Entrepreneurial Management / Entrepreneurship Development Notes

WHAT IS “ENTREPRENEURSHIP”?
Entrepreneurship is the ABILITY and READINESS to develop, ORGANIZE and
RUN A BUSINESS ENTERPRISE, along with any of its uncertainties in order to
make a profit.
Meaning
Entrepreneurship is a process of actions of an entrepreneur who is a person always
in search of something new and exploits such ideas into gainful opportunities by
accepting the risk and uncertainty with the enterprise. It is the process of starting a
business, a startup company or other organization. The entrepreneur develops a
business plan, acquires the human and other required resources, and is fully
responsible for its success or failure. Entrepreneurship operates within an
entrepreneurship ecosystem.
Definitions
According to A.H. Cole, “Entrepreneurship is the purposeful activity of an
individual or a group of associated individual undertaken to initiate, maintain or
aggrandize profit by production or distribution of economic goods and services”.
According to J.A. Timmons, “Entrepreneurship is the ability to create and build
something from practically nothing”.
According to Musselman and Jackson, "Entrepreneurship is the investing and risking
of time, money and effort to start a business and make it successful”.
WHO IS AN “ENTREPRENEUR”?
An Entrepreneur is an individual who creates a NEW BUSINESS, BEARING
MOST OF THE RISKS AND ENJOYING MOST OF THE REWARDS.
The Entrepreneur is commonly seen as an innovator, a source of new ideas, goods,
services, and business/or procedures.
WHAT IS AN “ENTREPRISE”?
Enterprise simple means an ECONOMIC ORGANISATION engaged in
BUSINESS ACTIVITY.

CHARACTERISTICS OF ENTREPRENEURSHIP
Entrepreneurship is characterized by the following features:
1. Economic and dynamic activity
Entrepreneurship is an economic activity because it involves the creation and
operation of an enterprise with a view to creating value or wealth by ensuring
optimum utilization of scarce resources. Since this value creation activity is
performed continuously in the midst of uncertain business environment therefore,
entrepreneurship is regarded as a dynamic force.
2. Related to innovation
Entrepreneurship involves a continuous search for new ideas. Entrepreneurship
compels an individual to continuously evaluate the existing modes of business
operations so that more efficient and effective systems can be evolved and adopted.
In other words, entrepreneurship is a continuous effort for synergy (optimization of
performance) in organizations.
3. Profit potential
"Profit potential is the likely level of return or compensation to the entrepreneur for
taking on the risk of developing an idea into an actual business venture." Without
profit potential, the efforts of entrepreneurs would remain only an abstract and a
theoretical leisure activity.
4. Risk bearing
The essence of entrepreneurship is the willingness to assume risk arising out of the
creation and implementation of new ideas. New ideas are always tentative and their
results may not be instantaneous and positive. An entrepreneur has to have patience
to see his efforts bear fruit the intervening period (time gap between the conception
and implementation of an idea and its results). An entrepreneur has to assume risk
of an entrepreneur does not have the willingness to assume risk entrepreneurship
would never succeed.
5. Skillful management
Entrepreneurship involves skillful management. The basic managerial skill is the
most important characteristic feature of entrepreneurship. For effective management
of an enterprise the role of an entrepreneur is to initiate and supervise design of

organization improvement projects in relation to upcoming opportunities is very
much important.
6. Accepting challenges
Entrepreneurship means accepting challenges amidst risk and uncertainty. While
accepting entrepreneurship as a career the entrepreneur accepts the challenges of all
odds and puts his efforts to convert the odds into viable business opportunities by
pooling together the resources of building and running the enterprise.
7. Goal-oriented Activity
The entrepreneur who creates and operates enterprises seeks to earn profits through
satisfaction of needs of consumers, hence, entrepreneurship is a goal-oriented
activity: Entrepreneurship emphasizes results achievements and targets achieved. It
is work done not imaginary plans or paper decisions Hence entrepreneurship is a
goal-oriented activity.
8. Value Creation
Next, we find that the process of creating value is a characteristic in describing
entrepreneurship Through entrepreneurship, new products, services transactions
approaches, resources technologies and markets are created that contribute some
value to a community or marketplace. We can also see value created when through
entrepreneurship: resources are transformed into outputs such as products or
services. During this transformation process, value is created because the
entrepreneurs fashioning something worthwhile and useful Drucker says. "Until
entrepreneurial act, every plant is a seed and every mineral another rock
9. Dynamic Process
Entrepreneurship is a dynamic function. Entrepreneur thrives on changes in the
environment which bring useful opportunities for business. An entrepreneur deals
proactively with changing markets and environment. He looks at the changes as the
source of market advantages, not as a problem Uncertainties are market
opportunities for him. He capitalizes on fleeting market anomalies.
10. Uniqueness
Other characteristic found in entrepreneurship is that of uniqueness
Entrepreneurship involves new combinations and new approaches with which
entrepreneurs are willing to experiment. Through Entrepreneurship unique products

are created and unique approaches are tried Entrepreneurship isn't merely imitating
what others have done. It's doing something new, something untested and untried
something unique
11. Interest and Vision
The first factor for entrepreneurial success is interest Since entrepreneurship pays
off according to performance rather than time spent on a particular effort an
entrepreneur must work in an area that interests her. Otherwise, she will not be able
to maintain a high level of work ethic and she will most likely fail. This interest must
also translate into tan for the company growth. Even if the day-to-day activities of a
business are interesting to an entrepreneur. this is not enough for success unless she
can turn this interest into a vision of growth and expansion. This vision must be
strong enough that she can communicate it to investors and employees
12. Risk and Rewards
Entrepreneurship requires risk. The measurement of this risk equates to the amount
of time and money you invest into your business. However, this risk also tends to
relate directly to the rewards involved. An entrepreneur who invests in a franchise
pays for someone else's business plan and receives a respectable income, while an
entrepreneur who undertakes ground breaking innovations risks everything on an
assumption that something revolutionary will work in the market. If such a
revolutionary is wrong, she can lose everything. However, if she is right, she can
suddenly become extremely wealthy.

DIFFERENCE BETWEEN ENTREPRENEUR, ENTREPRENEURSHIP &
ENTERPRISE
FUNCTIONS OF AN ENTREPRENEUR
1. Taking Initiative
Entrepreneurship is a pro-active activity that takes such actions, which others can’t
even perceive.
This unique function of entrepreneurship provides our civilization with a wide
variety of products, ways of actions, production techniques, etc.
Therefore, taking initiative with such end and qualification is the prime function of
entrepreneurship in every economy.
BASIS FOR
COMPARISON
ENTREPRENEUR ENTREPRENEURSHIP ENTERPRISE
MEANING An entrepreneur is
an individual or a
team thereof, having
an innovative idea,
and takes every step
to turn the idea into
reality, while bearing
the risks.
Entrepreneurship is a risky
activity of commencing a
business usually a start up
company, offering distinct
products and services to
the target customers,
which may or may not get
success.
A business or company.
WHAT IS IT? Person who has an
idea and gives shape
to it.
Process which gives shape
to the idea.
It is the outcome of
entrepreneurship.
REPRESENTS An innovator, who
chased the dream, till
it becomes true.
A procedure through which
an innovation is done.
A business enterprise
BUSINESS
VENTURE
Hershel is the one who
sets up the business
venture, to turn a
concept into reality.
It is the activity, which an
entrepreneur undertakes to
set up the business venture.
It is the business venture.

2. Organizing Resources
Organizing entails identifying those resources that are required to transform a
particular idea into reality. The resources include human and nonhuman resources.
Organizing in entrepreneurship will increase productivity, promote new ventures,
distribute and supervise work and responsibility, and will remove barriers to work.
Entrepreneurship, thus, is the taping tool fur assuming indigenous skills and
resources for the productive purpose.
3. Identifying Opportunities and Prospects
Entrepreneurship searches those activities of value that have an economic and social
contribution.
It identifies new opportunities in the socio-economic arena which have got profitable
prospects therefore, entrepreneurs are called searchers of hopes into blind spots and
this function enormously indebted our society to entrepreneurship.
4. Risk-Taking
Entrepreneurship takes the risk for the new venture.
For innovative actions in the field of production technology for new products in a
volatile market and new raw materials used in production.
Moreover, it also takes the risk for theft, robbery, snatching market fall and
hooliganism that may be involved with new entrepreneurship This is a major
function of entrepreneurship in developing countries.
5. Decision Making
Entrepreneurship is a new initiative therefore, it has to decide multivariate issues
that affect new ventures.
Entrepreneurship has to decide upon equipment to be used quality, price and its
variation, deficiency, capital structure, the feasibility of the project, organizational
structure, philosophy of management, etc. that will guide, run and prosper the new
venture or distinct attempt for entrepreneurship.
We know that decision-making is a process and entrepreneurship to make n a
success, goes through this process.
6. Technology Transfer and Adaptation

Entrepreneurship throughout the world brings invented technology from different
comers of the world and makes it appropriate by making required adjustments for
local conditions.
This function of entrepreneurship involves identifying appropriate technology with
market potentials and adapts it into the local environment.
Sometimes, the technology uses indigenous materials that reduce cost and wastage
of resources. This entrepreneurial function virtually makes the world united in terms
of homogeneous technology.
7. Innovation
Entrepreneurship innovates a new production process or technology, market, sources
of new materials, management, strategy or technique, investment opportunity, etc.
that Schumpeter (1934) calls as the fundamental characteristics of entrepreneurship.
Under the context of the changing environment, the entrepreneur locates the most
feasible opportunity for the venture as well as improved or distinct technology that
gives competitive advantages or a new opportunity to prosperity.
Innovation is a creative means to add new utilities to existing situations or products.
Entrepreneurship through innovation creates innovative products or operations for
human society.
8. Fostering Autonomy
Entrepreneurship is an exposure of creative faculty that provides personal
satisfaction and independence. The unique freedom to think differently is the
impetus for entrepreneurship.
Thus, entrepreneurship Fosters autonomy to advent something new of value by the
application of devoted efforts and time.
9. Social Responsibility
Entrepreneurship with its innovative technology somehow promotes human efforts.
It restarts closed industries with innovative managerial strategies and techniques
It also motivates new entrepreneurs and attracts them to engage into an
entrepreneurial venture.
Entrepreneurship provides new products or ideas that give momentum and diversity
into society.

Therefore, entrepreneurship performs social responsibility that protects the welfare,
benefit and economic gain of the society. It also promotes the community standard
by providing jobs and amenities.
10. Public Relations
Entrepreneurship is a new venture that requires social acceptance by the regulatory
bodies and the public at large.
The government, as well as the persons’ who will be subject to entrepreneurship,
would be convinced through public relations to accept and to allow the entrepreneur
to execute an entrepreneurial venture.
History tells that many entrepreneurs were disregarded, coerced and even eliminated
for their entrepreneurial activities. Failure is costly and therefore, public relation is
a significant function of entrepreneurship.
11. Experience Sharing
Entrepreneurship may spread in society through publishing and sharing its success
stories.
Thus, entrepreneurship holds workshops, industrial visits through which the
entrepreneurial experience in different counties may be shared with a widespread
adaptation of success.
This function will benefit the economies of the countries as well as the world bodies,
12. Managerial Roles
Entrepreneurs perform several managerial roles to keep their venture functioning
with success.
The roles are interpersonal roles that consist of a figurehead role, leadership role,
and liaison role; informational roles that include recipient role, disseminator role,
and the spokesperson role; decisional roles that consist of an entrepreneurial role,
disturbance-handler role, resource allocator role, and the negotiator role.
The entrepreneur also does the associated managerial functions such as planning,
organizing, leading and controlling.
13. Balanced Economic Development

Sustainable economic development requires a balanced development among various
regions and sectors of a country. Every country tries to ensure such a situation that
makes industrialization throughout the country “possible.
Entrepreneurs make it possible by establishing business ventures in various parts of
the country in various sectors of the industry.
ROLE OF ENTREPRENEUR IN ECONOMIC DEVELOPMENT
1. Improvement in Per Capita Income:
Entrepreneurs locate and exploit opportunities. They convert the latent and idle
resources like land, labour and capital into national income and wealth in the form
of goods and services. They help increase Net National Product and Per Capita
Income in the country.
2. Generation of Employment:
Entrepreneur generate employment both directly and indirectly. By starting their
business they present an opportunity to others for work by offering jobs.
3. Balanced Regional Development:
Entrepreneurs help to remove the regional disparities in the economic development
of areas. They set up industries in backward areas to avail various substitutes and
bring up the development of that region.
4. Improvement in Living Standards:
Entrepreneur set up industry which introduce new products on a mass scale. They
are at lower costs and this helps to improve the standard of life of a common man.
5. Economic Independence:
Entrepreneurship is essential for national self-reliance. Industrialists help to
manufacture substitutes of imported products thereby reducing dependence on
foreign countries. These businessmen also export products thereby earning foreign
exchange for the country.

PRO’S OF BEING AN ENTREPRENEUR
1. Freedom
There’s no denying that one of the best parts of being an entrepreneur is the complete
freedom you have to do your own thing. No more bosses to report to, or managers
peering over your shoulder – now you’ve gone from the bottom all the way to the
top. You are the boss.
2. Flexibility
And with all that extra responsibility comes flexibility. Many people are excited to
work for themselves because it means they can work when they want and where they
want. Your commute could be as simple as walking to the couch or taking a stroll to
the local coffee shop.
3. Profits
Instead of making others richer, now your profits can slide right into your own
pocket. This means each business success becomes your success, and as your
business grows, so does your potential income. This can be incredibly motivating
for many new entrepreneurs on the path to success.
4. Control
Many budding entrepreneurs value control. Getting your own venture off the ground
requires heavy lifting but at the end of the day, it’s your dream and you are in control
of making it happen. Having influence over the direction of the company is one of
the most exciting parts of being an entrepreneur.
CON’S OF BEING AN ENTREPRENEUR
1. Responsibility
Not only is the future of your business in your hands but so is your next paycheck.
Moving away from a salaried job to an unstable income is hard. There is great
sacrifice that comes from starting your own business, and while the pay-off may be
worth it, carrying the weight of responsibility can be difficult at first.
2. Risk
As the business owner, you will take on much of the risk associated with starting a
new venture. This means, instead of your employer taking the fall, you’re often
risking your savings, time and effort to get your business off the ground.

3. Workload
It takes serious hustle to get a new business up and running, and for the most part,
you’ll be doing all the grunt work – especially in the early stages. All the heavy
lifting can be hard for one person to manage. While it can be an exciting time, full
of possibility, it can also be exhausting.
4. Limitations
The idea of running your own business can be very different to the reality. From late
nights to lonely weekends, being an entrepreneur is not without its challenges. You
can also find it quite limiting in the early stages, without the funding of a big name
or well-established business behind you.
5 KEY FACTORS THAT INFLUENCE ENTREPRENEURSHIP
1. Creativity and Accumulation of Ideas
Do not be dissuaded by the challenge to be creative. You need not be the original
wheel creator to improve upon a stone cylinder. By standing on the shoulders of
giants, you can take existing ideas and make small improvements upon them. Your
best ideas may come to you as you are falling asleep or while you are taking a
shower. Recognize when you have a fresh idea and do not let them get away from
you. Write them down! Not every idea has to be a home run. By accumulating your
ideas, you will be able to distill the great ones from the rest and be ready to run with
the best.
2. Risk Tolerance and Taking Advantage of Opportunity
Rewards rarely come without risk. Your ability to take advantage of an opportunity
will depend, in part, on your tolerance for risk. As the founder of a start-up, investors
will expect you to have a vested interest in your business. If you will not bet on your
idea, why should anybody else?
If you cannot afford the risk, financially or emotionally, then you might make
decisions that are too tepid to be successful. To do well, an entrepreneur needs the
strong sense of self-efficacy to believe the risk will be surmountable.
3. Responsiveness to Opportunity
Opportunity can leave quickly. With the internet, the spread of information and ideas
has led to deeper, faster competition to be the first mover. The ability to respond to

the market and new business opportunities can be the difference between a
successful entrepreneur and a failed business model.
To be responsive, an entrepreneur must have the flexibility of mind and resources
necessary to see and take advantage of new and upcoming possibilities. Learning
from your mistakes and those of others to implement change can keep businesses
afloat. Calcifying rigidity, on the other hand, can turn a start-up into dust.
4. Leadership and Inspiring Others
It is up to the entrepreneur to marshal assets. Leaders are challenged with taking
possibilities and turning them into inspiring visions for others. You will inevitably
have to sell either your idea or your product to begin your entrepreneurship. It will
be up to the entrepreneur to take the idea and turn it into actions and products to
capitalize on the opportunity. Leadership can come in many forms, but it is
nevertheless essential to entrepreneurship. You must take the lead for your ideas to
come to fruition.
5. Intellectual Property Rights
Intellectual property laws can provide you with exclusive business rights to your
ideas. If you do not protect your ideas, they may be copied – cheaply. Once an idea
is in the public domain, it may no longer be possible to use that idea as a competitive
advantage. Society values ideas being shared.
In exchange for sharing ideas, governments provide limited monopolies that will
allow you research and development. Intellectual property professionals can aid you
in seeking such rights.

KEY DIFFERENCE BETWEEN ENTREPRENEUR AND MANAGER
BASIS FOR
COMPARISON
ENTREPRENEUR MANAGER
Meaning Entrepreneur refers to a person who
creates an enterprise, by taking
financial risk in order to get profit.
Manager is an individual who
takes the responsibility of
controlling and administering
the organization.
Focus Business startup Ongoing operations
Primary motivation Achievement Power
Status Owner Employee
Reward Profit Salary
Decision making Intuitive(Acts from his instinct) Calculative
Driving force Creativity and Innovation Preserving status quo(Acts
according to present scenario)
Risk orientation Risk taker Risk averse
QUALITIES OR TRAITS OF A SUCCESSFUL ENTREPRENEUR
1. Full of determination
To be a successful entrepreneur it is important to set clear goals along the way.
Growing business. increasing sales and hiring new employees require several micro
goals within them to be executed successfully. This type of workload and challenge
is enough to stop many people from pursuing the entrepreneurial career path. One
has to be determined from the beginning to be successful. If one isn't fully
determined there is a good chance to crumble under the pressure.
2. Risk Taking
Some of the most successful entrepreneurs took major risks, and they paid off in a
big way. Entrepreneurs are risk takers ready to dive deep into a future of uncertainty.
But not all risk takers are successful entrepreneurs. Successful entrepreneurs have

will to risk time and money on unknowns, but they also keep resources, plans and
bandwidth for dealing with "unknown" in reserve. When evaluating risk, a
successful entrepreneur always thinks that is this risk worth the cost of career, time
and money? And, what will he do if this venture doesn't pay off?
3. High level of confidence
Entrepreneurs that have a high level of confidence are able to get the job done even
under the most stressful conditions. They understand that big challenges breed big
rewards. This is the same mentality that allows successful entrepreneurs to spot an
opportunity when most just see a possible challenge When most focus on the
challenge a successful entrepreneur focuses on the finish line and the end reward.
4. Craves learning
Industries constantly change and evolve Only those that are also growing through
constant learning will stay ahead. There will always be competitors trying to surpass
There will always be someone calming to be the next greatest thing A successful
entrepreneur always stay sharp through constant learning about the competitors and
the industry.
5. Understands failure is part of the game
Failure is one of the secrets to success, since some of the best ideas arise from the
ashes of a shuttered business. A successful entrepreneur knows that failure is part of
success. He will take those failures and use them as learning experiences. Real world
experience, even failing, will teach more than what one would ever learn in a
classroom.
6. Passionate
Passion fuels the drive and determination required to be successful. If one isn't fully
passionate about what he/she is doing the added stress and obstacles will build up
on shoulders and eventually be responsible for collapse.
7. Adaptability and Flexibility
If entrepreneurs had the ability to see what was hiding around each turn it would
make it much easier. but unfortunately that is not the case. There can be surprises
around every corner, even with a well thought out plan and strategy. A successful
entrepreneur is extremely adaptable and has ability to respond quickly in any
situation. It's good to be passionate or even stubborn about what you do. But being

inflexible about client or market needs will lead to failure. Market needs are dynamic
changes are a recurring phenomenon. Successful entrepreneurs welcome all
suggestions for optimization or Customization that enhances their offering and
satisfies client and market needs.
8. Money Management
Successful Entrepreneur must have excellent money management skills. Poor
financial decisions such as overspending or allocating funds to less important tasks
can quickly ruin a business. It takes time to get to profitability for any entrepreneurial
venture till then capital is limited and needs to be utilized wisely. Successful
entrepreneurs realize this mandatory money management requirement and plan for
present and future financial obligations with some additional buffer). Even after
securing funding or going fully operational a successful businessman keeps a
complete handle on cash flows, as it is the most important aspect of any business.
9. Networking Abilities
A large collection of business cards and a huge contact list doesn’t make an expert
at networking, building value based relationships that are truly meaningful is what
networking is all about these are the relationships that lead to business opportunities
and long term relationships that are mutually beneficial. Constantly networking with
people that can not only help my business currently, but also have the potential to
help you in the future as well.
10. Ability to sell and promote
Knowing how to sell is an absolutely essential part of being a successful business
owner if you can express what it is that makes your product or service a solution to
a problem. you will be in for a rough ride.
11. Planning (But not Over-planning)
Entrepreneurship is about building a business from scratch while managing limited
resources including time, money and personal relationships. It is a long-term
commitment, and attempting to plan as much as possible at the beginning is a noble
impulse in reality, however planning for everything and having a ready solution for
all possible risks may prevent you from even taking the first step. Successful
entrepreneurs have a mindset and temperament to capable of dealing with
unforeseen possibilities.

12. Creativity and Persuasiveness
Successful entrepreneurs have the creative capacity to recognize and pursue
opportunities. They possess strong selling skills and are both persuasive and
persistent. Are you willing to promote your business tirelessly and look for new ways
to get the word out about your product or service?
13. Interpersonal Skills
Entrepreneurs are always comfortable while dealing with people at all levels. During
the course of their action they come across a cross section of individuals with whom
they have to deal. They interact with raw material suppliers, customers, bankers etc,
for different activities. As successful entrepreneurs. they should be persons who like
working with others possessing the much needed quality of interpersonal skill to deal
with people.
14. Time orientation
Entrepreneurs anticipate future trends basing upon their past experience and
exposure They stick to the time pragmatically while doing their jobs.
15. Leadership
Entrepreneurs should possess the quality of leadership. Leadership is the ability to
exercise interpersonal influence by means of communication towards the
achievement of goals Entrepreneurs as the leaders should provide the necessary
spark to motivation by guiding inspiring assisting and directing the members of the
group for achievement of unity of a n efforts and purpose.
16. Internal Locus of Control
Successful entrepreneurs believe in themselves. They do not believe that the success
or failure or their venture will be governed by fate luck or similar forces. They
believe that their accomplishments and setbacks are within their own control and
influence and that they can affect the outcome of their actions.
17. Tolerance for Ambiguity
Star up entrepreneurs face uncertainty compounded by constant changes that
introduce ambiguity and stress into every aspect of the enterprise. Setbacks and
surprises are inevitable. A tolerance for ambiguity exists when the entrepreneur can
deal with the various setbacks and changes that constantly confront him or her.

18. Integrity and Reliability
Integrity and reliability are the glue and fiber that bind successful personal and
business relationships and make them strong integrity and reliability help build and
sustain trust and confidence among investors partners. Customers and creditors.
Small business entrepreneurs in particular find these two characteristics crucial to
success.
19. Tolerance for Failure
Successful Entrepreneurs use failure as a learning experience in adverse and difficult
times they look for opportunity.

TYPES OF ENTREPRENEURS
Entrepreneurs can be classified on following bases-
1. On the basis of type of Business
2. On the basis of use of Technology
3. On the basis of Ownership
4. On the basis of Gender
5. On the basis of Size of Enterprise
6. Other type of Entrepreneurs
BASED ON TYPE OF BUSINESS
TRADING
ENTREPRENEUR
MANUFACTURING
ENTREPRENEUR
AGRICULTURAL
ENTREPRENEUR
• As the name itself
suggests, the trading
entrepreneur undertake the
trading activities.
• They procure the
finished products from the
manufacturers and sell these
to the customers directly or
through a retailer.
• These serve as the
middlemen as wholesalers,
dealers, and retailers
between the manufacturers
and customers.
• The manufacturing
entrepreneurs manufacture
products.
• They identify the
needs of the customers and,
then, explore the resources
and technology to be used
to manufacture the products
to satisfy the customers’
needs.
• In other words, the
manufacturing
entrepreneurs convert raw
materials into finished
products.
• The entrepreneurs who
undertake agricultural
pursuits are called
agricultural entrepreneurs.
• They cover a wide
spectrum of agricultural
activities like cultivation,
marketing of agricultural
produce, irrigation,
mechanization, and
technology.

BASED ON OWNERSHIP
PRIVATE
ENTREPRENEUR
STATE
ENTREPRENEUR
JOINT
ENTREPRENEURS
• A private entrepreneur
is one who as an individual
sets up a business
enterprise.
• He / she it’s the sole
owner of the enterprise and
bears the entire risk
involved in it.
• When the trading
or industrial venture is
undertaken by the
State or the
Government, it is
called ‘state
entrepreneur.
• When a private
entrepreneur and the
Government jointly run a
business enterprise, it is called
‘joint entrepreneurs.’
BASED ON THE USE OF TECHNOLOGY
TECHNICAL ENTREPRENEUR NON-TECHNICAL ENTREPRENEUR
• The entrepreneurs who establish
and run science and technology-
based industries are called
‘technical entrepreneurs.’
• Speaking alternatively, these are
the entrepreneurs who make use of
science and technology in their
enterprises.
• Expectedly, they use new and
innovative methods of production
in their enterprises.
• Based on the use of technology, the
entrepreneurs who are not technical
entrepreneurs are non-technical
entrepreneurs.
• The forte of their enterprises is not
science and technology.
• They are concerned with the use of
alternative and imitative methods of
marketing and distribution strategies to
make their business survive and thrive in
the competitive market.

BASED ON GENDER
MEN ENTREPRENEURS WOMEN ENTREPRENEURS
• When business enterprises are
owned, managed, and controlled
by men, these are called ‘men
entrepreneurs.’
• Women entrepreneurs are defined as the
enterprises owned and controlled by a woman
or women having a minimum financial interest
of 51 per cent of the capital and giving at least
51 per cent of employment generated in the
enterprises to women.
BASED ON THE SIZE OF ENTERPRISE
SMALL-SCALE
ENTREPRENEUR
MEDIUM-SCALE
ENTREPRENEUR
LARGE-SCALE
ENTREPRENEUR
• An entrepreneur who
has made investment in
plant and machinery up
to Rs 1.00 crore is
called ‘small-scale
entrepreneur.’
• The entrepreneur
who has made
investment in plant
and machinery above
Rs 1.00 crore but
below Rs 5.00 crore
is called ‘medium-
scale entrepreneur.’
• The entrepreneur who
has made investment in
plant and machinery
more than Rs 5.00 crore
is called ‘large-scale
entrepreneur.’

OTHER TYPE OF ENTREPRENEURS
INNOVATING
ENTREPRENEURS
IMITATIVE
ENTREPRENEURS
FABIAN
ENTREPRENEURS
DRONE
ENTREPRENEURS
• Innovating
entrepreneurs are
one who introduce
new goods,
inaugurate new
method of
production,
discover new
market and
reorganize 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.
• 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.
• Fabian
entrepreneurs are
characterized 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.
• These are
characterized 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.

ENTREPRENEURSHIP DEVELOPMENT
Entrepreneurship development is the means of enhancing the knowledge and skill of
entrepreneurs through several classroom coaching and programs, and training.
The main point of the development process is to strengthen and increase the number
of entrepreneurs.
Importance/Need of Entrepreneurship Development (EDP)
Importance of entrepreneurship development programme (EDP) is to enable
entrepreneurs
initiating and sustaining the process of economic development in the following
ways-
1. Creation of Employment Opportunities
Unemployment is one of the most important problems confronting developing and
underdevelopment countries, EDP’s enable prospective entrepreneurs in the setting
up of their own units, thus enabling them to get self-employment. With the setting
up of more and more units by entrepreneurs, both on small and large scale, numerous
job opportunities are created for the others.
Entrepreneur in this way get an opportunity to lead an independent and honorable
life and at the same time they enable others in getting gainful employment. Several
schemes like Nehru Rozgar Yojna, National Rural Employment Programme
(NREP), Integrated Rural Development Programme (IRDP) etc. have been initiated
by the government, of India in this direction. The thrust of all these schemes is to
eliminate poverty and generate gainful employment opportunities for the
unemployed. Thus entrepreneur can play an effective role in reducing the problem
of unemployment.
2. Capital Formation
It is not possible to set up an enterprise without adequate funds. Entrepreneur as an
organizer of factors of production employs his own as well as borrowed resources
for the setting up of his enterprise. Entrepreneur mobilizes idle savings of the public
and put them to productive use. In this way he helps in capital formation, which is
so essential for the industrial and economic development of a country. Various
development banks like ICICI, IFCI, IDBI; SFCs, SIDCs take initiative in promoting
entrepreneurship through assistance to various agencies involved in EDP and by
providing financial assistance to new entrepreneurs.

3.Balanced Regional Development
Small scale units can be set up in industrially backward and remote areas with
limited financial resources. Successful EDP’s assist in accelerating the pace of
industrialization in the backward areas and reduce the concentration of economic
power in the hands of a few, Entrepreneurs feel
like taking advantage of the various concessions and subsidies offered by the state
and central government. Success story of entrepreneurs set right example for others
to follow and this accelerates the pace of industrialization in the backward areas.
Setting up of more units leads to more development of backward areas and balanced
regional development.
4. Use of Local Resources
In the absence of any initiative local resources are likely to remain unutilized. Proper
use of these resources can result in the progress or development of the area and that
too at lower cost. Alert entrepreneurs seize the opportunity and exploit it in the best
interests of the area and industry.
Effective EDPs can help in the proper use of local resources by providing guidance,
assistance, education and training to the prospective entrepreneurs.
5. Improvement in per Capital Income
Entrepreneurs are always on the lookout for opportunities. They explore and exploit
the opportunities. Entrepreneurs take lead in organizing various factors of
production by putting them into productive use through the setting up of enterprises.
More enterprises will lead to more production, employment and generation of wealth
in the form of goods and services. It will result in the increase in the overall
productivity and per capita income in the country. EDPs play a positive role in the
setting of more units and thus help in generation of more employment and income.
Problems of Entrepreneurship Development Programmes (EDPs)
1. No Policy at the National Level - Though Government of India is fully aware
about the importance of entrepreneurial development, yet we do not have a national
policy on entrepreneurship. It is expected that the government will formulate and
enforce a policy aimed at promoting balanced regional development of various areas
through promotion of entrepreneurship.

2. Problems at the Pre training Phase - Various problems faced in this phase
are — identification of business opportunities, finding & locating target group,
selection of trainee & trainers etc.
3. Over Estimation of Trainee - Under EDPs it is assumed that the trainees have
aptitude for self employment and training will motivate and enable the trainees
in the successful setting up and managing of their enterprises. These agencies thus
overestimate the aptitude and capabilities of the educated youth. Thus on one hand
the EDPs do not impart sufficient training and on the other financial institutions are
not prepared to finance these risky enterprises set up by the not so competent
entrepreneurs.
4. Duration of EDPs - An attempt is made during the conduct of EDPs to prepare
prospective entrepreneurs thoroughly for the various problems they will be
encountering during the setting up and running of their enterprises. Duration of
most of these EDPs varies between 4 to 6 weeks, which is too short a period to
instill basic managerial skills in the entrepreneurs. Thus the very objective to
develop and strengthen entrepreneurial qualities and motivation is defeated.
5. Non Availability of Infrastructural Facilities - No prior planning is done for
the conduct of EDPs. EDPs conducted in rural and backward areas lack
infrastructural facilities like proper class room suitable guest speakers, boarding and
lodging etc.
6. Improper Methodology - The course contents are not standardized and most
of the agencies engaged in EDPs are themselves not fully clear about what they
are supposed to do for the attainment of pre-determined goals. This puts a
question mark on the utility of these programmes.
7. Mode of Selection - There is no uniform procedure adopted by various agencies
for the identification of prospective entrepreneurs. Organizations conducting EDPs
prefer those persons who have some project ideas of their own and thus this
opportunity is not provided to all the interested candidates.
8. Non Availability of Competent Faculty - Firstly, there is problem of non-
availability of competent teachers and even when they are available, they are

not prepared to take classes in small towns and backward areas. This naturally
creates problems for the agencies conducting EDP.
9. Poor Response of Financial Institutions - Entrepreneurs are not able to offer
collateral security for the grant of loans. Banks are not prepared to play with the
public money and hence they impose various conditions for the grant of loans.
Those entrepreneurs who fail to comply with the conditions are not able to get
loan and hence their dream of setting up their own enterprises is
shattered. Helpful attitude of lending institutions will go a long way in stimulating
entrepreneurial climate.
Factors influencing Entrepreneurial Development
1. Economic Factors:
(a) Capital:
Capital is one of the most important prerequisites to establish an enterprise.
Availability of capital helps an entrepreneur to bring together the land of one,
machine of another and raw material of yet another to combine them to produce
goods. Therefore, capital is regarded as lubricant to the production process.
Basically, capital is the life blood of any activity. If capital is available, people who
have innovative ideas would like to put them into reality. Without having any
obstacles, if capital is available, it will act as a lifeline to entrepreneurs. So, if capital
is available, entrepreneurial activities will increase.
(b) Labour:
The quality and quantity of labour is another factor which influences the emergence
of entrepreneurship. Availability of labour makes entrepreneurship attractive. More
than abundantly available labour, the presence of skilled labour force is very
important because such a workforce
is generally less mobile than other resources. If entrepreneurial activities are initiated
near areas where labour is available, then it is easy to carry out the business more
comfortably and profitably at low cost. This is why one finds textile units and
machine tools manufacturing industries concentrated in certain cities like
Coimbatore, Tiruppur, Ludhiana, Rajkot, Baroda, etc. just because of availability of
skilled labour force required for such units.

(c) Raw Materials:
Raw materials are required for establishing any industrial activity and therefore have
an influence in the emergence of entrepreneurship. In the absence of raw materials,
neither any enterprise can be established nor can an entrepreneur emerge. In some
cases technological innovations can compensate for raw material inadequacies. The
supply of raw materials is not influenced by themselves but becomes influential
depending upon other opportunity conditions.
The more favorable these conditions are, the more likely is the raw material to have
its influence on entrepreneurial emergence.
(d) Market :
It is not only the availability of capital, labour and raw materials but a readily
available market that attracts entrepreneurial activities. Ultimately, it is the market
that fetches revenue for anybusiness. If sufficient market is not there, people will
naturally hesitate to do business in a sector where there is no market. In addition to
market opportunities, it is equally important to ensure future market opportunities
for the emergence of entrepreneurial activities.
2. Social Factors:
Development of entrepreneurship in a society may take place not just because of
better economic factors but because of the presence of positive social factors. The
following social factors influence the development of entrepreneurship in a society.
(a) Social norms and values:
A society sets certain norms and values for the behaviour of people who are part of
that society. If people violate or overstep these norms and values, certain restrictions
are likely to be imposed on them. As a result, many people are forced to accept
certain types of jobs and tasks that reflect the social environment. If the society has
an open and flexible approach towards various types of jobs and works, then people
will feel free to do whatever they like and even go in for innovation and creativity.
When there is more openness and flexibility, entrepreneurship will not only emerge
but also thrive.
(b) Role models:
Societies that celebrate entrepreneurship and felicitate successful entrepreneurs in a
way encourage many future generations to take up entrepreneurial activities. This is
because successful businessmen prove to be role models for the society at large. For

instance, states like Gujarat, Maharashtra and to some extent Tamil Nadu and
Haryana have experienced better industrial development as a result of higher
concentration of entrepreneurs compared to lesser industrialised states such as
Orissa, Chattisgarh, Madhya Pradesh and other Northeastern states.
(c) Social pressure:
At times, entrepreneurship can emerge in a society due to social restriction too. If a
society is orthodox, close and imposes a lot of restrictions, then it is likely to
backfire. People who are at the receiving end are likely to react strongly and go in
for change. In other words, because of negative pressure, more number of people
would like to become entrepreneurs as a means of
improving their status. It has been noticed that where people were marginalized, they
became entrepreneurs just to prove their abilities and establish an identity in the
society.
(d) Respect and Status:
If societies accord recognition and respect to people who dare to do something
different and creative, it proves to be an encouragement for others to do something
enterprising. Therein lies the emergence of entrepreneurship. In the traditional
societies, people were looked down upon rather than encouraged for deviating from
the set norms or regular occupation. This means there was no respect for change.
Thus, societies where there is respect and recognition for people to do something
different are more likely to see the development of entrepreneurial activities.
(e) Security:
The view regarding role of social security in encouraging entrepreneurship
development is rather divided. One school of thought is of the view that people are
more prone to take entrepreneurial risks in secure social environments. On the other
hand, there are others who argue that entrepreneurship will more likely emerge if
there are turbulent conditions. In both cases, there is scope for entrepreneurship
development.
3. Psychological Factors
(a) Need Achievement:

According to David McClelland’s theory of need achievement, a constellation of
personality characteristics which are indicative of high need achievement is the
major determinant of entrepreneurship development. Therefore, if the average level
of need achievement in a society is relatively high, one would expect a relatively
high amount of entrepreneurship development in that society. McClelland gives the
psychological concept of achievement motivation to account for the differences in
response to similar conditions. Referring to the encouraging impact of achievement
motivation training programmes organised by the Small Industries Extension
Training Institute (SIET), Hyderabad McClelland argues that the need achievement
can be developed through the intensive training programmes.
(b) Withdrawal of Status Respect:
E.E. Hagen attributed the withdrawal of status respect of a group to the genesis of
entrepreneurship. Giving a brief sketch of history of Japan, he concludes that she
developed sooner than other non-Western society except Russia due to two historical
differences. First, Japan had been free from ‘colonial disruption’ and secondly, the
repeated long continued withdrawal of expected status from important groups
(Samurai) in her society drove them to retreatism which caused them to emerge
alienated from traditional values with increased creativity. This very fact led them
to the technological progress entrepreneurial roles.
Hagen believes that the initial condition leading to eventual entrepreneurial
behaviour is the loss of status by a group. He postulates four types of events can
produce status withdrawal
(a) The group may be displaced by force;
(b) It may have its value symbols integrated;
(c) It may drift into a situation of status inconsistency; and
(d) It may not be accepted the expected status on migration in a new society.
He further postulates that withdrawal of status respect would give rise to four
possible reactions and create four different personality types
(a) Retreatist: He who continues to work in a society but remains different to his
work and position.
(b) Ritualist: He who adopts a kind of defensive behaviour and acts in the way
accepted and approved in his society but no hopes of improving his position.
(c) Reformist: He is a person who forements a rebellion and attempts to establish a
new society
(d) Innovator: He is a creative individual and is likely to be an entrepreneur.

Hagen maintains that once status withdrawal has occured, the sequence of change in
personality formation is set in motion. He refers that status withdrawal takes a long
period of time – as much as five or more generations to result in the emergence of
entrepreneurship.
3. Government Actions
The government by its actions or failure to act also does influence both the economic
and non-economic factors for entrepreneurship. Any interested Government in
economic development can help, through its clearly expressed industrial policy,
promote entrepreneurship in one way or other. By creating basic facilities, services
and utilities and by providing incentives and concessions, the Government can
provide the prospective entrepreneurs a facilitative socioeconomic setting. Such
conducive setting minimizes the risks which the entrepreneurs are to face. Thus, the
supportive actions of the Government appear as the most conducive to the
entrepreneurial growth. This is true of the Indian entrepreneurs also.

NATIONAL & STATE INSTITUTIONS IN AID OF ENTREPRENEURSHIP
DEVELOPMENT
1. Small Industries Development Organization
 Est. 1954
 Functions: Formulating policy for the development of Small Scale Industries
in the country. Provides extended support through Comprehensive plan for
promotion of rural entrepreneurship Institutions set up by Central Government.
2. Management Development Institute(MDI)
 Est. 1973
 Sponsored by: Industrial Finance Corporation Of India
 Objectives - Improving managerial effectiveness in the industry , Conducts
management development programs in various fields, It also includes programs for
Public Sector Undertakings such as IAS, IES, BHEL and etc…
3. Entrepreneurship Development Institute of India (EDI)
 Est. 1983
 Sponsored by - Apex financial institutions i.e, the IDBI Bank Ltd., IFCI Ltd.,
ICICI Bank Ltd. & SBI
 EDI has helped set up twelve state-level exclusive entrepreneurship
development centers and institutes across the country.
4. All India Small Scale Industries Board(AISSIB)
It is an Apex advisory body constituted to render advise to the Government on all
issues pertaining to the small scale sector, with a Central Government Minister as its
president and the representatives of various organization i.e. Central Government,
State Government, National Small Industries Corporations, State Financial
Corporation, RBI,SBI, Small Industries Board and NGOs such as Public Service
Commission, Trade and Industries Members.

5. National Institution of Entrepreneurship And Small Business
Development(NIESBUD)
 Est. 1983
 Objectives - To accelerate the process of entrepreneurship development.
 To help and support agencies in carrying out activities relating to
entrepreneurship development with greater success.
 To evolve standardized process of selection, training, support and sustenance
to potential entrepreneurs.
 To provide functional forums for interaction and exchange of experience.
6. Indian Institute of Entrepreneurship(IIE)
 Est. 1953
 It is an autonomous organization by the Department of Small Scale Industries
and Agro and Rural Industries Its main objective is to undertake research, training
and consultancy activities in the field of small industry and entrepreneurship.
7. Risk Capital and Technology Finance Corporation Ltd.(RCTFC)
 Est. 1988 with an authorized capital of 15 crores Rupees
 Objectives - Provision of risk capital for the extension and expansion of
entrepreneurial development.
 Provision of Venture capital for the projects with high techniques for
technology development and transfer.

INTRODUCTION
To define small-scale industry effectively, it is imperative to first learn about the
meaning of industry. The term industry refers to a group of companies that are
related to each other, based on the primary business activities they undertake.
Small-scale industries, thus, refer to those partnerships, corporations or sole
proprietorships that function on a lower scale, employing a smaller workforce, and
generate less revenue than that by normal-sized industries or businesses. Small-scale
enterprises can also refer to those businesses that apply for government support or
avail preferential tax, policies, depending on their area of operation.
MEANING
Small-scale industries (SSI) are those industries in which manufacturing, providing
services, productions are done on a small scale or micro scale.
Essentially small-scale industries comprise of small enterprises who
manufacture goods or services with the help of relatively smaller machines and a
few workers and employees.
For Example, these are the ideas of Small Scale Industries: Napkins, tissues,
chocolates, toothpick, water bottles, small toys, papers, and pens.
OBJECTIVES
The objectives of the small-scale industries are:
To create more employment opportunities.
To help develop the rural and less developed regions of the economy.
To reduce regional imbalances.
To ensure optimum utilization of unexploited resources of the country.
To improve the standard of living of people.
To ensure equal distribution of income and wealth.
To solve the unemployment problem.
To attain self-reliance.
To adopt the latest technology aimed at producing better quality products at lower
costs.

CHARACTERISTICS OF SSI’s
1. Labour intensive:
Small-scale industries are fairly labour-intensive. They provide an economic
solution by creating employment opportunities in urban and rural areas at a relatively
low cost of capital investment.
2. Flexibility:
Small-scale industries are flexible in their operation. They adopt quickly to various
factors that play a large part in daily management. Their flexibility makes them best
suited to constantly changing environment.
3. One-man show:
A small-scale unit is generally a one-man show. Individuals mostly set it up.
Partnership firm or company runs even some small units; one of the partners or
directors mainly carries out the activities. Therefore,’ they provide an outlet for
expression of the entrepreneurial spirit. As they are their own boss, the decision
making process is fast and at times more innovative.
4. Use of indigenous raw materials:
Small-scale industries use indigenous raw materials and promote intermediate and
capital goods. They contribute to faster balance economic growth in a transitional
economy through decentralization and dispersal of industries in the local areas.
5. Localized operation:
Small-scale industries generally restrict their operation to local areas in order to meet
the local and regional demands of the people. They cannot enlarge their business
activities due to limited resources.
6. Lesser gestation period:
Gestation period is the period after which the return on investment starts. It is the
time between setting the units and commencement of production. Small-scale
industries usually have a lesser gestation period than large industries. This helps the
entrepreneur to earn after a short period. Capital will not be blocked for a longer
period.

7. Educational level:
The educational level of the employees of small industries is normally low or
moderate. Hardly there is any need of specialized knowledge and skill to operate and
manage the SSI.
8. Profit motive:
The owners of small industries are too much profit conscious. They always try to
keep high margins in their pricing. This is one of the reason for which the unit may
lead to closure.
ADVANTAGES OF SSI’s
Small Scale Industries have always played an important role in the economic
development of the country. The following are the merits of Small Scale Industries:
1. Potential for large employment
Small Scale Industries have potential to create employment opportunities on a
massive scale. They are labor intensive in character. They use more labor than other
factors of production. They can be set up in short time and can provide employment
opportunities to more number of people. This is important for a labor abundant
country like India.
2. Requirement of less capital
Small Scale Industries require less capital when compared to large scale industries.
India is a capital scarce country and therefore Small Scale Industries are more
suitable in the Indian context. They can be started and run by small entrepreneurs
who have limited capital resources
3. Contribution to industrial output
Products manufactured by Small Scale Industries form a significant portion of the
industrial output of the country. They produce a number of consumer goods as well
as industrial components in large quantities and satisfy the needs of consumers. The
consumer goods produced by Small Scale Industries are cheaper and satisfy the
requirements of the poorer sections.

4. Contribution to exports
Small Scale Industries contribute nearly 40 per cent to the industrial exports of the
country. Products such as hosiery, knitwear, hand loom, gems and jewellery,
handicrafts, coir products, textiles, sports goods, finished leather, leather products,
woolen garments, processed food, chemicals and allied products and a large number
of engineering goods produced by the SSI sector contribute substantially to India’s
exports. Further products produced by Small Scale Industries are used in the
manufacture of products manufactured and exported by large scale industries.
Therefore they contribute both directly and indirectly to exports and earn valuable
foreign exchange.
5. Use of domestic resources
Small Scale Industries use locally available resources in a productive manner which
would have otherwise gone waste. Small amounts of savings which would have
remained idle is channelized into setting up of small enterprises. This increases
capital formation and investment in the economy.
6. Opportunities for entrepreneurship
Small Scale Industries provide opportunities for entrepreneurs with limited capital.
Setting up of an SSI requires less capital and lower investment in technology and
machines when compared to large scale enterprises. Therefore small entrepreneurs
car start Small Scale Industries easily and succeed. Japan which was devastated by
the Second World War became a major economic power because of many small
entrepreneurs, who contributed greatly to the nation’s development.
7. Cost efficiency
Small scale units can adopt lean production method. which offer better quality and
more variety at a lower cost. They can be more cost efficient when compared to large
scale units because their expenses are lower.
8. Flexibility in operation
Small scale enterprises are more flexible. They can adapt themselves to changing
market requirements very fast and benefit from new opportunities.
9. Adaptability to change
Small Scale Industries can understand the changing requirements of the customers
and adapt themselves much quickly. They can change their procedures, methods and
techniques faster and cater to new requirements of their customers.

10. Small market size
In case the market size is small, producing products on a large scale would not be
feasible. In such cases, Small Scale Industries are more suitable since they produce
limited quantities.
11. Customization
Today customers prefer products tailored to their specific needs. They demand
unique products. In such cases where products have to be customized to individual
customer needs large scale production would not be suitable. Small Scale Industries
are better suited in case products have to be customized.
DISADVANTAGES OF SSI’s
1. Lack economies of scale
SSI’s produce in small quantities. Therefore they do not enjoy economies of scale in
purchases, production and marketing. Their costs are consequently higher and they
are not able to compete with large scale units. They were able to survive when many
of the items were reserved for production by SSI’s. But after the economic
liberalization policy followed by the government, many of the items have been De-
reservad. Therefore large scale units can also produce products which were earlier
produced only by small scale units. Many of the SSI’s have closed down unable to
compete with large scale producers and cheap imports from other countries,
especially China.
2. Low wages
Though SSI’s are labor intensive, the wages paid in SSI’s are low when compared
to those paid in large scale industries. In many SSI’s because of lack of safety
measures and proper training to workers, accidents and injuries are common
occurrences.
3. Lack of modernization
Due to their small scale of operations and limited capital resources, SSI’s are not
able to invest in modernization. They do not have access to latest technology and
therefore cannot improve their efficiency of operations.

4. Inefficiency
Due to lack of scale economies, low skilled and poorly trained workers and usage of
outdated technology, small scale industry suffers from inefficiency of operations.
Their productivity is low when compared to large scale industries.
5. Overcrowding
It is quite easy to set up an SSI. The capital requirement is less and procedural
formalities are simple. This leads to intense competition and overcrowding. It may
lead to cut-throat competition affecting their survival.
6. Sickness
Due to the ease of setting up and because of the incentives available, many
unemployed youth set up SSI’s with very little business knowledge and skills. They
find it difficult to survive in the business and close down their operations. Further
because of the problems of procuring finance, use of outdated technology and lack
of marketing expertise many SSI’s incur losses and are forced to close down.
7. Less innovation capacity
SSI’s have limited financial resources, therefore they are not able to invest
adequately in research and development (R&D) or acquire technology. As a result
their technological up-gradation is less and they continue with outdated processes
and techniques. This hinders their competitiveness and capacity to come out with
new products, processes etc.
8. Low competitiveness
Due to their small scale, lack of modern technology and poorly trained workers,
SSI’s lack the competitiveness to compete with large scale industries. Now, many
items which were reserved for production by SSI’s have been De-reserved.
Therefore SSI’s face increasing competition from large scale Indian enterprises as
well as foreign competitors.
9. Low capacity utilization
In many SSI’s, capacity utilization is low and productive capacity remains idle.
Small firms are unable to utilize their full capacity due to problems related to finance,
marketing, technology, skills etc.

10. Lack of pollution control
Large scale enterprises which are polluting in nature, are able to set up pollution
control equipment such as effluent treatment plants. SSI’s are not able to set up such
facilities because of lack of finance, technology, skills etc.
TYPES OF SSI’s
1. Tiny Industry
It is an Industrial or a company whose expenditure on machinery and plant does not
exceed Rs. 25 lakhs. In Indian scenario tiny industries can be referred to enterprises
like paan shop, hair dressing saloon, grocery shops etc.
2. Ancillary Industry
This industry can hold the status of an ancillary small industry if it supplies a
minimum 50 per cent of its product to another business, i.e. the parent unit.They can
produce machine parts, components, tools or standard products for the parent unit.
Example – MRF Tyres, BOSCH, EXIDE BATTERIES
3. Cottage Industry
A cottage industry is a small-scale, decentralized manufacturing business often
operated out of a home rather than a purpose-built facility. Cottage industries are
defined by the amount of investment required to start, as well as the number of
people employed. They often focus on the production of labor-intensive goods but
face a significant disadvantage when competing with factory-based manufacturers
that mass-produce goods.
PRODUCT RANGE OF SSI’s
The small scale sector contributes nearly 40% of the gross industrial value
added in the Indian economy.
In order to encourage the growth of small scale industries the government has
reserved certain products to be manufactured by them.
Large and medium units can manufacture the reserved items only if they
export 50% or more of the production.
Apart from handicrafts and additional products, small-scale units manufacture
some of the high-value-added and sophisticated products like electronic typewriters,
electronic survey equipment, security and alarm systems, television sets and other
consumer durables.

Many such products are used as original equipment items by the manufacturer
in the large industrial sector. The sector has the flexibility of responding to varied
needs of the economy.
The sector covers a wide spectrum with two clearly identifiable segments,
viz., modern small-scale industries, including tiny units and powerlooms and
traditional industries like khadi and village industries, handlooms, handicrafts,
sericulture and coir industry. Both the segments have their own special
characteristics terms of capital/labour intensity, locational orientation,
manufacturing process and skill requirements.
CAPITAL INVESTMENT IN SSI’s
Capital structure refers to the amount of debt and/or equity employed by a firm to
fund its operations and finance its assets. A firm’s capital structure is typically
expressed as a debt-to-equity or debt-to-capital ratio.
Debt and equity capital are used to fund a business’s operations, capital
expenditures, acquisitions, and other investments.
Analysis on capital structure or financial plan reveals certain information on
operation cost, and operating revenue therefore capital investment or capital
requirement to start an SSI can be estimated by scientific analysis of financial aspects
involved in n the process.

Below is an illustration of the dynamics between debt and equity from the view of
investors and the firm.
Capital investment in SSI’s can be assessed through a draft financial plan which
consider four important components
(i) Fixed Capital
(ii) Working Capital
(iii) Sources of Finance
(iv) Revenue Projection
The financial plan gives a picture of total capital outlay and revenue analysis of a
business enterprise irrespective of the size.
The following is a rough draft of a Financial Plan-
Part A – Capital Requirement
 Fixed Capital – Land & Building, Plant & Equipment's, Furniture etc.
 Working Capital – Raw Material, Inventories, Direct Exp.(Power, Fuel),
Indirect Exp. etc.
Part B – Sources of Finance
 Own Capital – Equity
 Borrowed Capital – Debt from Financial Institutions
 Grant & Subsidies from Govt.

Part C – Revenue Projection
 I Year – No Revenue
 II Year – Negligible Revenue
 III Year – Revenue = Working Capital, BEP
 IV Year – Starts Yielding Profit, Recovery of Capital Cost
FACTORS INFLUENCING THE CAPITAL INVESTMENT DECISIONS
1. Availability of funds
Capital can be raised in different forms i.e. equity, preference, debentures etc or
through availing loan whichever is cheaper should be opted.
2. Structure of capital
Financial structure should contain only equity or preference or both.
3. Taxation policy
It has to be considered while making investment decisions to get concession on sales
tax, excise, subsidies etc
4. Government policies
Policies have direct bearing on investment decisions with respect to make or buy.
5. Leading policies of Financial Institutions
About offering term loans, interest rates, subsidised rates etc
6. Immediate need of project
In terms of expansion, diversification , R&D etc
7. Earnings
It refers to return on investments.
8. Economic value of project
Involving analysis as to how best projects can earn and expand cash inflows.
9. Working Capital
Analysis need to maintain permanent working capital and variable working capital.

10. Accounting practice
Analysis relation to type of type of capital
11. Trends of earning
To consider fluctuating cash flows in order to make investment decisions and also
to match loan repayments accordingly.
12. Capital returns
It refers to payback of investment, to assess how soon the business will get back the
investment.
OWNERSHIP PATTERNS IN SSI’s
1. Sole proprietorship
2. Partnership
3. Co-operative society
4. Joint stock company
1. Sole proprietorship
It is a form of business organisation in which an individual invests his own capital,
uses his own skill and intelligence in the management of its affairs and solely
responsible for the results of its operations.
Features
1. Sole ownership
2. One man control
3. Sole decision making power
4. Unlimited risk
5. Undivided risk
6. No separate entity of the firm
7. No government regulations
Merits
1. Easy and simple formation with less policies or procedure to follow
2. Smooth management with less oppositions or clashes

3. Promptness in decision making as the proprietor is free to conduct the affairs of
business
4. Direct motivation
5. Provides direct incentives to work
6. Personal touch to customers
7. Secrecy can be maintained in terms of important matters relating to the business
8. Provides social advantage by providing employment to many.
Limitations
1. Limited financial resources
2. Limited Managerial Ability
3. Unlimited liability in covering risks and bearing losses
4. Mortality rate in terms of continuing the business is high
2. Partnership Organisation
It the relationship among persons who have agreed to share profits of a business
carried on by all or any of them acting for all.
Features:
1. There should be atleast two persons to form partnership organisation
2. It has a contractual relationship
3. No legal relationship between firms and partners
4. Unlimited liability
Merits
1. Easy formation
2. Flexibility in terms of making changes w.r.t no of partners, capital etc.
3. Pool of resources and skills
4. Division of risks among the partners
5. Strong credit position
6. Less incidence of Tax as the burden is shared among partners
7. Encourages mutual trust

Demerits
1. Limited resource financially, technically
2. Unlimited liability
3. Instability as the business can come to an end due to quarrels among partners
4. Lack of harmony of interest
3. Joint Stock companies
It is a voluntary association of persons who contribute to the capital but their liability
remains limited, it carries on business for profit as a legal entity. It can sue and can
also be sued in its own
Features:
1. It has its own existence
2. It is a separate legal entity
3. It is considered to be a person in the eyes of law
4. It is an association of members
5. It involves legal formalities
6. It is intangible, invisible artificial being
4. Co-operative societies
It is an association of persons usually of limited means who voluntarily join together
to achieve a common economic end through formation of a democratically
controlled business organisation, making equitable contribution to the capital
required and accepting a fair share of risks and benefits of the undertaking.
IMPORTANCE AND ROLE PLAYED BY SSI IN THE DEVELOPMENT OF
THE INDIAN ECONOMY
Small scale industries play an important role for the development of Indian economy
in many ways. About 60 to 70 percent of the total innovations in India comes from
the SSIs. Many of the big businesses today were all started small and then nurtured
into big businesses. The roles of SSIs in economic development of the country are
briefly explained below –

1. Small Scale Industries Provides Employment
 SSI uses labour intensive techniques. Hence, it provides employment
opportunities to a large number of people. Thus, it reduces the unemployment
problem to a great extent.
 SSI provides employment to artisans, technically qualified persons and
professionals. It also provides employment opportunities to people engaged
in traditional arts in India.
 SSI accounts for employment of people in rural sector and unorganized sector.
 It provides employment to skilled and unskilled people in India.
 The employment capital ratio is high for the SSI.
2. SSI Facilitates Women Growth
 It provides employment opportunities to women in India.
 It promotes entrepreneurial skills among women as special incentives are
given to women entrepreneurs.
3. SSI Brings Balanced Regional Development
 SSI promotes decentralized development of industries as most of the small
scale industries are set up in backward and rural areas.
 It removes regional disparities by industrializing rural and backward areas and
brings balanced regional development.
 It promotes urban and rural growth in India.
 It helps to reduce the problems of congestion, slums, sanitation and pollution
in cities by providing employment and income to people living in rural areas.
It plays an important role by initiating the government to build the
infrastructural facilities in rural areas.
 It helps in improving the standard of living of people residing in suburban and
rural areas in India.

 The entrepreneurial talent is tapped in different regions and the income is also
distributed instead of being concentrated in the hands of a few individuals or
business families.
4. SSI Helps in Mobilization of Local Resources
 It helps to mobilize and utilize local resources like small savings,
entrepreneurial talent, etc., of the entrepreneurs, which might otherwise
remain idle and unutilized. Thus it helps in effective utilization of resources.
 It paves way for promoting traditional family skills and handicrafts. There is
a great demand for handicraft goods in foreign countries.
 It helps to improve the growth of local entrepreneurs and self-employed
professionals in small towns and villages in India.
5. SSI Paves for Optimisation of Capital
 SSI requires less capital per unit of output. It provides quick return on
investment due to shorter gestation period. The pay back period is quite short
in small scale industries.
 SSI functions as a stabilizing force by providing high output capital ratio as
well as high employment capital ratio.
 It encourages the people living in rural areas and small towns to mobilize
savings and channelize them into industrial activities.
6. SSI Promotes Exports
 SSI does not require sophisticated machinery. Hence, it is not necessary to
import the machines from abroad. On the other hand, there is a great demand
for goods produced by small scale sector. Thus it reduces the pressure on the
country’s balance of payments.
 SSI earns valuable foreign exchange through exports from India.
7. SSI Complements Large Scale Industries
 SSI plays a complementary role to large scale sector and supports the large
scale industries.

 SSI provides parts, components, accessories to large scale industries and
meets the requirements of large scale industries through setting up units near
the large scale units.
 It serves as ancillaries to large Scale units.
8. SSI Meets Consumer Demands
 SSI produces wide range of products required by consumers in India.
 SSI meets the demand of the consumers without creating a shortage for goods.
Hence, it serves as an anti-inflationary force by providing goods of daily use.
9. SSI Ensures Social Advantage
 SSI helps in the development of the society by reducing concentration of
income and wealth in few hands.
 SSI provides employment to people and pave for independent living.
 SSI helps the people living in rural and backward sector to participate in the
process of development.
 It encourages democracy and self-governance.
10. Develops Entrepreneurship
 It helps to develop a class of entrepreneurs in the society. It helps the job
seekers to turn out as job givers.
 It promotes self-employment and spirit of self-reliance in the society.
 Development of small scale industries helps to increase the per capita income
of India in various ways.
 It facilitates development of backward areas and weaker sections of the
society.

 Small Scale Industries are adept in distributing national income in more
efficient and equitable manner among the various participants of the society.
PROBLEMS FACED BY SMALL SCALE INDUSTRIES
The following are the problems faced by Small Scale Industries:
1. Poor capacity utilization
In many of the Small Scale Industries, the capacity utilization is not even 50% of the
installed capacity. Nearly half of the machinery remains idle. Capital is
unnecessarily locked up and idle machinery also occupies space and needs to be
serviced resulting in increased costs.
2. Incompetent management
Many Small Scale Industries are run in an incompetent manner by poorly qualified
entrepreneurs without much skill or experience. Very little thought has gone into
matters such as demand, production level and techniques, financial availability, plant
location, future prospects etc. According to one official study, the major reason for
SSI sickness is deficiency in project Management i.e., inexperience of promoters in
the basic processes of production, cash flow etc
3. Inadequate Finance
Many Small Scale Industries face the problem of scarcity of funds. They are not able
to access the domestic capital market to raise resources. They are also not able to tap
foreign markets by issuing ADR’s (American Depository Receipts) GDR’s (Global
Depository Receipts) etc because of their small capital base. Banks and financial
institutions require various procedures and formalities to be completed. Even after a
long delay, the funds allocated are inadequate.
Bank credit to the small scale sector as a percentage of total credit has been
declining. It fell from 16% in 1999 to 12.5% in 2002. Small Scale Industries are not
able to get funds immediately for their needs. They have to depend on private money
lenders who charge high interest. Finance, as a whole, both long and short term,
accounts for as large as 43% of the sector’s sickness.

4. Raw material shortages
Raw materials are not available at the required quantity and quality. Since demand
for raw materials is more than the supply, the prices of raw materials are quite high
which pushes up the cost. Scarcity of raw materials results in idle capacity, low
production, inability to meet demand and loss of customers.
5. Lack of marketing support
Small Scale Industries lack market knowledge with regard to competitors, consumer
preferences, market trends. Since their production volume is small and cannot meet
demand for large quantities their market is very restricted. Now with the process of
liberalization and globalization they are facing competition from local industries as
well as foreign competitors who sell better quality products at lower prices. For e.g.
heavily subsidized but better quality imports from China has made most of the Indian
SSI units producing toys, electronic goods, machine tools, chemicals, locks and
paper etc., unviable.
6. Problem of working capital
Many Small Scale Industries face the problem of inadequate working capital. Due
to lack of market knowledge their production exceeds demand, and capital gets
locked in unsold stock. They do not have enough funds to meet operational expenses
and run the business.
7. Problems in Export
They lack knowledge about the export procedures, demand patterns, product
preferences, international currency rates and foreign buyer behavior. Small Scale
Industries are not able to penetrate foreign markets because of their poor quality and
lack of cost competitiveness. In countries like Taiwan, Japan etc. products produced
by Small Scale Industries are exported to many foreign countries. But in India not
much thought and focus has gone into improving the export competitiveness of
Small Scale Industries.
8. Lack of technology up-gradation
Many Small Scale Industries still use primitive, outdated technology leading to poor
quality and low productivity. They do not have adequate funds, skills or resources
to engage in research and development to develop new technologies. Acquiring
technology from other firms is costly. Therefore Small Scale Industries are left with
no choice but to continue with their old techniques.

9. Multiplicity of labor laws
One of the merits of Small Scale Industries are that they are labor intensive and can
provide employment to a large number of people. But the multiplicity of labor laws,
need to maintain several records (PF, ESI, Muster Rolls etc), fines and penalties for
minor violations etc place Small Scale Industries at a great disadvantage.
10. Inability to meet environmental standards
The government lays down strict environmental standards and Courts have ordered
closure of polluting industries. Small Scale Industries which are already facing
shortage of funds to carry out their business are not able to spend huge sums on
erecting chimneys, setting up effluent treatment plants etc.
11. Delayed payments
Small Scale Industries buy raw materials on cash but due to the intense competition
have to sell their products on credit. Buying on cash and selling on credit itself places
a great strain on finances. The greater problem is payments are delayed, sometimes
even by 6 months to one year. It is not only the private sector but even government
departments are equally guilty. Delayed payments severely impact the survival of
many Small Scale Industries.
12. Poor industrial relations
Many Small Scale Industries are not able to match the pay and benefits offered by
large enterprises, because their revenues and profitability are low and also uncertain.
This leads to labor problems. Employees fight for higher wages and benefits which
the SSI is not able to provide. This may lead to strikes, resulting in damage to
property in case of violence by employees, production losses etc.
13. Strain on government finances
Marketing of products manufactured by Small Scale Industries is a problem area.
The government has to provide high subsidies to promote sales of products produced
by Khadi and Village Industries. This places a great strain on government finances.
14. Concentration of industrial units
There is high concentration of small scale industrial units in a few states. Of the
estimated 3.37 million units as on 2000-01, nearly 60% were located in six states.
West Bengal, Madhya Pradesh and Uttar Pradesh alone account for 20% of Small
Scale Industries. Due to concentration, there is high competition among them to
procure raw materials and other industrial inputs. This leads to high costs and

scarcity of raw materials and other inputs affecting their production and increasing
costs.
15. Inadequate dispersal
One of the objectives of the government in promoting Small Scale Industries was to
increase industrial development and employment opportunities throughout the
country. Since nearly 60% of the Small Scale Industries are concentrated in few
states, the objective of balanced regional development and promotion of backward
areas has not been achieved. Further majority of Small Scale Industries are located
in urban areas and the aim of industrial development in rural areas has also been
defeated.
16. Widespread sickness
Sickness among Small Scale Industries is widespread. Sickness is not detected in the
initial stages and large amount of funds are locked in them. Nearly two and a half
lakh SSI units are sick and as on 2001 and nearly Rs.five thousand five hundred
crores of bank funds are locked in them. Due to this new entrepreneurs are not able
to get loans, workers in the sick units lose their jobs and industrial and economic
development is affected. In Maharashtra alone nearly 3 lakh units have closed down,
38 lakh workers have lost their jobs and the loss to the government is Rs.5,000 crore.
17. Lack of awareness
The government has set up many organizations to support and provide assistance to
Small Scale Industries. But, many of the entrepreneurs running Small Scale
Industries are not aware of the various support services.
18. Government interference
Small Scale Industries have to maintain a number of records and there are endless
government inspections. A lot of time, money and effort is wasted in complying with
various inspections and records verification. This prevents Small Scale Industries
from fully concentrating on their business activities.

GOVERNMENT POLICIES FOR DEVELOPMENT AND PROMOTION OF
SMALL-SCALE INDUSTRIES IN INDIA
Some of the Government Policies for development and promotion of Small-Scale
Industries in India are:
1. Industrial Policy Resolution (IPR) 1948
5. Industrial Policy Resolution (IPR) 1990.
The IPR, 1948 for the first time, accepted the importance of small-scale industries
in the overall industrial development of the country. It was well realized that small-
scale industries are particularly suited for the utilization of local resources and for
creation of employment opportunities.
However, they have to face acute problems of raw materials, capital, skilled labour,
marketing, etc. since a long period of time. Therefore, emphasis was laid in the IPR,
1948 that these problems of small-scale enterprises should be solved by the Central
Government with the cooperation of the State Governments. In nutshell, the main
thrust of IPR 1948, as far as small-scale enterprises were concerned, was
‘protection.’
The main contribution of the IPR 1948 was that it set in the nature and pattern of
industrial development in the country. The post-IPR 1948 period was marked by
significant developments taken place in the country. For example, planning has
proceeded on an organised manner and the First Five Year Plan 1951-56 had been
completed. Industries (Development and Regulation) Act, 1951 was also introduced
to regulate and control industries in the country.
The parliament had also accepted ‘the socialist pattern of society’ as the basic aim
of social and economic policy during this period. It was this background that the
declaration of a new industrial policy resolution seemed essential. This came in the
form of IPR 1956.

The IPR 1956 provided that along with continuing policy support to the small sector,
it also aimed at to ensure that decentralised sector acquires sufficient vitality to self-
supporting and its development is integrated with that of large- scale industry in the
country. To mention, some 128 items were reserved for exclusive production in the
small-scale sector.
Besides, the Small-Scale Industries Board (SSIB) constituted a working group in
1959 to examine and formulate a development plan for small-scale industries during
the, Third Five Year Plan, 1961-66. In the Third Five Year Plan period, specific
developmental projects like ‘Rural Industries Projects’ and ‘Industrial Estates
Projects’ were started to strengthen the small-scale sector in the country. Thus, to
the earlier emphasis of ‘protection’ was added ‘development.’ The IPR 1956 for
small-scale industries aimed at “Protection plus Development.” In a way, the IPR
1956 initiated the modem SSI in India.
During the two decades after the IPR 1956, the economy witnessed lopsided
industrial development skewed in favour of large and medium sector, on the one
hand, and increase in unemployment, on the other. This situation led to a renewed
emphasis on industrial policy. This gave emergence to IPR 1977.
The Policy Statement categorically mentioned:
“The emphasis on industrial policy so far has been mainly on large industries,
neglecting cottage industries completely, relegating small industries to a minor role.
The main thrust of the new industrial policy will be on effective promotion of cottage
and small-scale industries widely dispersed in rural areas and small towns. It is the
policy of the Government that whatever can be produced by small and cottage
industries must only be so produced.”
The IPR 1977 accordingly classified small sector into three broad categories:
1. Cottage and Household Industries which provide self-employment on a large
scale.
2. Tiny sector incorporating investment in industrial units in plant and machinery up
to Rs. 1 lakh and situated in towns with a population of less than 50,000 according
to 1971 Census.
3. Small-scale industries comprising of industrial units with an investment of upto
Rs. 10 lakhs and in case of ancillary units with an investment up to Rs. 15 lakhs.

The measures suggested for the promotion of small-scale and cottage industries
included:
(i) Reservation of 504 items for exclusive production in small-scale sector.
(ii) Proposal to set up in each district an agency called ‘District Industry Centre’
(DIC) to serve as a focal point of development for small-scale and cottage industries.
The scheme of DIC was introduced in May 1978. The main objective of setting up
DICs was to promote under a single roof all the services and support required by
small and village entrepreneurs.
What follows from above is that to the earlier thrust of protection (IPR 1948) and
development (IPR 1956), the IPR 1977 added ‘promotion’. As per this resolution,
the small sector was, thus, to be ‘protected, developed, and promoted.’
The Government of India adopted a new Industrial Policy Resolution (IPR) on July
23, 1980. The main objective of IPR 1980 was defined as facilitating an increase in
industrial production through optimum utilization of installed capacity and
expansion of industries.
As to the small sector, the resolution envisaged:
(i) Increase in investment ceilings from Rs. 1 lakh to Rs. 2 lakhs in case of tiny units,
from Rs. 10 lakhs to Rs. 20 lakhs in case of small-scale units and from Rs. 15 lakhs
to Rs. 25 lakhs in case of ancillaries.
(ii) Introduction of the concept of nucleus plants to replace the earlier scheme of the
District Industry Centres in each industrially backward district to promote the
maximum small-scale industries there.
(iii) Promotion of village and rural industries to generate economic viability in the
villages well compatible with the environment.
Thus, the IPR 1980 reimphasised the spirit of the IPR 1956. The small-scale sector
still remained the best sector for generating wage and self-employment based
opportunities in the country.
5. Industrial Policy Resolution (IPR) 1990:
The IPR 1990 was announced during June 1990. As to the small-scale sector, the
resolution continued to give increasing importance to small-scale enterprises to serve
the objective of employment generation.

The important elements included in the resolution to boost the development of small-
scale sector were as follows:
i) The investment ceiling in plant and machinery for small-scale industries (fixed in
1985) was raised from Rs. 35 lakhs to Rs. 60 lakhs and correspondingly, for ancillary
units from Rs. 45 lakhs to Rs. 75 lakhs.
(ii) Investment ceiling for tiny units had been increased from Rs. 2 lakhs to Rs. 5
lakhs provided the unit is located in an area having a population of 50,000 as per
1981 Census.
(iii) As many as 836 items were reserved for exclusive manufacture in small- scale
sector.
(iv) A new scheme of Central Investment Subsidy exclusively for small-scale sector
in rural and backward areas capable of generating more employment at lower cost
of capital had been mooted and implemented.
(iv) With a view, to improve the competitiveness of the products manufactured in
the small-scale sector; programmes of technology up gradation will be implemented
under the umbrella of an apex Technology Development Centre in Small Industries
Development Organisation (SIDO).
(v) To ensure both adequate and timely flow of credit facilities for the small- scale
industries, a new apex bank known as ‘Small Industries Development Bank of India
(SIDBI)’ was established in 1990.
(vi) Greater emphasis on training of women and youth under Entrepreneurship
Development Programme (EDP) and to establish a special cell in SIDO for this
purpose.
(vii) Implementation of delicencing of all new units with investment of Rs. 25 crores
in fixed assets in non-backward areas and Rs. 75 crores in centrally notified
backward areas. Similarly, delicensing shall be implemented in the case of 100%
Export Oriented Units (EOU) set up in Export Processing Zones (EPZ) up to an
investment ceiling of Rs. 75 lakhs.

UNIT 3
FORMATION OF
SMALL SCALE
INDUSTRY

BUSINESS OPPORTUNITY
Meaning of Business Opportunity
A business opportunity, in the simplest terms, is a packaged business investment
that allows the buyer to begin a business. A business opportunity involves sale or
lease of any product, service, equipment, etc. that will enable the purchaser-
licensee to begin a business.
A business opportunity consists of four integrated elements all of which are to be
present within the same time frame (window of opportunity) and most often within
the same domain or geographical location, before it can be claimed as a business
opportunity. These four elements are:
1. A need
2. The means to fulfill the need
3. A method to apply the means to fulfill the need and
4. A method to benefit
With any one of the elements missing, a business opportunity may be developed,
by finding the missing element. The more unique the combination of the elements,
the more unique the business opportunity. The more control an institution (or
individual) has over the elements, the better they are positioned to exploit the
opportunity and become a niche market leader.
Various Stages of Identifying Business Opportunities
An Entrepreneur in the course of identifying opportunities has to undergo various
stages
1. Scanning of Business Environment.
2. Evaluation of opportunities.
3. Selection of opportunities based on personal competencies (SWOT
Analysis).

SCANNING OF BUSINESS ENVIRONMENT
Businesses are mainly affected by social, economic, legal, technological and
international factors. Environmental analysis is a study of these various
influencing factors. Environmental scanning refers to collecting and utilizing the
information about prominent trends, patterns, occasions and relationships that
can adversely influence the business to determine future opportunities or threats.
Objectives of Environment Scanning -
 To determine opportunities and threats
 Giving direction to growth
 Image building
 Meeting competition
 Continuous learning
Importance of Environmental Scanning
 Goal Accomplishment: The objectives of an organization cannot be fulfilled
unless it adapts itself to the environmental changes. One has to adjust the
strategies to fit in the changing demands of the environment.
 Threats and Weakness Identification: For an organization to grow, it must
minimize its threats and identify the weaknesses. This is made possible with
the help of environmental scanning with which better strategies can be
developed
 Future Forecast: Environmental changes are often unpredictable. An
organization cannot anticipate all the future events but based on the analysis,
it can make better strategic decisions in the future. Hence, environmental
analysis helps to forecast the prospects of the business.
 Market Knowledge: Every organization must be aware of the ongoing
changes in the market. If it fails to incorporate strategic changes due to
changing demands, it will not be able to achieve its objectives. • Focus on the
Customer: Environmental scanning and analysis make an organization
sensitive towards the changing needs and expectations of the customer.

 Opportunities Identification: With the analysis of the current environment an
organization will be able to identify the possible opportunities and take
necessary steps.
EVALUATION OF BUSINESS OPPORTUNITIES
Before an entrepreneur starts or invests in a company, business ideas must pass
a series of tests and questions before one is deemed a truly valid and valuable
opportunity.
Here are a few important initial questions an entrepreneur should ask himself as
part of a business opportunity evaluation.
 Does your business idea have a demonstrated market need?
 Is there sufficient demand for the product or service?
 Is creating the product or service economically feasible?
 Will there be a sufficient return on the investment of starting a new business?
 What is the cost of NOT pursuing this business opportunity (also known as
business opportunity cost)?
If a business idea does have initial merit, you should also perform a more
detailed business opportunity evaluation. One such method is the
RAMP MODEL developed by Ryan P. Allis, CEO of several successful
marketing software and consulting companies. RAMP stands for Return,
Advantages, Market, and Potential.
A. Return
The big question that an entrepreneur should ask is whether a business
opportunity will generate revenue, and ultimately, profit. Without a potential
profit, a great business idea is just a great idea without financial merit.
 Can you make a product that generates more money than you spend?
 How much investment will you need to get the business idea off the
ground?
 Ultimately, what are your or your investors’ return requirements?

Entrepreneurial Management / Entrepreneurship Development Notes

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