedconsciouslyatalowlevelwithminimalmarginofprofit.Thisisaimedatcoveringalargeareaofthemarketsothattheproductcanpenetrateintothemassmarket.
(i) Producer-customer (Direct channel-Zero level): This is the simplest and shortest channel in which nomiddlemenisinvolvedandproducersdirectlyselltheirproductstotheconsumers.Itisfastandeconomicalchannelofdistribution.
(ii) Producer-Retailer-Customer (Indirect-One level):Thischannelofdistributioninvolvesonlyonemiddlemencalled‘retailer’.Underit,theproducersellshis/herproducttobigretailers(orretailerswhobuygoodsinlargequantities)whointurnselltotheultimateconsumers.
(iv) Producer-Agent-Wholesaler-Retailer-Customer (Three levels):This is the longestchannelofdistributioninwhichthreemiddlemenareinvolved.Thisisusedwhentheproducerwantstobefullyrelievedoftheproblemofdistributionandthushandsoverhis/herentireoutputtothesellingagents.
• Twobasictypesofsalesstrategy:(i)Directsalesstrategy,(ii)Indirectsalesstrategy.• Components:(i)Productplacement,(ii)Promotion,(iii)Testimonials,(iv)Core-sellingstrategies.• Promotion includes advertisement, creating awareness about the product among the consumers, educatingcustomersabouttheuseoftheproduct,etc.
Topic-2promotion Strategy
Revision Notes• Promotion is themethod to spread thewordabout theproductor service to customers, stakeholders and thebroaderpublic.
(vi) Direct mail:Thisisabroadcategorycoveringdirectcommunicationwiththeconsumerthroughemail,postorfax.Itcanincludenewsletters,cataloguesandletters.
(vii) Outdoor: This is any type of advertising which is done outdoors, including static advertising such asbillboards,backsofstreetbenchesandbussheltersormobileadvertisingdisplayedonbuses,trains,taxisortowedsignage.
(x) Point of sale:Advertisingatthepointwheretheconsumermakesapurchasedecision,e.g.,floorstickers,in-storedigitaladvertising,shoppingtrolleysignage,shelforcounterpostersorplayingdocumentariesaboutyourproductinstore.
(xi) Online: The options for online advertising continue to grow rapidly. They include advertising on yourwebsite,advertisingonotherwebsites,creatinglinkstoyourwebsitefromotherwebsites,publishingblogs,offeringonlineproductgames,socialnetworksandforums.
(ii) Salescompetitionswithprizesorawards• Personal Selling is also known as Salesmanship. The American Marketing Association defines the term,‘Salesmanship’asthe‘PersonalorImpersonal’processofassistingand/orpersuadingaprospectivecustomertobuyacommodityorserviceandtoactfavourableuponanideathathasacommercialsignificancetotheseller.
(iv) Itisflexible.• Public relationsisthedeliberate,plannedandsustainedefforttoestablishandmaintainmutualunderstandingbetweenanorganization(orindividual)andits(ortheir)public.
• The main public relations tools:
(i) Newscreationanddistribution(mediareleases)
(ii) Specialeventssuchasnewsconferences,grandopeningsandproductlaunches
Know the Terms• Trade mark:Abrandorpartofabrandthatisgivenlegalprotectionagainstitsusebyotherfirmsiscalledatrademark.Thus,atrademarkisessentiallyalegalterm,protectingtheseller’sexclusiverighttousethebrandname/mark.
• Trade Secret:Any confidential business informationwhichprovides anenterprise a competitive edgemaybeconsideredatradesecret.Forexample,Coca-Colaformula.
(i) Internalexpansion (ii) Externalexpansion• Internal expansion: Internal expansion results from the gradual increase in the activities of the concern. Theconcernmayexpanditspresentproductioncapacitybyaddingmoremachinesorbyreplacingoldmachineswiththenewmachineswithhigherproductivecapacity.
• External expansion or Business combination:Externalexpansionrefers tobusinesscombinationwhere twoormoreconcernscombineandexpandtheirbusinessactivities. In theprocessofcombination, twoormoreunitsengageinsimilarbusinessorrelatedprocessorstages.
• Mainformsofexternalexpansion:(i) Franchising (ii) MergersandAcquisitions
Revision Notes• MergersandAcquisitions(M&A)isapotentialstrategyforensuringtheacceleratedgrowthofabusiness.• Mergerisacombinationoftwocompaniesintoonelargercompany.• Forms of merger:(i)Amalgamation,(ii)Absorption.• Types of mergers:(i)Conglomerate,(ii)Horizontal,(iii) MarketExtension,(iv) Vertical,(v)ProductExtension.• Conglomerate:Amergerbetweenfirmsthatareinvolvedintotallyunrelatedbusinessactivities.• Horizontal merger:Amergeroccurringbetweencompaniesinthesameindustry.Horizontalmergerisabusinessconsolidationthatoccursbetweenfirmswhichoperateinthesamespace,oftenascompetitorsofferingthesamegoodsorservice.
• Marketextensionmergers:Amarketextensionmergertakesplacebetweentwocompaniesthatdealinthesameproducts but in separatemarkets. Themainpurpose of themarket extensionmerger is tomake sure that themergingcompaniescangetaccesstoabiggermarketandthatensuresabiggerclientbase.
Know The Terms• Franchisor:Thepersonofferingthefranchiseisknownasthefranchisor.• Franchisee:Thefranchiseeisthepersonwhopurchasesthefranchiseandisgiventheopportunitytoenteranewbusinesswithabetterchancetosuccessthanifheorsheweretostartanewbusinessfromscratch.
• Amalgamation:Twoentitiescombinetogetherandformanewentity,extinguishingboththeexistingentities.• Absorption:oneentitygetsabsorbedintoanother.Thelatterdoesnotloseitsentity.• Pure conglomerate mergers:Pureconglomeratemergersinvolvefirmswithnothingincommon.• Mixedconglomeratemergers:Mixedconglomeratemergersinvolvefirmsthatarelookingforproductextensionsormarketextensions.
Chapter - 5 : Business Arithmetic
Topic-1Unit of Sale, Unit cost and Break Even Analysis
Revision Notes• Moneyneededtofundthenormal,day-to-dayoperationsofabusinessisknownasworkingcapital.• Operatingcycleorcashconversioncycle is the lengthof timebetweena firm’spurchaseof inventoryandthereceiptofcashfromaccountsreceivable.
• Grossworkingcapital is thesumtotalofall currentassetsof thebusiness.These includecash, inventory (rawmaterials,workinprocess,finishedgoods,sparesetc.)andaccountsreceivable(ortradedebtors).
• The role of transferring financial resources from the surplusunits to thedeficit units iswhat is referred to as“FinancialIntermediation”.Capitalmarketsplayaveryvitalroleofafinancialintermediary.