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Lecture 7:

Lecture 7 Entrepreneurship Management -NLDIMS 1 Q : What does entrepreneurship smell like ? A : To me entrepreneurial ability is more significant than executive ability. Money can be raised, teams can be hired, however entrepreneurial skill is the key driver of the vision. An entrepreneur has the ability to pick up trends from the future and convert them into discernible projects today. The rest is passion. Shiv Nadar (HCL) in ET CD on 21/1/11

Business Oppurtunity Recognition:

Business Oppurtunity Recognition Entrepreneurial Alertness- Experience Education Prior knowledge of markets & consumer needs Networks Entrepreneurship Management -NLDIMS 2

Major Stages of Entrepreneurship:

Major Stages of Entrepreneurship Converging on the idea Business Plan Business Formation Growth/ exit Going public Entrepreneurship Management -NLDIMS 3

Product Planing and Development Process:

Product Planing and Development Process Entrepreneurship Management -NLDIMS 4

Product Planing and Development Process:

Product Planing and Development Process Entrepreneurship Management -NLDIMS 5


Evaluation Parameters Consumer centric- needs , buying habits Markets - PLC , size , share, competition Financial - BE , ROR , ROI Production -Technical skills, equipment Operations- Management ( in house – outsourced – deficient ) Entrepreneurship Management -NLDIMS 6

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Criteria for selecting a product Internal factors External factors 1.Cost 1. Demand of consumers 2.Experience 2. Competition :- 3.Differentiation a. Pure 4.Financial strength b. Monopoly 5.Functional departments c. Oligopoly 6.Personal factors of an entrepreneur 3. Suppliers 4. Technological improvement 5. Demographic factors:- - Size of population - Trends in birth and death rate - A distribution - Educational group - Geographical distribution - Occupation 6. Economic conditions 7. Natural environment 8. Political and legal role 9.Socio-cultural factor Entrepreneurship Management -NLDIMS 7

2.Business Plan Development :

2.Business Plan Development Four major elements: Product/ service selection Business Model Financial Model Operating plan Entrepreneurship Management -NLDIMS 8

3.Business Formation:

3.Business Formation Type of company: legal form, registration Financing : Family and friends Govt grants Non govt grants Angels Entrepreneurship Management -NLDIMS 9

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Financing small business. 1.SIDBI Banks 1.Commercial Banks 2.RRBs [Regional Rural Banks] 3.Co- operative banks State Level Others: 1.SFC 1.NABARD 2.SIDCs 2.NSIC 3.SIICs[ State Industrial Investment Corp] 4.SSIDCs Entrepreneurship Management -NLDIMS 10

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Types of Finance: 1.Short Term Finance:[funds required for less than 1 year.] Sources of finance : a).Bank credit b).Trade Credit c).Installment credit 2.Medium Term Finance [ Period of 1 to 5 years] Sources of finance: a) Issue of Debentures b)Loans from banks & other financial institutions c)Public deposits [ existing concerns] d) Ploughing back of profits [ existing concerns] Entrepreneurship Management -NLDIMS 11

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3.Long Term finance [5 years and above] Sources of finance a)Issue of shares b)Issue of debentures c)Loans from financial institutions d)Ploughing back of profits [for existing concerns]. Entrepreneurship Management -NLDIMS 12

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Guidelines followed by the banks: 1.The debt equity ratio 2.Turnover to net worth 3.Return on capital employed 4.Net profit as a percentage of net worth 5.Dividend paid to shareholders 6.Ratio of current assets to current liabilities. Entrepreneurship Management -NLDIMS 13

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Assistance by SFCs, SIDC & Commercial Banks. Financing -- of new projects in the S&M size category -- for modernization of S&M industries -- for rehabilitation of S&M industries -- for import of capital equipment . Entrepreneurship Management -NLDIMS 14

SIDBI: Services of SIDBI are:

SIDBI: Services of SIDBI are 1.Promotion 2.Financing 3.Development of Industries in the small- scale sector 4.Co-ordinating the functions of institutions engaged in similar activities. 5.Refinance 6.Bills financing 7.Project & equity finance. Entrepreneurship Management -NLDIMS 15

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Direct finance: through 38 offices providing schemes to specific target groups. Indirect finance: by refinance and bills rediscounting through 894 primary lending institutions having 65,000 outlets across the country. Entrepreneurship Management -NLDIMS 16

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Financial Assistance to Small- scale Units: 1. Rupee loans to the SS units are granted at concessional rates of interest. 2. Non –commitment charge is levied on loans up to Rs.5 lakhs to units in the small scale sector. 3. Commitment charge at the rate of 1%is levied on all other loans after an initial grace period of 12 months from the date of sanction. Entrepreneurship Management -NLDIMS 17

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4.But, units located in category ‘A’ backward areas are totally exempted from commitment charges on rupee loans. 5. And units located in category ‘B&C’ areas are eligible for 50% concession on the commitment charges. 6.The SSI are allowed a debt- equity ratio extending up to 2.5. The promoters contribution norm varies between 12.5% to 22.50%, depending on the location of the project and status of the entrepreneurs. Entrepreneurship Management -NLDIMS 18

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Credit Facilities to SSI: 1.Banking system provides mainly working capital and SFCs provides investment capital. 2. The credit provided by banks to this sector was treated as credit to ‘Priority Sector’. 3. The commercial banks are required to lend 40% of their total loans of which 15 to 16% is required to be in the form of direct agricultural advances and the rest can be to the SSI and indirect agricultural loans etc. Entrepreneurship Management -NLDIMS 19

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SFCs 4.Assistance is provided by SFC to new units by way of interest free loans to fill the shortfall in equity. The loans are repayable over a period of 5 to 7 years after an initial moratorium period of 5 to 7 yrs. Entrepreneurship Management -NLDIMS 20

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Financial Assistance to Medium- Scale Units: 1.For medium scale units located in backward areas – 12.50% ( variable low ) Non- backward areas –14% of interest. ( low) 2.Commitment charges: ‘A’ backward areas --No commitment charges. ‘B&C’ backward areas – commitment charge at the rate of .5% per annum shall be levied after allowing the normal period of a grace of six months from the date of sanction. 3.Non backward areas - 1% as commitment charges. Entrepreneurship Management -NLDIMS 21


THANK YOU Entrepreneurship Management -NLDIMS 22

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