Chapter_1_Entrepreneurship by rahulwakude

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   TYBMS-VI Semester


Chapter 1
                 Concept of Entrepreneurship
               Emergence of Entrepreneurial Class
What is an Entrepreneur?
One who creates a new business in the face of risk and uncertainty for the purpose of
achieving profit and growth by identifying opportunities and assembling the necessary
resources to capitalize on them.

   1. As per Joseph A-Schumpeter -"Entrepreneur is one who innovates, raises
       money, assembles inputs, chooses managers and sets the commercial organization
       going with his ability to identify them and opportunities which others are not able
       to identify and is able to fulfil such economic opportunities

   2. As per Peter Drucker - "An entrepreneur is one who always searches for change,
      responds to it, exploits it as an opportunity. Entrepreneurs innovate. Innovation is
      a specific instrument of entrepreneurship."

   3. As per Walker - "An entrepreneur is one who is endowed with more than average
      capacities in the task of organizing and coordinating the various factors of
      production. He should be pioneer, a captain of industry."

  1. An Entrepreneur brings in overall change through innovation for the maximum
     social good.
  2. Human values inspire him to serve society. He has firm belief in social betterment
     and he carries out this responsibility with conviction. In the process, he
     accelerates: a. persona! Economic as well as b. human development.
  3. An Entrepreneur is a visionary and an integrated man with outstanding leadership
     qualities, with a desire to excel, the Entrepreneur gives top priority to Research &
  4. He always works for the well being of the society.

   5. Entrepreneurial activities, includes all fields/sectors and develops a spirit of
      enterprise for the welfare of mankind.

   6. Entrepreneur is one of the most important inputs in the economic development of
      a country or of regions within the country. Entrepreneurial competence makes all
      the difference in the rate of economic growth.

   7. The small-scale industrial sector and business are left completely to private

 Therefore, an increasingly important rote has been assigned to the identification and
promotion of Entrepreneurs for the small-scale sectors.

There is a need for Entrepreneurship in India to speed up the process of activating
the factors of production, leading to:
    1. A higher rate of economic growth,
    2. Dispersal of economic activities,
    3. Development of backward and tribal areas,
    4. Creation of employment opportunities
    5. Improvement in the standard of living of the society and
    6. Involvement of all the sections of the society in the process of growth.
    7. Thus entrepreneurs play a significant role to speed up the economic development
       of the country.

The factors influencing entrepreneurship are as follows –
1. Family tradition: Individuals who, for some reason, initiate, establish, maintain and
expand new enterprises generate entrepreneurship in society. It is observed that
entrepreneurs grow in the tradition of their families and society and accept certain values

2- Religious, Social & Cultural factors: Religious, social and cultural factors also
influence the individual taking up an entrepreneurial career. In some countries there is
religious and cultural belief that, high profit is unethical. This type of belief inhibits
growth of entrepreneurship.

3. Psychological factors: The psychological factors like high need for achievement
determination of unique accomplishments, self-confidence, creativity, vision, leadership,
etc. promote entrepreneurship among individuals On the other hand psychological
factors like security, conformity & compliance, need for affiliation, etc., restrict
promotion of entrepreneurship.

4. Political factors: The political system and also the political stability of a country
influence the growth of entrepreneurship. The political system, which promotes free
market, individual freedom and private enterprise, will promote entrepreneurship.

 5. Economic policies: The economic policies of the Government and other financial
institutions and their policies play a crucial role in exerting direct influence on
entrepreneurship. In view of the haphazard development of economic zones,
Government is encouraging the Entrepreneurs to establish their business in backward and
tribal areas.

This is primarily to arrest the migration of people from the villages to cities and to create
employment opportunities locally. Government is promoting such development by

giving incentives like tax holidays (both sales and income), subsidized power tariff, raw
materials, transportation cost etc.

Chapter 2
Knight on the role of uncertainty
Schumpeter on innovation
Me Clelland's achievement and motivation theory
Peter Druckers views on entrepreneurship

Knight identifies the entrepreneur as a recipient of pure profit. Profit is the residual
income available after all contractual payments have been deducted from the revenues of
the enterprise. It is the reward to the entrepreneur for bearing the costs of uncertainty.

Knight identifies uncertainty with a situation where the probalities of alternative
outcomes cannot, be determined either by Priori reasoning or by statistical inference.
A priori reasoning is simply irrelevant to economic situations. Statistical inference is
impossible because the situation involves a unique event. It does not belong to a larger
population of identical events.

In particular, there is no precedent for it, so that no assessment of probability can be
made on the basis of relative frequency. This is the foundation for the Knight's distinction
between uncertainty and risk.

Uncertainty is a ubiquitous aspect of business decisions because production takes time.
Decisions on inputs must be made now in order, to create output for the, future.
Households, as factor owners, demand spot payment for their services. At the same time
they are unwilling to commit themselves on future demand for the product because they
anticipate that unforeseen able changes will occur.

But the consumer does not even contract for his goods in advance, generally speaking.
A part of the reason might be the consumer's uncertainty as to his ability to pay at the end
of the period, but this does not seem to be important in fact.

The main reason is that he does not know what he will want, and how much, and how
badly. Consequently, he leaves it to producers to create goods and hold them ready for,
his decision, when the time comes. The clue to the apparent paradox is, of course, in the
"law of large numbers'.

Schumpeter, perhaps more than any other writer, is very explicit about the economic
function of the entrepreneur. The entrepreneur is the prime mover in economic
development, and his function is to innovate, or to 'carry out new combinations'.

Five types of innovation are distinguished:
   a. The introduction of new good (or an improvement in the quality of an existing
   b. The introduction of a new method of production;
   c. The opening of a new market, in particular, a export market in a new territory;
   d. The 'conquest of a new source of supplyof raw materials or half-
       manufactured goods', and
   e. The creation of a new type of industrial organization, in particular, the formation
       of a trust or some other type of monopoly.

Anyone who performs this function is an entrepreneur, whether he is an independent
businessman or a "dependent" employee of a company such as a manager or a director.
Not all businessmen are entrepreneurs; the typical entrepreneur is the founder of a new
firm rather than the manager of an established one.

Schumpeter is adamant that the entrepreneur is not a risk-bearer. Risk bearing is the
function of the capitalist who lends his funds to the entrepreneur. The entrepreneur bears
risk only in so far as he acts as his own capitalist.

Entrepreneurs spend a lot of their time doing non-entrepreneurial things: The
entrepreneur of earlier times was not only as a rule a capitalist too, he was also often as
he still is today in the case of small concerns his own technical expert, in so far as a
professional specialist was not called in for special cases.

Likewise he was (and is) often his own buying and selling agent, the head of his office,
his own personnel manager, and sometimes, even though as a rule he, of course
employed solicitors, his own legal adviser in current affairs. And it was performing some
or all of these functions that regularly filled his days.

The carrying out of new combinations can no more be a vocation than the making and
execution of strategically decisions, although it is this function and not his routine work
that characterizes the military leader. Therefore, the entrepreneur's essential function
must always appear mixed up with other kinds of activity which as a rule, must be much
more conspicuous than the essential one.

Hence, the Marshallian definition of the entrepreneur, which simply treats the
entrepreneurial function as 'management' in the widest meaning, will naturally appeal to
most of us. We do not accept it, simply because it does not bring out what we consider to
be the salient point and the only one which specifically distinguishes entrepreneurial from
other activities.

The climate most favourable to innovation is when the economy is approaching in
equilibrium for then the future seems relatively easy to foresee. The first Innovations,
made by the most talented entrepreneurs, prove successful, and this encourages less
talented entrepreneurs to follow suit in a swarm.

 Because they are-adapting ideas which are pioneers have already tried out, the risks that
the capitalists perceive in backing the less talented entrepreneurs are relatively low.

David McClelland has developed an Achievement Motivation Theory. According to this
theory, an individual's need for achievement (nAch) refers to the need for personal

It is the drive to excel, to strive for success and to achieve in relation to a set of standards.
 People with high, achievement motive like to take calculated risks and want to win.

They like to take on personal responsibility for solving problems and want to know how
well they are doing. High achievers are not motivated by money per se, but instead;
employ money as a method of keeping sure of their achievements.

Such people strive for personal achievement rather than the rewards of success.
They want to do something better and more efficiently than has been done before.

Need for achievement is simply the desire to do well not so much for the sake of social
recognition or prestige but for the sake of an inner feeling of personal accomplishment.
It is this need for achievement that motivates people to take risk. People with high need
for achievement behave in an entrepreneurial way. Need for achievement stimulates the
behaviour of a person to be an entrepreneur.

The following psychological factors contribute to entrepreneurial motivation:
1. Need for achievement through self-study, goal setting and inter-personal support
2. Keen interest in situations involving moderate risk
3. Desire for taking personal responsibility
4. Concrete measures of task performance
5. Anticipation of future possibilities
6. Energetic or novel instrumental activity
7. Organizational skills, etc.

McClelland considers the need for achievement to be most critical to a nation's economic
development. He held that a strong 'inner spirit' in individuals to attain is a measurable
variable arising from a need, which the individual develops mainly in childhood and
seeks to satisfy throughout his life.

This 'inner spirit' which he called need for achievement, if higher, would produce more
energetic entrepreneurs capable of generating rapid economic development. High need
for achievement or ambition motivates an entrepreneur to take risks, work hard, find new
things, save more, reinvest the savings in industry, and so on.

The limited empirical evidence supports the hypothesis that need for achievement
contributes to entrepreneurial success.

McClelland rated the achievement motivation of different countries on the basis of ideas
related to need for achievement contained in the children's stories. This has come to be
known as n-factor rating. He established a correlation between n-factor rating and the
prosperity of the countries a generation ahead.

The criterion on n-factor rating was the inherent concern for achievement or non-induced
achievement motivation. McClelland found that achievement motivation was lower
among people in underdeveloped countries than among these of developed nations.
Even in USA only about ten per cent of the people were actually high achievers. It is the
level of aspirations or ambitions that explains the lack of enterprise in underdeveloped

Ambition is the lever of all motives and 'aimless life' a goal-less game'. Ambitions
motivate men, activate them, broaden their vision and make life meaningful.
Ambition is an index of one's resourcefulness &Ambition builds up achievement
pressure in the individual and provides the base for McClelland's n-factor.

Ambition is the lever of all motives.The initiative intentions of an individual are directed
by hisambitions. It is the ambition electrifies man's actions.

Kakinada is an industrial town in Andhra Pradesh. The experiment started in January
1964. The main objective of the experiment was to break the barrier of limited aspirations
by inducing achievement motivation. A total of fifty-two persons were selected from
business and industrial community of the town.

They were given an orientation programme at Small Industry Extension Training Institute
(SIET) Hyderabad. The participants were grouped into three batches. They were put
under training for 3 months.

The training programme was designed in such a way that it could help the trainees
improve imagination and enable them introspect their motivation.

Accordingly, the programme included the following items in its syllabi.
   a. The individual strived to attain concrete and regular feedback.
   b. The participants sought models of achievement to emulate.
   c. The participants thought of success and accordingly set plans and goals.
   d. The participants were encouraged to think and talk to themselves in a
      positive manner.

The impact of this training programme on the participants' behaviour was observed after
a period of two years.

The observations were encouraging. It was found that those attended the programme
performed better than those did not; Using Thematic Appreciation Test (TAT) assessed
the participants' need for achievement.

In this TAT, ambition related pictures were displayed to the trainees and then they were
asked to interpret the picture and what is happening in the picture. Thereafter, all the
themes related to achievement were counted and, thus, the final score represented one's
need for achievement.

McClelland reached to this conclusion that the training programme positively influenced
the entrepreneurial behaviour of the participants. As regards caste, the traditional beliefs
and imitation of western culture, they did not determine one's behaviour as an

That the need for achievement motivation can be developed more especially in younger
minds is well supported by the cross-country experiments.

For example, a 'Junior Achievement Programme" is started in the United States of
America with a view to instill achievement motivation in the minds of younger
generation. Similarly, in United Kingdom, "Young Enterprise" programme has been
started with the same objective of inducing achievement motivation in younger minds.

The above said experiments / programmes have made us to realize that entrepreneurship'
is to be developed from a very young age. Accordingly, efforts have been made to
develop a school curriculum that would result in a high need for achievement among the

 For this purpose, the success stories drawn from history and legends of the indigenous
culture are introduced in course curriculum to induce in young minds the need for
achievement and strong desire to do something good/ great they grow up to.
This is because the younger minds are more susceptible to change.

Peter Drucker has aptly observed that, "Innovation is the specific tool of entrepreneurs,
the means by which they exploit changes as an opportunity for a different business or a
different service.

It is capable of being presented as a discipline, capable of being learned and practiced.
Entrepreneurs need to search purposefully for the sources of innovation, the changes and
their symptoms that indicate opportunities for successful innovation. And they need to
know and to apply the principles of successful innovation.

"Systematic innovation, according to him, consists in the purposeful and organized
search for changes and in the systematic analysis of the opportunities such changes might
offer scope for economic and social innovation.

According to Drucker, three conditions have to be fulfilled
   4. Innovation at work. It requires knowledge and ingenuity. It makes great demands
      on diligence, persistence and commitment.

   5. To succeed, innovation must build on their strengths.

   6. Innovation always has to be close to the market focused on the market, indeed

Specially, systematic innovation means monitoring sources for innovative opportunity.
The first three sources lie within the enterprise, whether it be a business or a public
service institution or within an industry or service sector.

They are therefore, visible primarily to people within that industry or service sector. They
are basically symptoms. But they are highly reliable indicators of changes that have
already occurred or can be made to occur with little effort.

These four source areas are:

1. The unexpected the unexpected success, the unexpected failure, the unexpected outside
2. The incongruity between reality as it actually is and reality as it is assumed to be or as
it "ought to be.
3. Innovation in industry structure or market structure that catches everyone unawares.
4. The second set of sources for innovative opportunity, a set of three, involves changes
outside the enterprise or industry:
     a. Demographics (population changes).
     b. Changes in perception, mood and meaning.
     c. New knowledge, both scientific and non-Scientific

Chapter 3
            Characteristics of Entrepreneurial Leadership
Professor of Psychology Alan Jacobowitz, holds that Entrepreneurs are born, not made.
This is because he observed that entrepreneurs commonly share certain personality
characteristics. These include:
   a. restlessness,
   b. independence and tendency to be a loner and extreme self-confidence,
   c. innovative,
   d. Action oriented.

In addition to identifying personality traits personality common to entrepreneurs,
Jacobowitz devised a chronological scheme of entrepreneurial indicators, which he calls
as the FIVE AGES ofthe entrepreneurs.

The ages include –
   1. Early childhood exposure
   2. Trouble in school.
   3. Problems with work.
   4. Desire to risk.
   5. Bliss in business independence.

According to the Trait Theories Jacobowitz suggests that entrepreneurial attitude is
static - that is, either people are born with the related characteristics or they are not. The
intention to be an entrepreneur is influenced by the interaction of various factors.
             1) These include:
             2) individual characteristics,
             3) individual environment,
             4) business environment,
             5) An individual's persona! Goal is set
             6) And the existence of a viable business idea.
Through these interacting factors, individuals make several comparisons between their
perceptions of a probable outcome, their intended goals, intended behaviour and actual

When the outcomes meet or exceed perceived outcomes, positive behaviour is reinforced.
It also predicts that the opposite occurs when the perceived outcomes are not met. Hence
it is very clear, to be a successful entrepreneur one must have the in-born qualities and
the available support system does help the entrepreneur to succeed.

A classic example is that of Mr.Dh'irubai Ambani. Because he had all the dynamic
qualities of a successful Entrepreneur, as a result of which today, he is the owner of the
largest private company in India. All decisions, which he had taken to grow, were instinct
and no one had taught him to take decisions.

The characteristics or the personal qualities that contributes to the success of an
Entrepreneur are as follows: -
1. Risk Taking: Entrepreneurs are moderate risk takers. They enjoy the excitement of
    a challenge, but they do not gamble. Entrepreneurs avoid low-risk situations because
    there is a lack of challenge. They avoid high-risk situations because they want to
    succeed. They like achievable challenges.

They do not tend to like situations where the outcome of a quest depends upon a chance
and not on their efforts. They like to influence the outcome of their quest by putting in
more efforts and then experiencing a sense of accomplishment. A risk situation occurs
when an entrepreneur is required to make a choice between two or more alternatives
whose potential outcomes are not known and must be evaluated in advance, with limited

 A risk situation involves potential gain and potential loss. As the size of the business
expands the problems and opportunities become more numerous and complex.

2. Self-Confidence: A man with self-confidence has clear thoughts and well-defined
   goals to achieve in his life. An entrepreneur gets into business or industry with a
   high level of self-confidence.

 He is able to evaluate his competencies and capabilities i a realistic manner. He can set
realistic and challenging goals. He is confident of achieving these goals. He possesses a
sense of effectiveness, which ultimately contributes to success of his venture. He puts
forward his case confidently and gets needed help from concerned agencies / authorities.

3. Optimist: An entrepreneur is able to visualize the hidden opportunities in the
   environment and translate them into business realities. An entrepreneur exhibits a
   positive and optimistic attitude towards such opportunities. The entrepreneur
   approaches his task with the hope of success and not with a fear of failure.

In the process of accomplishing his task he may also fail but the failure experience does
not change his thinking. He is always an optimist in his outlook. The positive outlook
develops a drive in the entrepreneur to attempt new things and innovate.

4. Need for achievement: The need to excel, known as achievement, is a critical factor
   in the personality of an entrepreneur. People with high need for achievement have
   desire for success in competition with others or with a self-imposed standard of
   excellence. They try to accomplish something new and try to involve themselves in
   long-term goals. They try to accomplish challenging tasks. They know their own
   strengths and weaknesses, the facilitating factors and constraints in the environment
   and the resources needed to accomplish their tasks. If the objectives are
   accomplished they feel elated.

5. Need for independence: The need for independence is the prime characteristic that
   has driven the entrepreneurs to start their own business. These entrepreneurs do not
   like to be controlled by others. They do not wait for direction from others and choose
   their own course of action. They set their own challenging goals and put efforts to
   achieve these goals. Independence provides opportunity for trying out new ideas and
   helps them achieve their goals.

6. Creativity: Entrepreneurs are highly creative people. They always try to develop
   new products, processes or markets. They are innovative, flexible and are willing to
   adopt changes. They are not satisfied with conventional and routine way of doing
   things. They involve themselves in finding new ways of doing the things for the

 7. Imaginative: Successful entrepreneurs possess a high degree of imagination and
     foresightedness. Entrepreneurs have a great vision.
Knowing the present and the past the entrepreneur is able to predict the future events
about the business more accurately than others. It is because of their visionary nature and
power of imagination that helps them in anticipating problems and evolving actions
strategies for such problems.

 8. Administrative Ability:
A successful Entrepreneur is always a good administrator. He knows the art of getting
things done by other people without hurting their feelings or self-respect. He has a strong
motivation towards the achievement of a task and puts in necessary efforts in getting
things done by others.

9. Communication Ability: Communication ability is the ability to communicate
   effectively. Good communications also means that, both the sender and the receiver
   understand each other and are being understood. An Entrepreneur who can
   effectively communicate with customers, employees, suppliers and bankers will
   always succeed in their business.

10. Clear Objectives: An Entrepreneur has a clear objective as to the exact nature of the
    business, the nature of the goods to be produced and the subsidiary activities to be
    undertaken. A successful Entrepreneur has the objective to establish the product, to
    make profit or to render social service.

11. Business Secrecy: An Entrepreneur who is successful always guards his business
    secrets. Leakage of business secrets to trade competitors is a serious matter;
    therefore, an Entrepreneur should carefully guard it. An Entrepreneur must be able to
    make a proper selection of his assistant since; most of the time it is the assistant who
    leaks the trade secret.

12. Emotional Stability: The most important personality factors contributing to the
    success of an Entrepreneur are emotional stability, personal relations, consideration

    and tactfulness. An Entrepreneur must maintain good relations with the customers if
    he wishes to enjoy their continued patronage. He must also maintain good relation
    with his employees, whom he shall motivate to perform their jobs at a high level of
    efficiency. An Entrepreneur who maintains good human relations with customers,
    employees, suppliers and the community has a better chance to succeed in his/her

13. Open-mindedness: Open-mindedness means a free and frank approach in accepting
    one's own errors and change for the better. An entrepreneur must be willing to learn
    from his past experience, mistakes and moulds himself for better.

14. Technical knowledge: Technical knowledge implies knowledge about the product,
    process or technology used in manufacturing. An entrepreneur who has a reasonable
    level of technical knowledge will always be successful. Technical knowledge is easy
    to acquire if the entrepreneur tries hard to acquire it.

15. Patience: Patience means ability to wait. Patience also means doing the work and
    then waiting for the result. A certain amount of patience is necessary in any type of
    vocation. An entrepreneur should not wait for actions but can certainly wait for result
    for his efforts.

16. Hard Working & Energetic: Ability and willingness to work hard is an important
    quality of an entrepreneur. A person having physical and mental stamina to cope
    with the hard work and human relation is fit to become a successful entrepreneur. By
    carrying out well-planned and systematic work, success is always the end result.

 17. Good organizer: Entrepreneurs are good organizers of resources like men,
     machines, materials and money needed to start and run the business smoothly.
 They can convince the employees, investors, customers and co- ordinate the activities of
individuals and groups in the accomplishment of business objective. An entrepreneur
works like a coordinating force among the resources, mould and manages them

From times immemorial, the Indian Society has been characterized by a kind of
stratification of religious and regional sections. The Hindu Society projected a type of
hierarchy in which the caste groups were separated from each other on the basis of
function. Every member of the society followed the family occupation.

This caused immobility between occupations. The Bania was a caste that carried on the
trading and money lending business, they specialized in trade and commerce and came
from urban areas. In fact, because of their good financial, standing, their position was an
enviable one in the urban centers. However they ranked third in the caste-hierarchy: The
Brahmins ranked first and Kshatriyas second.

Following important communites can take the credit for the supply of entrepreneurs in
1. The Parsees: Parsees migrated from Persia in the century. They performed as artisans,
carpenters, weavers etc, in the l7th century. By the 18'h century, they became well-know
shipbuilders; they had set up Merchant Houses in Bombay, Burma, China and London.
They acted as "brokers for the European traders at Bombay and Surat. They were
regarded as merchants and traders of repute. They emerged as the most prominent and
financing community of Bombay and Gujarat

2. Traders from South India: The trading castes of south lndia were the chettis. They
were subdivided into groups such as the Telugu Komatia, the Tamil Nattukottai chettis,
Beri-Chettis etc. The Komattis were the chief taders not only in the Telugu districts but
also in Mysore Coimbatore, Canara and other places. The chief financiers and bankers of
South India were the Nattukottai Chettis. Trading in drugs, grain and cloth was done by
the Beri-Chettis. In the early 19 th century they were known to be respectable peddlers
who travelled in caravans.

The communities that traded had trade relations with South-East Asian Countries like
Burma, Ceylon, Malaya, Singapore etc. The chettiars established connections with
reputed Indian business firms and also made good investments in land and property. They
became important suppliers of rural credit. The Nattukottai Chettiars were a well-known
business community in Burma. Their working funds invested abroad, were mainly
employed in Burma.

 3. The Marwari Community: This important and fairly developed business Community
came from Marwar in Rajasthan. The trading and money lending castes got tremendous
development in Gujarat and Rajputana on account of the famous route from Gujarat ports
to the historical center of the Great Mughal State.

Rajputana was torn by feudal strife during the first half of the 19thcentury. It was not the
place for large scale trading and money lending operations. Though the local trade was
good, it provided a limited scope for development. Trade remained fairly constant and it
was because of this that investment crossed the borders of Rajputana. Trade spread in
towns through out the north, east and west of India, especially to the commercial centres
of Bombay and Calcutta. With the rise of British Commerce, these traders gradually
replaced the Bengalis who served as British agents in Calcutta.

The Brahmins and the Kayasthas of Bengal who operated as the British agents started
turning their attention to investments in land; They even got in the professions and
Administrative services. But the Subarna Banika, a Bengali trading community, filled the
void created by such an occurrence. But, Bengal soon became the center for political
revolution. The Britishers, both rulers and traders did not approve of this.

Wherever possible, they tried to replace a Bengali by someone who proved to be more
dependable. The Rajasthani traders tried to be more co-operative than the Bengali
Commercial Castes. It is because of this that the Bengali names in business are relatively

unimportant and where they occur, they mostly represent the professional agent class and
not the indigenous trading class.

Besides the above trading, money-lending communities that could be regarded as the
source of entrepreneurs in India, there were the Bhatias and Lohanas. These communities
carried out local trade and were spread all over the country, The "Khatris", a community
that traded not only in Punjab but also in Afghanistan, Central Asia etc. has also been a
source of entrepreneurs.

In Maharashtra, the contribution of Yajurvedi Brahmins and the Chitapavan Brahmans
who took active part in trading, money lending and indigenous banking, cannot be
forgotten. The above was an account of the origin of entrepreneurs in India

Entrepreneurship developed only in the beginning of the 19th century & though the base
for industrialization had been laid a century ago. The following be the main reasons,
which could be responsible for lack of initiative, and entrepreneurial spirit among the

1. Caste System: This decided occupation for members from each caste. The altitudes
were restrictive and therefore there were no chances of accumulating wealth and
promoting production.

2. Agriculture: Agriculture was the main occupation. Farmers and cultivators were
always in the clutches of the moneylenders. The zamindars, nawabs and rajahs exploited
the laborers. They spent money on enjoyment and luxury and never risked money in
industry. Banking and commercial system was also absent so, even if there were savings,
they could not be utilized for productive use.

 3 Educational System: Talented young men were prepared to take white collared jobs
or join Government or professional services. Many were attracted towards politics. The
result was that very few young men got attracted towards becoming efficient
industrialists, technicians, managers, etc.

4. Colonial Rulers: The British rulers adopted discriminatory policy. Rich Indian
businessmen had special connections with foreign rulers and both satisfied their selfish
interests. Even the few insurance and banking services catered to the needs of some rich
Indian businessmen, Britishers in India did also not encourage Industrialization.

 5. Managing Agents: There were just a handful of people who were known to be
having managerial skills. On common basis, these agents would lend their skills to some
top industries. Industrialists could not manage their own units. They were always at the
mercy of the managing agents who filled their pockets with big chunks of the companies
profits and took full advantage of Indian industrialists till the managing agency system
was abolished in 1970.

6. Joint Family System: Younger members of the family always depended on the Head
who never gave any kind of independence or encouraged units other than family business
ones. A number of young men were discouraged from diversifying from family business
and doing something new and different.

7. Religious Attitude: Indians were very religious minded. They gave more time to
religion than to earning material wealth. Religion got priority over business. Some
religions even condemned excess earnings and indulgence in comforts. Industrial activity
was, therefore, given secondary consideration by the religious Indians.

8. Mindset: The mindset of the average Indian was never entrepreneurial. Our religious
literature and epics told us to have patience and to keep on working without expecting the
fruits of labor. This also killed the drive and desire to get into entrepreneurial activities.

9. Recognition by the Society: In earlier days, the heroes in India were the social
reformers and the politicians. Now it is the era of sportsmen, models, 'and film stars. It is
sad that successful or the struggling entrepreneurs have never been recognized as heroes.
Entrepreneurial activity did not get due importance in the Indian society.

10. Family Background: Empirical studies have shown that a good number of
entrepreneurs come from families with industrial backgrounds.
Unfortunately, only a few entrepreneurial communities in India made entrepreneurial
contribution. These communities could also not make head way in the entrepreneurial
field on account of the colonial rule, lack of infrastructure and other facilities.
Entrepreneurship development could only take place after independence in India.

The evolutionary process of entrepreneurship activities may be divided into the following
broad stages:

1. Hunting Stage The primary stage of the evolution of the economic life of man was the
hunting stage. Wants were limited and very few in numbers. The family members them-
selves satisfied problems of food, clothing and shelter. Producers were the consumers
 Robinson Crusoe, living in the deserted island, satisfying his own requirements had no
knowledge of business. People in some parts of Africa and India still lead this type of
life. In this stage problems of production and distribution were not complex since wants
were also simple and limited.

2. Pastoral Stage
 With the progress of mankind gradually mental understanding developed and people
started realizing that instead of killing animals, they should breed and rear them.
Thus cattle breeding encouraged the use of milk, and they had to think in terms of
grazing areas for their cattle. The surplus milk, meat and other related products were

spared for exchange. This stage can be termed as the first stage of economic development
and the beginning of commerce.

3. Agricultural Stage
 In search of grazing areas, they further realized that they should grow plants as food for
animals. They started testing some grain products and slowly developed a taste in plants
and the land was used for cultivation.

Groups of persons started living together on their agricultural fields, which were
subsequently converted into small villages with their farms. Free exchange of goods was
started and the activities were also divided to the extent of division of labor at the village
level to complement the needs of each other. Initially each village was self-sufficient, but
later they began small trading activities on barter basis

4. Handicraft State
5. Present Industrial Stage

  Sometimes, the two terms, namely, an entrepreneur and a manager are considered as
synonym, i.e., meaning the same. In fact, the two terms are two economic concepts
meaning two different meanings. The major points of distinction between the two are
presented in following Table 1.1.

TABLE 1.1: Difference between an Entrepreneur and a Manager
    Points                 Entrepreneur                              Manager
1. Motive
             The main motive of an entrepreneur
                                                      But, the main motive of a manager is to
             is to start a venture by setting up an
                                                     render his services in an enterprise
             enterprise. He understands the
                                                     already set up by some one else.
             venture for his personal gratification.
                An entrepreneur is the owner of the A manager is the servant in the
2. Status
                enterprise.                             enterprise owned by the entrepreneur
                An entrepreneur being the owner
                of the enterprise assumes all risks and A manager as a servant does not bear
3. Risk-bearing
                uncertainty involved in running the any risk involved in the enterprise.
                The reward an entrepreneur gets for A manager gets salary as reward for the
                bearing risks involved in the           services rendered by him in the
4. Rewards
                enterprise is profit which is highly    enterprise. Salary of a manager is certain
                uncertain.                              and fixed.

               Entrepreneur himself thinks over        But, what a manager does is simply to
               what and how to produce goods to        execute the plans prepared by the
 5. Innovation meet the changing demands of the        entrepreneur. Thus, a manager simply
               customers. Hence, he acts as an         translates the entrepreneur's ideas into
               innovator also called a 'change agent'. practice.

               An entrepreneur needs to possess
                                                        On the contrary, a manager needs to
               qualities and qualifications like high
      6.                                                possess distinct qualifications in terms
               achievement motive, originality in
Qualifications                                          of sound knowledge in management
               thinking, foresight, and risk-bearing
                                                        theory and practice.
               ability and so on.

   After going through the above points of distinctions, it is clear that an entrepreneur
differs from a manager. At times, an entrepreneur can be a manager also, but a manager
cannot be an entrepreneur. After all, an entrepreneur is an owner, but a manager is a

An entrepreneur does perform all the functions necessary right from the genesis of an
idea up to the establishment of an enterprise. These can be listed in the following
sequential manner:
    1. Idea generation and scanning of the best suitable idea.
    2. Determination of the business objectives.
    3. Product analysis and market research.
    4. Determination of form of ownership / organisation.
    5. Completion of promotional formalities.
    6. Raising necessary funds.
    7. Procuring machine and material.
    8. Recruitment of men.
    9. Undertaking the business operations.
        Kilby has enumerated about 13 functions of an entrepreneur. While others can
also add certain more functions to this list, the said functions appear to be major ones. For
our convenience, we have classified all the entrepreneurial functions into three broad
1. Risk-bearing
2. Organisation
3. Innovation
        We have already discussed these functions in the beginning of our discussion
while elucidating the concept of entrepreneur. Therefore, their discussion has been
avoided here for the sake of repetition.

      Clarence Danhof, on the basis of his study of the American Agriculture, classified
entrepreneurs in the manner that at the initial stage of economic development, entrepre-

neurs have less initiative and drive and as economic development proceeds, they become
more innovating and enthusiastic. Basing on this, he classified entrepreneurs into four
types. These are discussed in seriatim.                           .
    1. Innovating Entrepreneurs: An innovating entrepreneur is one who introduces
        new goods, inaugurates new method of production, discovers new market and
        reorganizes the enterprise. It is important to note that such entrepreneurs can work
        only when a certain level of development is already achieved, and people look
        forward to change and improvement.
    2. Imitative Entrepreneurs: These are characterized by readiness to adopt
        successful innovations inaugurated by innovating entrepreneurs. Imitative
        entrepreneurs do not innovate the changes themselves, they only imitate
        techniques and technology innovated by others. Such types of entrepreneurs are
        particularly suitable for the under-developed regions for bringing a mushroom
        drive of imitation of new combinations of factors of production already available
        in developed regions.
    3. Fabian Entrepreneurs: Fabian entrepreneurs are characterised by very great
        caution and skepticism in experimenting any change in their enterprises. They
        imitate only when it becomes perfectly clear that failure to do so would result in a
        loss of the relative position in the enterprise.
    4. Drone Entrepreneurs: These are characterised by a refusal to adopt
        opportunities to make changes in production formulae even at the cost of severely
        reduced returns relative to other like producers. Such entrepreneurs may even
        suffer from losses but they are not ready to make changes in their existing
        production methods.
   Following are some more types of entrepreneurs listed by some other behavioural
   1.    Solo Operators: These are the entrepreneurs who essentially work alone and, if
         needed at all, employ a few employees. In the beginning, most of the
         entrepreneurs start their enterprises like them.
   2.    Active Partners: Active partners are those entrepreneurs who start/carryon an
         enterprise as a joint venture. It is important that all of them actively participate in
         the operations of the business. Entrepreneurs who only contribute funds to the
         enterprise but do not actively participate in business activity are called simply
   3.    Inventors: Such entrepreneurs with their competence and inventiveness invent
         new products. Their basic interest lies in research and innovative activities.
   4.    Challengers: These are the entrepreneurs who plunge into industry because of
         the challenges it presents. When one challenge seems to be met, they begin to
         look for new challenges.
   5.    Buyers: These are those entrepreneurs who do not like to bear much risk. Hence,
         in order to reduce risk involved in setting up a new enterprise, they like to buy
         the ongoing one.

  6.     Life timers: These entrepreneurs take business as an integral part to their life.
         Usually, the family enterprise and businesses, which mainly depend on exercise
         of personal skill, fall in this type/category of entrepreneurs.

   Of late, a new breed of entrepreneurs is coming to the fore in large industrial
organizations. They are called 'Intrapreneurs'. They emerge from within the confines of
an existing enterprise. In big organizations, the top executives are encouraged to catch
hold of new ideas and then convert these into products through research and development
activities within the framework of organization. The concept of intrapreneurship has
become very popular in developed countries like America. It is found that an increasing
number of intrapreneurs is leaving their jobs in big organizations and is starting own
enterprises. Many of such intrapreneurs have become exceedingly successful in their
ventures. What is more that they are causing a threat to the organizations they left. Such
intrapreneurs breed to the innovative entrepreneurs who inaugurate new products.

   The word development is used in so many ways that its precise connotation is often
baffling. Nevertheless, economic development essentially means a process of upward
change whereby the real per capita income of a country increases over a long period of
time. Then, a simple but meaningful question arises: what causes economic

  This question has absorbed the attention of scholars of socio-economic change for
decades. In this section, we attempt to shed light on an important aspect of that larger
question, the phenomenon of entrepreneurship. The one major issue we address here is:
what is the significance of entrepreneurship for economic development? Does it add an
important independent influence to that of other factors widely agreed to promote
economic development?

Adam Smith, the foremost classical economist, assigned no significance to entrepre-
neurial role in economic development in his monumental work 'An Enquiry into the
Nature and Causes of the Wealth of Nations', published in 1776. Smith extolled the rate
of capital formation as an important determinant of economic development. The problem
of economic development was ergo largely the ability of the people to save more and
invest more in any country.

According to him, ability to save is governed by improvement in productivity to the
increase in the dexterity of every worker due to division of labour. Smith regarded every
person as the best judge of his own interest who should be left to pursue it to his own
advantage. According to him, each individual is led by an „invisible hand' in pursuing
his/her interest. He always advocated the policy of laissez-faire in economic affairs.

   In his theory of economic development, David Ricardo identified only three factors of
production, namely, machinery, capital and labour, among whom the entire produce is
distributed as rent, profit and wages respectively. Ricardo appreciated the virtues of profit
in capital accumulation. According to him, profit leads to saving of wealth, which
ultimately goes to capital formation.

   Thus, in both the classical theories of economic development, there is no room for
entrepreneurship. And, economic development seems to be automatic and self-regulated.
Thus, the attitude of classical economists was very cold towards the role of entrepreneur-
ship in economic development. They took the attitude: "the firm is shadowy entity, and
entrepreneur even shadower - or at least is shady when he is not shadowy".

   The economic history of the presently developed countries, for example, America,
Russia and Japan tends to support the fact that the economy is an effect for which
entrepreneurship is the cause. The crucial role played by the entrepreneurs in the
development of the Western countries has made the people of under-developed countries
too much conscious of the significance of entrepreneurship for economic development.
Now, people have begun to realize that for achieving the goal of economic development,
it is necessary to increase entrepreneurship both qualitatively and quantitatively in the
country. It is only active and enthusiastic entrepreneurs who fully explore the potenti-
alities of the country's available resources-labour, technology and capital. Schumpeter
visualized the entrepreneurs as the key figure in economic development because of his
role in introducing innovations. Parson and Smelser described entrepreneurship as one of
the two necessary conditions for economic development, the other being the increased
output of capital.

   Harbison includes entrepreneurs among the prime movers of innovations, and Sayigh
simply describes entrepreneurship as a necessary dynamic force. It is also opined that
development does not occur spontaneously as a natural consequence when economic
conditions are in some sense 'right': a catalyst or agent is needed, and this requires an
entrepreneurial ability. It is this ability that he perceives opportunities, which either
others do not see or care about. Essentially, the entrepreneur searches for change, sees
need and then brings together the manpower, material and capital required to respond the
opportunity what he sees. Akio Morita, the President of Sony who adopted the company's
products to create Walkman Personal-Stereo and India's Gulshan Kumar of T-Series who
skimmed the audiocassette starved vast Indian market are the clearest examples of such
able entrepreneurs.

   The role of entrepreneurship in economic development varies from economy to
economy depending upon its material resources, industrial climate and the responsiveness
of the political system to the entrepreneurial function. The entrepreneurs contribute more
in favourable opportunity conditions than in the economies with relatively less favourable
opportunity conditions.

  Viewed from opportunity point of view, the underdeveloped regions, due to the
paucity of funds, lack of skilled labour and non-existence of a minimum social and
economic overhead, are less conducive to the emergence particularly of innovative
entrepreneurs. In such regions, entrepreneurship does not emerge out of industrial
background with well-developed institutions to support and encourage it. Therefore,
entrepreneurs in such regions may not be an "innovator" but an "imitator" who would
copy the innovations introduced by the "innovative" entrepreneurs of the developed

regions. In these areas according to McCelland's concept of personality aspect of
entrepreneurship, some people with high achievement motivation come forward to
behave in an entrepreneurial way to change the stationary inertia, as they would not be
satisfied with the present status that they have in the society.

  Under the conditions of paucity of funds, and the problem of imperfect market in
underdeveloped regions, the entrepreneurs are bound to launch their enterprises on a

As imitation requires lesser funds than innovation, it is realized that such regions should
have more imitative entrepreneurs. And, it is also felt that imitation of innovations
introduced in developed regions on a massive scale can bring about rapid economic
development in under-developed regions also. But, it does not mean that such imitation
requires in any way lesser ability on the part of entrepreneurs. In this regard, Berna
opines: “It involves often what has aptly been called 'subjective innovation', that is, the
ability to do things which have not been done before by the particular industrialists, even
though unknown to him, the problem may have been solved in the same way by the
others.” These imitative entrepreneurs constitute the main spring of development of
underdeveloped regions.

   Further, India which itself is an under-developed country aims at decentralized
industrial structure to militate the regional imbalances in levels of economic
development, small-scale entrepreneurship in such industrial structure plays an important
role to achieve balanced regional development. It is unequivocally believed that small-
scale industries provide immediate large-scale employment, ensure a more equitable
distribution of national income and also facilitate an effective resource mobilization of
capital and skill, which might otherwise remain, unutilized. Lastly, the establishment of
Entrepreneurship Development Institutes and alike by the Indian Government during the
last decades is a good testimony to her strong realisation about the premium mobile role
of entrepreneurship played in economic development.

The important role that entrepreneurship plays in the economic development of an
economy can now be put in a more systematic and orderly manner as follows:

1. Entrepreneurship promotes capital formation by mobilizing the idle saving of the
2. It provides immediate large-scale employment. Thus, it helps reduce the unemploy-
ment problem in the country, i.e., the root of all socio-economic problems.
3. It promotes balanced regional development.
4. It helps reduce the concentration of economic power.
5. It stimulates the equitable redistribution of wealth, income and even political power in
the interest of the country.
6. It encourages effective resource mobilisation of capital and skill, which might
otherwise remain unutilized and idle.
7. It also induces backward and forward linkages, which stimulate the process of
economic development in the country.

8. Last but no means the least; it also promotes country's export trade i.e., an important
ingredient to economic development.

  Thus, it is clear that entrepreneurship serves as a catalyst of economic development.
On the whole, the role of entrepreneurship in economic development of a country can
best be put, as "an economy is the effect for which entrepreneurship is the cause".

                          WOMEN ENTREPRENEURS

Women constitute around half of the total world population. So is in India also. They are,
therefore, regarded as the better half of the society. In traditional societies, they were
confined to the four walls of houses performing household activities.

In modern societies, they have come out of the four walls to participate in all sorts of
activities. The global evidences buttress that women have been performing exceedingly
well in different spheres of activities like academics, politics, administration, social work
and so on. Now, they have started plunging into industry also and running their
enterprises successfully. Therefore, while discussing on entrepreneurial development, it
seems in the fitness of the context to study about the development of women
entrepreneurs in the country. Let us begin with understanding the concept of women

Based on the general concept of entrepreneur just discussed in the previous chapter,
women entrepreneurs may be defined as a woman or group of women who initiate
organise and run a business enterprise. In terms of Schumpeterian concept of innovative
entrepreneurs, women who innovate, imitate or adopt a business activity are called
“women entrepreneurs”.

The Government of India has defined women entrepreneurs based on women
participation in equity and employment of a business enterprise. Accordingly, a women
entrepreneur is defined as “an enterprise owned and controlled by a women having a
minimum financial interest of 51 per cent of the capital and giving at least 51 per cent of
the employment generated in the enterprise to women”.

However, this definition is subject to criticism mainly on the condition of employing
more than 50 per cent women workers in the enterprises owned and run by the women.
In nutshell, women entrepreneurs are those women who think of a business enterprise,
initiate it, organize and combine the factors of production, operate the enterprise and
undertake risks and handle economic uncertainty involved in running a business

As an entrepreneur, a women entrepreneur has also to perform all the functions involved
in establishing an enterprise. These include idea generation and screening, determination
of objectives, project preparation, product analysis, determination of forms of business
organization, completion of promotional formalities, raising funds, procuring men,
machine and materials and operation of business.

Frederick Harbison has enumerated the following five functions of a women
1. Exploration of the prospects of starting a new business enterprise.
2. Undertaking of risks and the handling of economic uncertainties involved in business.
3. Introduction of innovations or imitation of innovations.
4. Coordination, administration and control.
5. Supervision and leadership.
        The fact remains that, like the definition of the term „entrepreneur‟, different
scholars have identified different sets of functions performed by an entrepreneur whether
man or woman. All these entrepreneurial functions can be classified broadly into three
1. Risk-bearing
2. Organisation
3. Innovations
        These functions have already been discussed. Therefore, these are not discussed
again for the sake of repetition.

Woman in India constitute around half of the country's population. Hence, they are
regarded as the “better half of the society”. In the official proclamation, they are at par
with men. But, in real life, the truth prevails otherwise. Our society is still male-
dominated and women are not treated as equal partners both inside and outside four walls
of the house. In fact, they are treated as abala, i.e., weak and dependent on men.

 As such, the Indian women enjoy a disadvantageous status in the society. Let some facts
be given. The much low literacy rate (40%), low work participation rate (28%) and low
urban population share (10%) of women as compared to 60%, 52% and 18% respectively
of their male counterparts well confirm their disadvantageous position in the society. Our
age-old socio-cultural traditions and taboos arresting the women within four walls of their
houses also make their conditions more disadvantageous.

These factors - all together - serve as non-conducive conditions for the emergence and
development of women entrepreneurship in the country. Given these unfavourable
conditions, the development of women entrepreneurship is expectedly low in the country.
This is well indicated by a dismally low level of women (5.2%) in total self-employed
persons in the country. Further, women entrepreneurs in India accounted for 9.01% of the
total 1.70 million entrepreneurs during 1988-89.

A cross-country comparison reveals that emergence and development of entrepreneurship
is largely caused by the availability of supporting conditions in a country. To quote, with
improving supporting conditions, the share of women owned enterprises in the United
States has risen from 7.1 % in 1977 to 32% in 1990. It is likely to reach to 50% by the
turn of the 20th century.

In India women entry into business is a new phenomenon. Women entry into business, or
say, entrepreneurship is traced out as an extension of their kitchen activities mainly to 3
Ps, Viz., Pickles, Powder and Pappad. Women in India plunged into business for both
pull and push factors. Pull factors imply the - factors, which encourage women to start an
occupation or venture with an urge to do something independently. Push factors refer to
those factors, which compel women to take up their own business to tide over their
economic difficulties and responsibilities. With growing awareness about business and
spread of education among women over the period, women have started shifting from 3
Ps to engross to 3 modem Es, viz., Engineering, Electronics and Energy. They have
excelled in these activities.

Women entrepreneurs manufacturing solar cookers in Gujarat, small foundries in
Maharashtra and T.V. capacitors in Orissa have proved beyond doubt that given the
opportunities, they can excel their male counterparts. Smt. Sumati Morarji (Shipping
Corporation), Smt. Yamutai Kirloskar (Mahila Udyog Limited), Smt. Neena Malhotra
(Exports) and Smt. Shahnaz Hussain (Beauty Clinic) are some exemplary names of
successful and accomplished women entrepreneurs in our country.

In India, Kerala is a state with highest literacy (including women literacy) reflecting a
congenial atmosphere for the emergence and development of women entrepreneurship in
the State. According to a study, the number of women‟s industrial units in Kerala was
358 in 1981, which rose to 782 in March 1984. These 782 units included 592 proprietary
concerns, 43 partnership firms, 42 charitable institutions, 03 joint stock companies and
102 co-operative societies covering a wide range of activities.

On the whole, proper education of women in Kerala resulted in high motivation among
them to enter into business. The financial, marketing and training assistance provided by
the State Government also helped motivate women to assume entrepreneurial career.
Women's desire to work at the place of residence, difficulty of getting jobs in the public
and private sectors and the desire for social recognition also motivated women in Kerala
for self-employment. Like Kerala, an increasing number of women are entering the
business in the State of Maharashtra also.

Women entrepreneurs encounter two sets of problems, viz., general problems of
entrepreneurs and problems specific to women entrepreneurs.
These are discussed below:
    1. Problem of Finance: Finance is regarded as "life-blood" for any enterprise, be it
       big or small. However, women entrepreneurs suffer from shortage of finance on
       two counts. Firstly, women do not generally have property on their names to use

     them as collateral for obtaining funds from external sources. Thus, their access to
     the external sources of funds is limited. Secondly, the banks also consider women
     less credit-worthy and discourage women borrowers on the belief that they can at
     any time leave their business. Given such situation, women entrepreneurs are
     bound to rely on their own savings, if any, and loans from friends and relatives,
     which are expectedly meager and negligible. Thus, women enterprises fail due to
     the shortage of finance.
2.   Scarcity of Raw Material: Most of the women enterprises are plagued by the
     scarcity of raw material and necessary inputs. Added to this are the high prices of
     raw material, on the one hand, and getting raw material at the minimum of
     discount, on the other. The failure of many women co-operatives in 1971 engaged
     in basket-making is an example how the scarcity of raw material sounds the
     death-knell of enterprises run by women.
3.   Stiff Competition: Women entrepreneurs do not have organisational set-up to
     pump in a lot of money for canvassing and advertisement. Thus, they have to face
     a stiff competition for marketing their products with both organised sector and
     their male counterparts. Such a competition ultimately results in the liquidation of
     women enterprises.
4.   Limited Mobility: Unlike men, women mobility in India is highly limited due to
     various reasons. A single woman asking for room is still looked upon suspicion.
     Cumbersome exercise involved in starting an enterprise coupled with the
     officials‟ humiliating attitude towards women compels them to give up idea of
     starting an enterprise.
5.   Family Ties: In India, it is mainly a woman's duty to look after the children and
     other members of the family. Man plays a secondary role only. In case of married
     women, she has to strike a fine balance between her business and family. Her total
     involvement in family leaves little or no energy and time to devote for business.
     Support and approval of husbands seem necessary condition for women's entry
     into business. Accordingly, the educational level and family background of
     husbands positively influence women's entry into business activities.
6.   Lack of Education: In India, around three-fifths (60%) of women are still
     illiterate. Illiteracy is the root cause of socio-economic problems. Due to the lack
     of education and that too qualitative education, women are not aware of business,
     technology and market knowledge. Also, lack of education causes low
     achievement motivation among women. Thus, lack of education creates problems
     for women in the setting up and running of business enterprises.
7.   7: Male-Dominated Society: Male chauvinism is still the order of the day in
     India. The Constitution of India speaks of equality between sexes. But, in
     practice, women are looked upon as abala, i.e. weak in all respects. Women suffer
     from male reservations about a woman's role, ability and capacity and are treated
     accordingly. In nutshell, in the male dominated Indian society, women are .not
     treated equal to men. This, in turn, serves as a barrier to women entry into
8.   Low Risk-Bearing Ability: Women in India lead a protected life. They are less
     educated and economically not self-dependent. All these reduce their ability to

       bear risk involved in running an enterprise. Risk bearing is an essential requisite
       of a successful entrepreneur.

In addition to above problems, inadequate infra structural facilities, shortage of power,
high cost of production, social attitude, low need for achievement and socio-economic
constraints also hold the women back from entering into business.

Days are gone when women in India remained confined to within four walls of their
homes and their immense strength and potential remained unrecognized and unaccounted
for. Now, they are increasingly participating in all spheres of activities.

The fact remains that the citadels of excellence in academic, politics, administration,
business and industry are no longer the prerogatives of men in India. The general
consensus that is emerging in all discussions relating to the development of women is that
promotion of women entrepreneurs should form an integral part of all development

 The experience of the United States where the share of women-owned enterprises is
continuously on increase strengthens the view that the future of small-scale industries
depends very much on the entry of women into industry.

Several national and international organisations and agencies have appreciated the need
for and importance of developing women entrepreneurs in recent years. A brief review of
it is given here.

With a view to develop better half of the society, the United Nations declared the decade
1975-85 as the Decade for Women: The UNIDO Preparatory Meeting on the Role of
Women in Industrialisation in Developing Countries held at Vienna during 6-10
February, 1978 identified several constraints such as social, attitudinal and institutional
barriers, inadequate employment opportunities, inappropriate and inadequate training,
insufficient information and so on which held women back from participating in
industrial activities. The World Conference of the United Nations Decade for Women
held at Copenhagen in Denmark on 30th June 1980 also adopted a programme aimed at
promoting full and equal opportunities and treatment of women in employment and their
access to non-traditional skilled trades.

 The First National Conference of Women Entrepreneurs held at New Delhi in
November 1981 advocated the need for developing women entrepreneurs for the overall
development of the country.

It called for priority to women in allotment of land, sheds, sanction of power, licensing,
etc. The Second International Conference of Women Entrepreneurs organised by the
National Alliance of Young Entrepreneurs (NAYE) held in 1989 at New Delhi also
adopted certain declarations involving women's participation in industry. .

The Government of India has been assigning increasing importance to the development
of women entrepreneurs in the country in recent years. The Sixth Five Year Plan, for
example, proposed for promoting female employment in women-owned industries. The
Government moved a step forward in the Seventh Five Year Plan by including a special
chapter on Integration of Women in Development.

The chapter suggested:
   1. To treat women as specific target groups in all development programmes.
   2. To devise and diversify vocational training facilities for women to suit their
      varied needs and skills.
   3. To promote appropriate technologies to improve their efficiency and productivity.
      To provide assistance for marketing their products
   4. To involve women in decision-making process.

In the recent Industrial Policy 1991, the Government of India further stressed the need for
conducting special entrepreneurship development programmes for women with a view to
encourage women to enter industry. Product and process-oriented courses enabling
women to start small-scale industries are also recommended in the Policy Statement.
There are several institutional arrangements both at the centre and the state levels like
nationalized banks, state financial corporations, state industrial corporations, district
industry centres and voluntary agencies like FICCI's Ladies Organization (FLO),
National Alliance of Young Entrepreneurs (NAYE) which have been engaged in
protecting and developing women entrepreneurs in the country. Added to these are
national and international women associations set up with a purpose to create a congenial
environment for developing women entrepreneurship in rural and urban areas.

Chapter 4

                                  Business Plan
What is a Business Plan?
A business plan is a blueprint and communication tool for business. A device to help, the
owner, set out how he intends to operate his business. A road map to tell others how the
entrepreneur expects to get there.

Business plan is a written document that describes a business, its objectives, strategies,
market and financial forecast.

Business plan is document that spells out a company's expected course of action for a
specified period, usually including a detailed listing and analysis of risks and
uncertainties. For the small business, it should examine the proposed products, the
market, the industry, the management policies, the marketing policies, production needs
and financial needs. Frequently, it is used as a prospectus for potential investors and

Business plan is a comprehensive planning document which clearly describes the
business developmental objective of an existing or proposed business. The plan outlines
what and how and from where the resources needed to accomplish the objective will be
obtained and utilized.

A business plan is a summary of how a business owner, manager, or entrepreneur intends
to organize an entrepreneurial endeavour and implement activities necessary and
sufficient for the venture to succeed. It is a written explanation of the company's business

A business plan is any plan that works for a business to look ahead, allocate resources,
focus on key points, and prepare for problems and opportunities. Unfortunately, many
people think of business plans only for starting a new business or applying for business
loans. But they are also vital for running a business, whether or not the business needs
new loans or new investments. Businesses need plans to optimize growth and
development according to priorities.

What's a Start-up Plan?
A simple start-up plan includes a summary, mission statement, keys to success, market
analysis, and break-even analysis. This kind of plan is good for deciding whether or not
to proceed with a plan, to tell if there is a business worth pursuing, but it is not enough to
run a business with.

Is There a Standard Business Plan?

A normal business plan (one that follows the advice of business experts) includes a
standard set of elements. Plan formats and outlines vary, but generally a plan will include
components such as descriptions of the company, product or service, market, forecasts,
management team, and financial analysis.

Your plan will depend on your specific situation. For example, description of the
management team is very important for investors while financial history is most
important for banks. However, if you're developing a plan for internal use only, you may
not need to include all the background details that you already know. Make your plan
match its purpose.

What is most important in a Plan?
It depends on the case, but usually it's the cash flow analysis and specific implementation

Cash flow is both vital to a company and hard to follow. Cash is usually misunderstood
as profits, and they are different. Profits don't guarantee cash in the bank. Lots of
profitable companies go under because of cash flow problems. It just isn't intuitive.
Implementation details are what make things happen. Your brilliant strategies and
beautifully formatted planning documents are just theory unless you assign
responsibilities, with dates and budgets, follow up with those responsible, and track
results. Business plans are really about getting results and improving your company.

Can you suggest a Standard Outline?
If you have the main components, the order doesn't matter that much, but here's the
outline order we suggest in Business Plan Pro software:

   1. Executive Summary: Write this last. It's just a page or two of highlights.
   2. Company Description: Legal establishment, history, start-up plans, etc.
   3. Product or Service: Describe what you're selling. Focus on customer benefits.
   4. Market Analysis: You need to know your market, customer needs, where they are,
      how to reach them, etc.
   5. Strategy and Implementation: Be specific. Include management responsibilities
      with dates and budget.
   6. Management Team: Include backgrounds of key members of the team, personnel
      strategy, and details.
   7. Financial Plan: Include profit and loss, cash flow, balance sheet, break-even
      analysis, assumptions, business ratios, etc.

An expanded plan outline
We don't recommend developing the plan in the same order you present it as a finished
document. For example, although the Executive Summary comes as the first section of a
business plan, we recommend writing it after everything else is done.

                          Contents of your Business Plan

The Executive Summary:
   1. Para 1 which is common;
   2. Para 2 which is focused to the specific reader.

The Nature of your Business:
   1. Vision Statement
   2. Mission Statement
   3. Long-term objectives
   4. Short-term objectives
   5. Key Personnel
   6. Legal Structure (ownership structure)
   7. Professional Advisors
   8. Contact Details (Address, Tel. No.,Fax No. , E-mail ID, Website)

Brief Description of your Business
Product / Service being offered
Your USP (Unique Selling Point)
IPR Issues
Legal and Statutory requirements

The Market & the Competition
   1. Target Market
   2. Market Positioning
   3. Clients
   4. Strategies
   5. Public Relations

Marketing Plan
  1. Anticipated Demand
  2. Marketing Methods
  3. Sales and Distribution Network
  4. Pricing and Promotional Policies

Financial Plan
   1. Requirement of Fixed Assets
   2. Requirement of Working Capital
   3. Sources of Funds (Long & Short-term)
   4. Projected Profit & Loss Statement
   5. Projected Balance sheet
   6. Projected Cash Flow Statement
   7. Financial Ratios
   8. Concessions and Subsidies

Operational Plan

   1. Your Location
   2. Infrastructure needed and available
   3. Choice of technology
   4. Project implementation schedule
   (Bar Chart; PERT/CPM)
   5. Factory Layout (optional)
   6. Insurance

HR Plans
  1. Manpower Planning
  2. Organization Structure
  3. Departmentation
  4. Recruitment policies
  5. Training & Development

Who Needs a Business Plan?
You need a business plan if you‟re running a business. A business plan is like a map and
a compass for a business. Without it you‟re travelling blind. With a plan you set
objectives, establish priorities, and provide for cash flow.

You need a business plan if you‟re applying for a business loan. Most banks require it,
and even those that don‟t strictly require it expect it. They expect it to be a summary of
the business, with some predictable key points.

You need a business plan if you‟re looking for business investment. The plan won‟t get
you the investment, but not having a plan will mean you won‟t get investment. Investors
require a business plan. They invest in the people, the idea, the track records, the market,
the technology, and other factors; but they look to the business plan to define and explain
the business. You need a business plan if you‟re working with partners. The business plan
defines agreements between partners about what‟s going to happen.

You need a business plan to communicate with a management team. The day-to-day
business routine is distracting, problems come up, opportunities appear, and
commitments should be followed and tracked. How do you know where you are in
business without establishing where you started and where you intended to go? How can
people commit to a plan they can‟t see? You need a business plan to sell a business, or to
set a value on a business for tax or other purposes such as estate planning, or divorce.

Sadly, many of the people who need a plan don‟t know they need it. They get trapped by
the myths of business planning. They don‟t realize that plans are not just for start-ups,
loans, or investment. They don‟t realize that business plans are easier to develop than
most people think to succeed in business you simply must plan the steps, set priorities,
allocate resources, and manage the cash. Sure, some people say they don‟t plan, but if
they‟re successful then they‟re actually always planning in their heads. And you can keep

that plan in your head if your business is very simple, cash flow is always adequate, and
you don‟t work with other people, and you don‟t need to communicate your business plan
with other people either.

Don't accept disadvantages in business. Don't try to run without a plan. Doing a plan is
probably much easier than you think, and much more valuable.

The Different Types of Business Plans
Business plans are also called strategic plans, investment plans, expansion plans,
operational plans, annual plans, internal plans, growth plans, product plans, feasibility
plans, and many other names. These are all business plans.

In all these different varieties of business plan, the plan matches your specific situation.
For example, if you're developing a plan for internal use only, not for sending out to
banks or investors, you may not need to include all the background details that you
already know. Description of the management team is very important for investors, while
financial history is most important for banks.

Some of these specific case differences lead to different types of plans:

The most standard business plan is a start-up plan, which defines the steps for a new
business. It covers standard topics including the company, product or service, market,
forecasts, strategy, implementation milestones, management team, and financial analysis.
The financial analysis includes projected sales, profit and loss, balance sheet, cash flow,
and probably a few other tables. The plan starts with an executive summary and ends
with appendices showing monthly projections for the first year.

Internal plans are not intended for outside investors, banks, or other third parties. They
might not include detailed description of company or management team. They may or
may not include detailed financial projections that become forecasts and budgets. They
may cover main points as bullet points in slides (such as PowerPoint slides) rather than
detailed texts.

An operations plan is normally an internal plan, and it might also be called an internal
plan or an annual plan.

It would normally be more detailed on specific implementation milestones, dates,
deadlines, and responsibilities of teams and managers.

A strategic plan is usually also an internal plan, but it focuses more on high-level options
and setting main priorities than on the detailed dates and specific responsibilities. Like
most internal plans, it wouldn‟t include descriptions of the company or the management
team. It might also leave out some of the detailed financial projections. It might be more
bullet points and slides than text.

A growth plan or expansion plan or new product plan will sometimes focus on a specific
area of business, or a subset of the business. These plans could be internal plans or not,
depending on whether or not they are being linked to loan applications or new
investment. For example, an expansion plan requiring new investment would include full
company descriptions and background on the management team, as much as a start-up
plan for investors. Loan applications will require this much detail as well. However, an
internal plan, used to set the steps for growth or expansion funded internally, might skip
these descriptions. It might not include detailed financial projections for the whole
company, but it should at least include detailed forecasts of sales and expenses for the

A feasibility plan is a very simple start-up plan that includes a summary, mission
statement, keys to success, basic market analysis, and preliminary analysis of costs,
pricing, and probable expenses. This kind of plan is good for deciding whether or not to
proceed with a plan, to tell if there is a business worth pursuing.

Who Needs a Business Plan?
You need a business plan if you‟re running a business. A business plan is like a map and
a compass for a business. Without it you‟re travelling blind. With a plan you set
objectives, establish priorities, and provide for cash flow.

You need a business plan if you‟re applying for a business loan. Most banks require it,
and even those that don‟t strictly require it expect it. They expect it to be a summary of
the business, with some predictable key points.

You need a business plan if you‟re looking for business investment. The plan won‟t get
you the investment, but not having a plan will mean you won‟t get investment. Investors
require a business plan. They invest in the people, the idea, the track records, the market,
the technology, and other factors; but they look to the business plan to define and explain
the business. You need a business plan if you‟re working with partners. The business plan
defines agreements between partners about what‟s going to happen.

You need a business plan to communicate with a management team. The day-to-day
business routine is distracting, problems come up, opportunities appear, and
commitments should be followed and tracked. How do you know where you are in
business without establishing where you started and where you intended to go? How can
people commit to a plan they can‟t see? You need a business plan to sell a business, or to
set a value on a business for tax or other purposes such as estate planning, or divorce.

Sadly, many of the people who need a plan don‟t know they need it. They get trapped by
the myths of business planning. They don‟t realize that plans are not just for start-ups,
loans, or investment. They don‟t realize that business plans are easier to develop than
most people think To succeed in business you simply must plan the steps, set priorities,
allocate resources, and manage the cash. Sure, some people say they don‟t plan, but if
they‟re successful then they‟re actually always planning in their heads. And you can keep
that plan in your head if your business is very simple, cash flow is always adequate, and

you don‟t work with other people, and you don‟t need to communicate your business plan
with other people either.

Don't accept disadvantages in business. Don't try to run without a plan. Doing a plan is
probably much easier than you think, and much more valuable.

How Will You Use Your Plan
The classics are seeking investment, applying for a loan. There are also the obvious
communication with employees, partners, family members, consultants. And there is
valuation, sometimes for tax purposes, sometimes for growth, divorce, estates.

Too many people think of business plans as something you do to start a company, apply
for a loan, or find investors. Yes, they are vital for those purposes, but there's a lot more
to it. Preparing a business plan is an organized, logical way to look at all of the important
aspects of a business.

First, decide what you will use the plan for, such as to:
    Define and fix objectives, and programs to achieve those objectives.
    Create regular business review and course correction.
    Define a new business.
    Support a loan application.
    Define agreements between partners.
    Set a value on a business for sale or legal purposes.
    Evaluate a new product line, promotion, or expansion.

Executive Summary
This is a summary of the main highlights of your plan. Even though the topic appears
first in the printed document, most business plan developers leave it until the end. This
summary is the doorway to the rest of the plan. Get it right or your target readers will go
no further. As a general rule, for a standard plan, the first paragraph should include:

    Business name

    Business location

    What product or service you sell

    Purpose of the plan

Another paragraph should highlight important points, such as projected sales and profits,
unit sales, profitability and keys to success. Include the news you don't want anyone to
miss. This is a good place to put a Highlights Chart, a bar chart which shows sales, gross
margin, and profits before interest and taxes for the next three years. Normally you
should mention those numbers in the text.

An internal plan, such as an operations plan, annual plan, or strategic plan, doesn‟t have
to be as formal with its executive summary. Make the purpose of the plan clear, and make
sure the highlights are covered, but you don‟t necessarily need to repeat the location,
product/service description, or other details.

Never waste words in a summary.

If you‟re looking for investment, say so in your executive summary, and specify the
investment amount required and the percent of equity ownership offered in return. You
should probably also add some highlights of your management team and you competitive

If you‟re looking for a loan, say so in the executive summary, and specify the amount
required. Leave loan details out of the summary.

Experts differ on how long an executive summary should be. Some insist that it takes just
a page or two; others recommend a more detailed summary, taking as much as 10 pages,
covering enough information to substitute for the plan itself.

Don‟t confuse an executive summary with the summary memo. The executive summary
is the first chapter in a business plan. A summary memo is a separate document, normally
only 5-10 pages at most, which is used to substitute for the plan with people who aren‟t
ready to see the whole plan.

Keys to Better Business Plans
   1. Use a business plan to set concrete goals, responsibilities, and deadlines to guide
      your business.

   2. A good business plan assigns tasks to people or departments and sets milestones
      and deadlines for tracking implementation.

   3. A practical business plan includes 10 parts implementation for every one part

   4. As part of the implementation of a business plan, it should provide a forum for
      regular review and course corrections.

   5. Good business plans are practical.

   6. Business Plan "Don'ts"

   7. Don't use a business plan to show how much you know about your business.

   8. Nobody reads a long-winded business plan: not bankers, bosses, nor venture
      capitalists. Years ago, people were favourably impressed by long plans. Today,
      nobody is interested in a business plan more than 50 pages long.

Do You Need Funding
Most businesses need financing. Cash flow is different than profits, so profits don‟t
guarantee money in the bank. There‟s financing needed to manage starting costs,
inventory, waiting to get paid, and other factors. Much of that is what we lump together
as “working capital.”

Most people think of financing as debt, borrowed money. In this context it also includes
investment capital. Either debt or investment is outside financing that helps a business
meet expenses and grow. While some smaller businesses get by without financing, and
even some medium and large businesses that are mature and stable and conservatively
managed can get by without financing, most businesses need some outside money to get
started, to expand, and to supply their regular needs for working capital. (Working
capital, by the way, normally means cash in the bank to cover cash flow deficits caused
by normal flow of the business. Technically, it is current assets less current liabilities. )

Your business plan should tell you whether or not you need financing, and how much.
The plan should estimate cash flow for your company and if cash flow is negative for any
good reason – and there are good reasons – then you plan to add money as either loans or
investment. The most common reason for needing financing, by far, is “Accounts
Receivable.” That is the accounting term for the amounts of money a business is waiting
to receive from customers for sales already made but not paid for. Most business-to-
business sales involve delivering an invoice and waiting to get paid. Businesses that sell
this way have to deal with collecting money owed, and while they wait to collect, they
have bills to pay.

Therefore, they need financing.

Another common reason for financing is paying for inventory. To sell things you need to
buy them first. Often you have to pay for your inventory before you sell it. That means
you need financial resources to deal with pay cycles.

Start-up businesses often need financing to cover their initial costs and expenses while
they are starting, before they can start selling.

A correct business plan process will point out the gaps that need to be filled with
financing. For a start-up company, use the plan to help calculate needs and early expenses
and the early deficits as the company gets started, and then plan to fill those needs with
borrowed money or investment. If you can‟t get enough finance to cover the needs, then
you must either change the plan to reduce the needs, or don‟t start the company. For an
ongoing company, use the plan to calculate cash flow from normal operations, and turn to
financing as needed to support working capital requirements.

Don‟t be surprised by needing financing. Most businesses do. Some smaller, cash-only
businesses get by without financing. They sell for cash, buy in cash, and don‟t spend

what they don‟t have. It‟s easier to get by without financing as a service business than a
product-based business, because you don‟t have to deal with inventory. A home office is
less likely to need financing than a business location you rent. A one-employee-business
is less likely to need financing than a business needing employees.

                            Purpose of writing the business plan
 While you write the document down, one should appreciate that the purpose of writing
the business plan is not to impress someone into believing in your business. The purpose
is to make sure that you have indeed thought through all the issues and also to uncover
for yourself, what you do not know. A business plan, written well, helps to attract the
right talent and the right kind of investors. It becomes the basis for negotiation while
attracting investment. Remember, when you raise equity, you are in effect, giving away
ownership. A good business plan, written well, will set the tone for negotiating how
much ownership you have to trade for how much money?

 Persuading the bank to invest in your business

There comes a time in a business' life when investment and growth plans mean that
additional funding is needed, and many businesses choose to borrow from their bank.
When such funding is required, how can a business ensure that it presents a convincing
case to the bank and secures the right finance?

The following tips for businesses when meeting with their bank manager.

   1. First of all, you will need a good idea of the aims and objectives for your
      business, as well as how you intend to cope with any eventualities, all clarified in
      a business plan. This gives the bank manager the confidence that you understand
      your market and have thought about the development of your business.

   2. Present yourself positively and demonstrate your commitment and enthusiasm for
      your business. Bank managers place a great deal of importance on this when
      assessing proposals.

   3. Demonstrate that you have the appropriate experience, training and drive to plan
      and run your business effectively. An up-to-date copy of your Curriculum Vitae
      will provide evidence of your abilities.

   4. Show that you have the ability to produce up-to-date and accurate financial
      information to reassure the bank about your control over the business. It is
      important that you know its current position.

   5. Explain in detail your reason for seeking bank funding. This will enable the bank
      to inform you of the most appropriate type of funding to meet your business'

    6. Ensure that you establish the correct amount that needs to be borrowed, allowing
       for unexpected expenses. Borrowing too much will cost you more interest than
       you need to pay, and too little may mean you need to return to the bank at a later

    7. Be clear about the source of repayment. Develop cash flow and budget forecasts
       that accurately show what you expect to happen to your business over the period
       of your facility and outline the sources from where you expect repayments to be

    8. Protect yourself and your business. Take steps to protect the repayment of your
       loan, in case you are unable to meet the cost of borrowing from normal trade due
       to unforeseen circumstances. This may mean taking out insurance to cover you
       and key personnel in the event of an accident or illness.

Bank Mangers endeavour to be open and honest in their dealings with their customers
and are always keen to explain how they assess business proposals. Bank managers look
first and foremost at the character, ability and experience of the business owner and the
cash generating capacity of the business itself. In this respect, it is essential to stress the
importance of proper planning and forecasting before any meeting with the bank


If the bank won't lend you money, a finance broker may be able to find an alternative
source of finance.

                             How to Perform SWOT Analysis

A valuable step in your situational analysis is assessing your firm's strengths,
weaknesses, market opportunities, and threats through a SWOT analysis. This is a very
simple process that can offer powerful insight into the potential and critical issues
affecting a venture.

 The SWOT analysis begins by conducting an inventory of internal strengths and
weaknesses in your organization. You will then note the external opportunities and
threats that may affect the organization, based on your market and the overall
environment. Don't be concerned about elaborating on these topics at this stage; bullet
points may be the best way to begin. Capture the factors you believe are relevant in each
of the four areas. You will want to review what you have noted here as you work through
your marketing plan. The primary purpose of the SWOT analysis is to identify and assign
each significant factor, positive and negative, to one of the four categories, allowing you
to take an objective look at your business. The SWOT analysis will be a useful tool in
developing and confirming your goals and your marketing strategy.

Some experts suggest that you first consider outlining the external opportunities and
threats before the strengths and weaknesses.

Strengths describe the positive attributes, tangible and intangible attributes, internal to
your organization. They are within your control. What do you do well? What resources
do you have? What advantages do you have over your competition?

You may want to evaluate your strengths by area, such as marketing, finance,
manufacturing, and organizational structure. Strengths include the positive attributes of
the people involved in the business, including their knowledge, backgrounds, education,
credentials, contacts, reputations, or the skills they bring. Strengths also include tangible
assets such as available capital, equipment, credit, established customers, existing
channels of distribution, copyrighted materials, patents, information and processing
systems, and other valuable resources within the business.

Strengths capture the positive aspects internal to your business that add value or offer you
a competitive advantage. This is your opportunity to remind yourself of the value existing
within your business.

Note the weaknesses within your business. Weaknesses are factors that are within your
control that detract from your ability to obtain or maintain a competitive edge. Which
areas might you improve?

Weaknesses might include lack of expertise, limited resources, lack of access to skills or
technology, inferior service offerings, or the poor location of your business. These are
factors that are under your control, but for a variety of reasons, are in need of
improvement to effectively accomplish your marketing objectives.

Weaknesses capture the negative aspects internal to your business that detract from the
value you offer, or place you at a competitive disadvantage. These are areas you need to

enhance in order to compete with your best competitor. The more accurately you identify
your weaknesses, the more valuable the SWOT will be for your assessment.

Opportunities assess the external attractive factors that represent the reason for your
business to exist and prosper. These are external to your business. What opportunities
exist in your market, or in the environment, from which you hope to benefit?

These opportunities reflect the potential you can realize through implementing your
marketing strategies. Opportunities may be the result of market growth, lifestyle changes,
resolution of problems associated with current situations, positive market perceptions
about your business, or the ability to offer greater value that will create a demand for
your services. If it is relevant, place timeframes around the opportunities. Does it
represent an ongoing opportunity, or is it a window of opportunity? How critical is your

Opportunities are external to your business. If you have identified "opportunities" that are
internal to the organization and within your control, you will want to classify them as

What factors are potential threats to your business? Threats include factors beyond your
control that could place your marketing strategy, or the business itself, at risk. These are
also external – you have no control over them, but you may benefit by having
contingency plans to address them if they should occur.

A threat is a challenge created by an unfavorable trend or development that may lead to
deteriorating revenues or profits. Competition – existing or potential – is always a threat.
Other threats may include intolerable price increases by suppliers, governmental
regulation, economic downturns, devastating media or press coverage, a shift in
consumer behavior that reduces your sales, or the introduction of a "leap-frog"
technology that may make your products, equipment, or services obsolete. What
situations might threaten your marketing efforts? Get your worst fears on the table. Part
of this list may be speculative in nature, and still add value to your SWOT analysis.

It may be valuable to classify your threats according to their "seriousness" and
"probability of occurrence."

The better you are at identifying potential threats, the more likely you can position
yourself to proactively plan for and respond to them. You will be looking back at these
threats when you consider your contingency plans.

The Implications

The internal strengths and weaknesses, compared to the external opportunities and
threats, can offer additional insight into the condition and potential of the business. How

can you use the strengths to better take advantage of the opportunities ahead and
minimize the harm that threats may introduce if they become a reality? How can
weaknesses be minimized or eliminated? The true value of the SWOT analysis is in
bringing this information together, to assess the most promising opportunities, and the
most crucial issues.

An Example

AMT is a computer store in a medium-sized market in the United States. Lately it has
suffered through a steady business decline, caused mainly by increasing competition from
larger office products stores with national brand names. The following is the SWOT
analysis included in its marketing plan.

Knowledge. Our competitors are retailers, pushing boxes. We know systems, networks,
connectivity, programming, all the Value Added Resellers (VARs), and data
Relationship selling. We get to know our customers, one by one. Our direct sales force
maintains a relationship.
History. We've been in our town forever. We have the loyalty of customers and vendors.
We are local.

Costs. The chain stores have better economics. Their per-unit costs of selling are quite
low. They aren't offering what we offer in terms of knowledgeable selling, but their cost
per square foot and per dollar of sales are much lower.
Price and volume. The major stores pushing boxes can afford to sell for less. Their
component costs are less and they benefit from volume buying with the main vendors.
Brand power. Take one look at their full-page advertising, in color, in the Sunday paper.
We can't match that. We don't have the national name that flows into national advertising.

Local area networks. LANs are becoming commonplace in small businesses, and even in
home offices. Businesses today assume LANs are part of normal office work. This is an
opportunity for us because LANs are much more knowledge and service intensive than
the standard off-the-shelf PC.
The Internet. The increasing opportunities of the Internet offer us another area of strength
in comparison to the box-on-the-shelf major chain stores. Our customers want more help
with the Internet and we are in a better position to give it to them.
Training. The major stores don't provide training, but as systems become more
complicated with LAN and Internet usage, training is more in demand. This is
particularly true of our main target markets.
Service. As our target market needs more service, our competitors are less likely than
ever to provide it. Their business model doesn't include service, just selling the boxes.

The computer as appliance. Volume buying and selling of computers as products in
boxes, supposedly not needing support, training, connectivity services, etc. As people
think of the computer in those terms, they think they need our service orientation less.
The larger price-oriented store. When they have huge advertisements of low prices in the
newspaper, our customers think we are not giving them good value.

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