ENTREPRENEURSHIP

Chapter - 1
1. Nature and Development of Ent.

The theory of dev of ent parallels to the dev of this term ent itself. The word ent is
French and literally translated and means “between takers “or “go between”.

a. Earliest Pd. It can be traced back to Marco Polo who tried to discover the
route to Far east. A contract was thus penned between the money preson
(the venture capitalist) and the merchant (the merchant adventurer). The
profit was distributed to the tune of 75- 25 %.
b. Middle Ages. In the middle ages he was the one who managed
large production projects. He didn’t take any risks and just managed the
projects. For example, cleric who was in charge of large works like
castles, fortifications and public buildings.
c. 17th Century.The entrepreneur was a person who entered into an
agreement with tht govt to perform a service an example is a Frenchman
john law, who was allowed to establish a royal bank.
d. 18th Century.The capitalist was differentiated from the capital user. A
venture capitalist is the one who takes risk investments for a future profit.
e. 19th and 20th Century. The entrepreneur is the one who is taken as an
innovator. He is and indl who develops something new.
2. Definition of Ent

a. Ent is the process of creating something new with value by devoting the
necessary time and effort, assuming the accompanying financial, psychic,
and social risk, and receiving the resulting rewards of monetary and
personal satisfaction and independence.

b. This def has some basic ingredients of being and ent regardless of the
field. They are:-
i. It involves a creation process- creating something new of value.
ii. The creation had to be of some value to the ent and the audience.
The audience can be:-
1. The market of organizational buyers for business
innovations.
2. The hosp admin for a new admitting procedure and software.
3. Prospective students for a new course or even college of ent
4. the constituency of a new service provided by a noprofit
agency
iii. Ent requires the devotion of the necessary time and effort.

3. The Entrepreneurial Decision Process. It is the decision made to become

entrepreneur by leaving the present activity. It also entails a movement from

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something to something and a movement from present lifestyle to forming a new
enterprise. In US 1 mn companies are formed each yr.

a. Change from Present Lifestyle

i. Work Envmt. Dissatisfaction, frustration, boredom, and lack
of indep motivate a person to start sth new. US face 12 % annual
increase.
ii. Disruption. Getting retired and getting fired. It may also occur
when some coy employee is not given due promotion when he
attains a new degree like MBA etc.

b. Form New Enterprise

i. Desirables. Aspects of a situation that make it desirable to start a

new company
1. Cultural. Culture is defined as “combination of symbols
and certificates of a society generated by generations. US
culture places a high value on being one’s own boss. Having
indl opportunities. It all motivates ppl to start own
enterprises. On the other hand there are countries where it is
not as highly regarded and official job are given more imp.
2. Sub cultural. There are sub cultures within a culute
like US have black, Indian cultures etc. They promote own
values. Also states within US promote sub cultures like
Silicon Valley etc.
3. Family. Ppl having families who encouraged
indep/entrepreneurship tends to promote same values. Ppl
having such mothers/fathers have excelled better as
entrepreneurs.
4. Teachers Teachers can stimulate such feelings more to
influence ppl to regard ent as a desirable career path. MIT
and Harvard encourage students in this regard.
5. Peers. An area with an ent pool and a meeting place
whre ent and potential ent can discuss ideas, problems and
solutions spawns more companies than an areas where they
don’t exist.

ii. Possible. These are factors which make it possible to create a

new venture.
1. Govt. the govt help by providing infrastructure to help and
support a new bz. It may incl rds, comm, and tpt sys. US
have better tax rates.
2. Background. Formal education and previous bz
experience.
3. Marketing. There must be e level of marketing know how
to put together the best total package of product, price, distr

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 and promo needed for successful product marketing. It
should be market demand rather than a technology push.
4. Financing. To see someone else succeed makes it easier
to picture yourself engaged in a similar activity. A frequent
comment is “if that person could it, so can I?”
5. Role models. Apart from aval of capital one must have
“additional risk capital”.
4. Types of Startups

a. Lifestyle form. A small venture that supports the owners and usually
does not grow. Have 30-40 employees after several yrs, annual revenue
of 2 mn USD.
b. Foundation company.. a type of company formed for R & D that
usually doesn’t go public. It can grown to 40-400 employees in 5-10 yes.
Annual revenue is 10 to 20 mn.
c. High potential venture. A venture that has high growth potential and
therefore receives great investor interest. After 5-10 yrs may have upto
500 employees, annual revenue is 20-30 mn USD.
d. Gazelles. Very high growth ventures.

5. Role of Entrepreneurship in Economic Development..

It is more than inc in per capita income but also involves initiating and
constituting change in the structure of business and society. It also involves. The
maj areas are:-

a. Product Eval Process. Process for dev and commercializing an

innovation. It start with technology like thermodynamics etc and ends at
the product or process aval in the market for purchase.
b. Iterative Process. The intersection of knowledge and social needs that
starts the product dev process.
c. Ordinary Innovation. They are the new production with little
technological change.
d. Technological Innovations. New products with significant
technological advancements.
e. Entrepreneurs as an Innovator. A govt active in commercializing
product. It is the first method to bridge the gap b/w the science and market
place,
f. Equal distr of wealth.
g. Capital creation.
h. Govt as an innovator (govt to bridge gap between science and mkt place),
it is also called the technology transfer.
i. Hurdles
i. Red tapism
ii. Bureaucracy

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 j. Intrepreneurship. It is within an existing org. it can also bridge the gap
b/w science and market place.
k. Entrepreneurship. It is the most effective way to bridge the gap b/w
science and market place.

6. Entrepreneurship Careers and Education. Since 1985 there is a increased

interest in ent career and education.
a. Ent has to create a bal b/w
i. Ethics (stemmed form greek word, ethos meaning “custom and
usage”) these values are also found in Judaism and Hinduism),
business ethics can be taken down in four categories:-
1. Pedagogically oriented enquiry incl both theory and empirical
studies.
2. Theory building w/o empirical testing
3. Empirical (experimental) research measuring the attitudes
and ethical beliefs of students and academic faulty.
4. Empirical research within empirical envmt.
ii. Social resp
iii. Economic expediency.

b. Future of Ent.
The term ent means different to different ppl but the common aspects
are Risk taking, Creativity, Independence, and Rewards.

i. Increased trend in offering this subjs in universities. teaching of ent

science as a subj in many colleges. Also new colleges like weather-
head school of mgmt ent etc.
ii. Increased academic research, fellows doing Ph.D in ent are on the
inc.
iii. Encouraging role of govt (industrial estates and facilitating small
businesses
iv. Social support (honorable and prestigious pursuits.
v. Encourage role of media through tv interviews and magazine like
business week, Forbes etc and mag articles
vi. Larger companies will keep on inc the R&D and Intrepreneurship,
top 15 companies of US share 20 % of all US research and 40% of
private sector research.

Chapter – 2

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7. The Entrepreneurial Process.

It is defined as a process by which a new venture is created by an ent. It is

composed of four phases which are;-

a. Ident and Eval the Opportunity. The process by which an ent comes up
with the opportunity of a new business. This a very difficult task and may
req
i. To setup a mechanism to ident opportunities. For example an ent
always asks for an item in a cocktail party which doesn’t fulfill his
intended purpose. Another tries to remember the play/toys of his
nephew so as to create a niche for new ventures.
ii. Technically oriented indls often conceptualize business
opportunities when working on other projects.
iii. Personal alertness.

iv. Sources of Eval

1. Consumers.
2. Through associates.
3. Distinguishing channels.
4. Tech ppl (R&D).

v. Eval the opportunities

1. Return
2. Real and perceived values
3. Must fit with pers skills and goals
4. Differential advantage
5. Prep an opportunity assessment plan – it incl description of
the product or service, an assessment of the opportunity, an
assessment of the ent and his team, specifications of the
product, and resources needed to translate the opportunity.

b. Dev a Business Plan.

It is the description of the future direction of the business. It is most

difficult process and may req;-

i. 200 or more hrs to prep

ii. Shall be made by ent himself.
iii. The plan may incl
1. Dev the opportunity
2. Determine resources
3. Obtaining those resources
4. Managing the resulting venture.

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 c. Determine the resources req. resources must be determined. The
process starts with :-
i. The appraisal of ent present resources. Any resources which are
critical must be differentiated from those who are just helpful.
ii. Acquire needed resources in timely manner.
iii. ent must keep an ownership posn.

d. Manage the Enterprise.

i. Implement business plan

ii. Implement mgmt style
iii. Determine variables for success
iv. Dev con sys

8. Managerial versus Entreprenueual Decision Making. Admin domain is

the way managers take decision. The difference b/w the two can be viewed
in five factors. Which are:-

Factor Manager Ent

Strategic orientation Go for performance Perception of opportunity
Commitment of Long term Short term
opportunity
Commitment of Total amount cmt Multi stage cmt
resources
Control of resources Max con As on need basis
Mgmt structures Formal informal

9. Causes of Interest in Ent.

There is an increased interest in ent. The reasons are social, cultural and
business levels. Social lvl – doing our own business and doing it on own terms.
Some areas are:-
a. New business ventures – like SBU(strat bz units)
b. Organizational innovatiness – they may be product or service innovations.
c. Self renewal – transformation of org
d. Proactiveness – initiative and risk taking
e. Concept of self actualization and doing own business (Maslow’s theory of
needs)
f. Stimulating and capitalizing on own potential
g. Removing resistance against flex, growth and diversification
h. The example of Xerox coy, which created a fund to encourage employees
to research and build products for the mother org.

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10. Corporate versus Intrapreneural Culture

Corporate culture Ent

Consensus DM Develop vision and goals
Less risky decision Reward for actions
More documentation Experiment and suggest
Less responsibility Create and develop
Adherence to instructions
No mistakes
Don’t fail
No initiative

a. Characteristics of a good Ent Culture

i. Operate at cutting edge technology
ii. Experimentation – trial and error are encouraged
iii. No initial opportunity parameters
iv. Resources are aval and assessable
v. Multi discipline team approach
vi. Volunteer involvement
vii. Not everyone is fit for ent
viii. Reward sys is based on established performance goals
ix. Sponsors and companies are aval
x. Whole hearted support by the managers.

11. Entrepreneurial Leadership Characteristics

a. Understand the enmvt (external and internal)
b. Is visionary and flex (great dreams and build castles in air)
c. Creates mgmt options – open and encourage change and encourage
team work
d. Encourage team work
e. Encourage open discussions – freedom to disagree and critique
f. Build a coalition of supporters and encouragers (kitchen cabinet)
g. Persists (dealing with frustration and obstacles)

CHAPTER THREE – THE INDIVIDUAL ENT

12. Entrepreneurial Feelings.

There is no such thing as entrepreneur’s profile. They come from variety of
cultures, Educational backgrounds, family and experience. The feelings of a
typical ent can be:-
a. Locus of Control. It is an attribute indicating the sense of control a
person has over his/her life. It will entail:-
i. Ent has the energy and drive to manage new business.
ii. How to overcome the inertia in forming new business.
iii. How to control the internal – external control dimensions.

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 b. Feelings about Independence. Feelings of being “one’s own boss”, it is
the greatest feeling. An ent wants to do things in his own way and is not
comfortable working under someone else.
c. and need for Achievement. An individual’s need to be recognized.
d. Risk Taking. Financial, social and psychological risk taking is part of ent
life.
13. Ent Background and Characteristics
a. Childhood Family Environment. Research indicate following specific
family environment;-
i. Birth order. First born (they receive more parent attentions and
thus have better self confidence.
ii. Parents’ Profession.Self employed and entrepreneurs tend to have
same qualities in their kids.
iii. Parents must encourage independence, achievement and
responsibility, parents must be supportive
b. Education.
i. Formal higher education is not necessary.
ii. May or may not be above graduate level.
iii. Business education is necessary for strategic planning etc.
iv. Education is necessary to communicate.
c. Personal Values
i. Ent tend to be Winners.
ii. They are different from managers.
iii. Honesty and work ethics
d. Age
i. Chronological Age
1. Males in early 30’s
2. Females in mid 30’s
ii. Ent Age – 22 to 45 yrs
e. Work History
i. Plays an imp role in start and growth of a venture
ii. Factors affecting the change of new job may include, lack of
challenge, frustration and boredom
iii. Past experience in the same field is very important.
14. Motivation. Is the factor what motivated people to work and do something. The
factors are:-
a. Independence
b. Money
c. Job satisfaction
d. Achievement
e. Opportunity
f. Social status
15. Role Models
a. Difference b/w Role Model and Ideal
i. Role model. He is the one who is within reach. These are the
ones who influence the ent choice of career and style.

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 ii. Ideal is may or may not in reach
b. Role model may be parenets. Brothers, sis, other relatives, or other ents
c. They act as a catalyst
d. Act as mentors(he is the one who is consulted once in trouble)
16. Support Systems
a. Moral Support Network. These are the individuals who give
psychological support to the ent.
i. Known as cheering squad
ii. Frnds
iii. Relatives(children, parents. Grandparents, aunts, uncles)
b. Professional support Network. These are the individuals who help the
ent in business activities. They may incl:-
i. Mentor. He is the one who shares the success and problems
of ent. He is an expert on the subject. He also knows how to
provide the advice.
ii. Business Associates. They can be composed of self employed
individuals who have experience starting a business, clients, or
buyers of the venture’s product or service, experts such as
consultants. Lawyers or accountants and the venture’s suppliers.
iii. Suppliers. They can also provide good information on the nature
and trends as well as competitions in the industry.
iv. Trade Associations. They may be regional or international
network. May incl chamber of commerce and industry. Trade unions
keep up with new developments and can provide good data.
v. Personal Affiliations. They incl shared hobbies, sports events,
clubs, civic involvements and school alumni groups. They can
provide good advice and information.
17. Male and Female Ent. There is an increase in female ent, currently 6.2 Mn
female ents. Female ent differ in terms of motivation, business skills, and
occupational background.

Characteristics Male Female

Motivation Makes things happen Achieve goals

Departure point Dissatisfaction from Job frustration

present job

Sources of Funds Personal assets, banks, Personal assets

loans

Occupational background Background experience Do

Personal charachterixtics Opinionated and Flexible and toleraatn

persuasive

Age 25-35 35-45

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 Support gps Frnds Close frnds

Types of business Manufacture services

18. Minority Ent.

a. More applicable to US
b. Increased trend in minorities to start ent.
c. Motivated by business opportunity and recognition in society.
19. Ent Vresus Investors
a. Charachteristics of Investors
i. Highly drives
ii. Motivated by his work and personal ideas
iii. Highly creative
iv. Well educated
v. Free thinker
vi. High self confidence
vii. Risk taker
viii. Able to tolerate ambiguity
ix. High achiever
x. Don’t give much imp to money
b. Differences
i. Education
ii. Orientation towards money
iii. Ent falls in love with his org
iv. Inventor loves his invention.

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 Chapter 4
International Entrepreneurship opportunitie s

20. International Ent. Is the process of an ent conducting business activities

across national borders. It may consist of exporting, licensing, opening a sales
office or just posting a simple ad in the newspaper.
21. International Versus Domestic Ent although the intl and domestic both are
concerned with the same issues of sales, marketing etc but intl ent is much more
complex due to factors like politics, cultures, and technology.

Factor Intl Domestic

Economics Different currencies Same currency

Difficulties in raising capital Easier systems
Different govt and banking polices Same policies

Stage of Economic Developed cty have advanced May not be well developed
Development fundamental infrastructures

Balance of payments Balance of pay of a cty affect the No affects

currency exchange rates

Type of systems Difficulties in understanding overall sys, No affects

business plans, accounting sys etc

Political legal envmt Varied political systems and legal Same system and
practices practices

Cultural Evmt Vary, like language etc No affects

Technological Evmt Developed ctys have advanced systems No affects

22. Strategic Issues in International Business Management.

a. The allocation of responsibility between the US and foreign operations
b. The nature of the planning, reporting and control sys to be used
throughout the intl operations
c. The appropriate org structure for conducting intl operations
d. The degree of standardization possible.
e. The responsibility is generally allocated in stages as under:-

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 i. Stage one when first making move into intl mkt, the ent generally
follows a centralized decision making.
ii. Stage two when the business is successful, the centralized
decision making is no more possible to follow
iii. Stage three the decentralized decision making sys adopted in
stage two becomes intolerable since further success is attained. A
balance is thus attained.
23. Ent Entry into Intl Market. There are various methods. The method of
entry into a market and the mode of operating overseas are dependent on the
goals of the ent and the company’s strength and weaknesses.
a. Exporting it normally involves the sale and shipping of products
manufactured in one cty to a customer located in another cty
i. Indirect Exporting. It involves having a foreign purchaser in the
local market or using an export management firm.
ii. Direct Exporting. It involves selling goods to another cty by
taking care of the transaction.
b. Nonequity Arrangements. It is doing intl business through
arrangements that doesn’t involve any investment.
i. Licensing. It involves an ent who is a manufacturer (licensee)
giving a foreign manufacturer (licensor) the right to use a patent,
trademark, technology, production process or product in return for
the payment of a royalty.
ii. Turn Key Projects. It is the development and operational zing of a
product in a foreign cty.
iii. Management Contracts. The method of doing a specific intl task.
It uses intl business by contacting their management techniques
and skills. It allows the purchasing cty to gain foreign expertise
without giving ownership of its resources to a foreigner.
c. Direct Foreign Investment. defined as a company from one country
making a physical investment into building a factory in another country. Its
definition can be extended to include investments made to acquire lasting
interest in enterprises operating outside of the economy of the investor.
The FDI relationship consists of a parent enterprise and a foreign affiliate
which together form a Multinational corporation (MNC). In order to qualify
as FDI the investment must afford the parent enterprise control over its
foreign affiliate. The IMF defines control in this case as owning 10% or
more of the ordinary shares or voting power of an incorporated firm or its
equivalent for an unincorporated firm; lower ownership shares are known
as portfolio investment.
i. Minority interests. Having less than 50% ownership position. It
can provide a firm with a source of raw material or a relatively
captive market for its products
ii. Joint Ventures. It is two companies forming a third company. It
is generally done when;-
1. Enterprise want to purchase local knowledge as well as an
already established marketing or manufacturing facility

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 2. When rapid entry into a market is needed
iii. Majority Interest. Having more than 50% interest and ownership
position. The common form is mergers. This is the combination of
at least two firms doing similar businesses at the same market
level.
24. Barriers to International Trade
a. GATT(General Agreement on Trade and Tariff). Formed in 1947 in
US is to aim at liberating trade by eliminating or reducing tariffs, subsidies,
import duties and quotas.
b. Increasing Protectionist Attitudes.
i. Persistent US trade deficit
ii. Japan as the largest buyer of the world
iii. Due to agreements like GATT, ctys have signed bilateral
agreements.
c. Trade blocks and free trade areas
CHAPTER - 5
CREATIVIT AND THE BUISNESS IDEA

25. Sources of new Ideas

a. Customers
i. Informally monitoring potential ideas and needs
ii. Formally arranging for consumers to have an opportunity to
express their opinions
b. Existing Products and Services. Analysis of existing products and
services lead to new and improved products
c. Distribution Channels. They can be good sources as they understand
the needs of the market
d. Federal Govt
i. The patent office contains numerous new product possibilities
ii. New product ideas may come as a response to the govt
regulations/policies.
e. R & D
26. Methods of Generating Ideas
a. Focus Groups. Groups of individuals providing information in a
structured format.
b. Brainstorming. A group method for obtaining new ideas and
solutions. The rules of brainstorming are:-
i. No criticism of a negative comment by a member.
ii. Freewheeling is encouraged
iii. Quantity of ideas is desired
iv. Combination and improvement of ideas is encouraged
c. Problem Inventory Analysis. It is a method of obtaining new ideas
and solutions by focusing on problems.
27. Creative Problem Solving
a. Brainstorming. It is the obtaining of new ideas by focusing on the
given parameters

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 b. Reverse Brainstorming. A group method for obtaining new ideas by
focusing on the negatives. criticism is allowed and negative questions are
asked.
c. Brain writing. It is a form of written brainstorming. In it each member
first writes ideas which are than collected and subsequently discussed.
d. Gordon Method. It is method of developing new ideas when the
members are unaware of the problem. Once they are collected they are
explained the problem and then is discussed.
e. Checklist method developing a idea through a list of related ideas.
f. Free Association. Developing a idea through a chain of word
associations. First a word related to the issues is written, followed by other
and than making a chain.
g. Forced Relationships. It is developing a new idea by looking at
product combinations.
h. Collective Notebook method. Developing new idea by group members
regularly recording ideas.
i. Attribute listing. It requires to list the attributes of an item or problem
and then look at each from a variety of viewpoints
j. Big Dream approach. Developing an idea without thinking of the
constraints. Think BIG.
k. Parameter Analysis. Developing an idea by focusing on parameter
identification and creative synthesis.
28. Opportunity Recognition. An opportunity represent a possibility to meet a
large enough unsatisfied need that is worthwhile. Those ent who have the ability
to recognize business opportunity are in a better strategic position for product
planning and development process
a. Product Planning and Development Process. Product life cycle is
the stages which a product goes through form introduction to decline.
b. Establishing evaluation Criteria. It is a necessary part of all
stages. The criteria should be established to evaluate the new idea in
terms of market opportunity, competition, marketing sys, financial factors
and production factors, The product planning and development process is
divided into four stages as under:-
i. Idea Stage. It is the first stage. New idea is conceived and the
unimportant ones are discarded.
ii. Concept Stage. In this stage it is refined and is tested to
determine consumer acceptance.
iii. Product Development Stage. In this stage consumer reaction
to the physical product is determined.
iv. The Marketing Stage. It provide the actual sales results, which
indicate the acceptance level of consumers.

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 CHAPTER - 6
LEGAL ISSUES OF ENT

29. Intellectual Property. It includes any patent, trademark, copyright and trade
secret which represents important assets to the ent and should be understood
even before engaging. These are very sensitive issues and are often
misunderstood.
30. Need for a Lawyer.
a. They have awareness about legal issues
b. They provide legal advice
c. They are experts on the subject
d. They are specialists in specific areas of law
31. How to select a lawyer
a. One time process a lawyer is hired for a specific tasks.
b. Monthly/yearly. A permanacnt lawyer to take care of all legal issues
and is paid on monthly/yearly basis except the court fee.
32. Patent. A patent is a contract between the govt and the inventor. In
exchange for disclosure of the invention, the govt grants the inventor exclusivity
regarding the invention for a specific amount of time. The invention must be good
for the society or economy.
33. Types of Patents
a. Utility Patents. A utility patent basically grants the owner protection
from anyone else making, using, and /or selling the identified invention
and generally reflects protection of new, useful and unobvious processes
such as film developing. It has a term of 20 yrs
b. Design Patent. It covers new, original, ornamental and unobvious
design for articles of manufacture, a design patent reflects the appearance
of an object, it has a life of 14 yrs
c. Plant Patent. These are for new varieties of plants. They are very
limited and very less in use.
d. International Patents patent cooperation treaty (PCT) with 100
participants was created to issue patents for multiple countries. It is
administered by WIPO (world intellectual property org) in Geneva,
Switzerland.
34. The disclosure document Statement to US patent and trademark office
by the inventor disclosing intent to patent idea.
a. it is imp to file docu so as to decide who has come first in case of a
dispute.
b. It should be written in clear.
c. Duplicate copy prep. PTO will stamp and keep one copy while sending the
other back to ent to b used as rre.
35. The Patent Application. The patent application must contain the background
and advantages of the invention and the nature of problems that it overcomes. It

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 should clearly state how this invention differs from existing offerings. The
sections of patent application include:-
a. Intro.
i. Nature and back of invention
ii. Nature of problems that it overcomes
b. Description of Invention
i. Brief description and drawings
ii. Detailed description should follow
c. Claims
i. It will set up criteria by which infringements must be determined
ii. This is a difficult part
d. Indexes
i. Description of invention
ii. Photographs
iii. Cover letter
iv. PTO stamps and returns the application
e. Declaration
36. Patent Infringements. These are the patent violations.
a. See fig 6.1 at page 165
37. Trademark. It is a distinguishing word, symbol, diagram, character, made
colour, music or sound that identifies the product. It is initially registered for 20
yrs and extendable for indefinite period.
a. Categories of Trademark
i. Colored mark. Like Kodak
ii. Arbitrary Mark. That has some other meanings like Apple
iii. Suggestive mark. That suggests features equals the ingredients
or characteristics of a product, like Sunsilk
iv. Descriptive Mark. That has been distinctive for a considerable
period of time and has gained registration and consumer’s
recognition. Like Dalda or Savor foods
38. Trade Secrets. Protection against others revealing or disclosing information
that could be damaging on business.
a. It remains a secret till the time it is revealed
b. A trade secret is not covered by any federal law but is recognized under a
governing body
39. Licensing. It is a contractual agreement giving rights so others to use
intellectual property in return for a royalty or fee.
a. it is an agreement between two parties, where one party has propriety
rights over some info, process or tech protected by a patent, trademark or
copy right.
b. Example is Ninja Turtles, Walt Disney
40. Product Safety and Liability. It is the resp of a company to meet any legal
specifications regarding a new product covered by the consumer product safety
act.
41. Insurance. It is in the best interest of ent to purchase insurance to ward off the
future problems that may occur. The types of insurance are

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 a. Property
b. Casualty
c. Life
d. Workers compensation
e. Bonding
42. Contact. A legally bonding agreement between two parties. Essential
elements in an contract are[-
a. All the parties involved should be named and their specific roles n the
transaction specified.
b. The transaction should be described in detail
c. The exact value of the transaction should be specified
d. Obtain signatures

CHAPTER - 7
WRITING OF A BUISNESS PLAN

43. Writing business plan. Ref to the Notes given by the Professor on the first
day for prep of project
44. Why some businesses fail
a. Unrealistic goals
b. Unmeasurable goals
c. Lack of total commitment by the ent to the bz
d. No experience of the bz by the ent
e. No sense of potential threat or weakness to the bz by the ent
f. No customer need was estb before the start of the bz
CHAPTER - 8
THE MARKETING PLAN

45. Market Research for the new product.Market research involves the gathering
of data in order to determine such info as who will buy the product or service. Ent
can do it by himself or thru experts. It is an expensive ex. It can be done thruP-
a. Obsn. Observing natural behavior both human and mech
b. Experimentation. Both in labs or field
c. Intermixing both individual and focus groups
d. Networking/Ethnography. Thru experts about competitive
customers and market
46. The steps invloed in Market Research are
a. Step one- defining the purpose of objective.
i. How much potential customers wud be willing to pay
ii. Where potential customers wish to purchase
iii. Where customers will wish to hear about product
b. Steps two- Gathering data from secondary Sources it is already aval
data but has been collected for some other purpose.
i. Govt
ii. Libraries

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 iii. Trade associations
iv. Universities
v. Secondary research suppliers
c. Step three – Gathering info from primary resources. It involves
data collection procedures and instruments. It is collected for the first time
and for the problem at hand.
i. It involves procedures as observation, networking, interviewing,
focus groups, experimentation, surveying, and questionnaires
ii. Observation is the simplest apch,
iii. Questionnaire is the most common method
d. Step four – Analyzing and interpreting the results
i. Organize and tabulate the collected data
ii. Use statistical tasks
iii. Interpret the results
iv. Conclusions and recommendations
v. Follow up
47. Steps in preparing the marketing plan/Components of a Market Plan
a. Defining the Bz situation. Discuss the past and present business
achievements of new venture.
i. Review of past experience or backgrounding
ii. Present market condition and future opportunities
b. Defining the target market/opportunities and threats these are the
specific groups of potential customers towards wichid venture aims its
marketing plan
i. Market Segmentation. Process of dividing a market into
definable and measureable groups for purposes of targeting
marketing strategy. The basis of mkt segmentation are”-
1. Demography - age, sex etc
2. Geography - urban, rural etc
3. Psychography - lifestyles
4. Behavioral - usage rate, buying conditions,
desired benefits
ii. Target marketing
c. Considering strengths and weaknesses
d. Establishing goals and objectives

CHAPTER - 10
THE FINANCIAL PLAN

48. Operating and Capital BudgetsIn proprietorship, owner prepares that

whereas in partnership/corporation, Managers prepare it and owner approves it.First find
expected sales and from it, find the cost of these sales and ending inventory. Important
considerations are total production required and level of inventory. Second find Operating Costs
that includes Fixed Expenses like rent, utilities, salaries interest, deprecation and Variable
Expenses like Adv. and Selling expenses etc. Capital Budget provides the basis for

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expenditures impacting business for more than one year e.g. new equipments, vehicles,
computers or new factory etc.

49. Proforma Income Statement. Proforma income is the projected net profit
calculated from projected revenues minus projected costs and expenses. Preparing the
Proforma Income Statement involves, calculate Sales by months, basis nay be marketing
research, industry sales and some trial experiences. Certain forecasting techniques like survey
of buyer’s intentions, sales force opinions, expert opinions etc can be used to calculate the
sales. List down Projected Operating Expenses that shall have room for adjustment. E.g. selling
expenses increase with increase in business and they are usually high in start. Finding cost of
goods sold that can be either compute variable cost of production and times number of units
sold or by industry percentage of sale. Salaries and wages can be calculated by number of
employees required and their roles. Increased insurance costs, trade show participation or
added space for warehousing shall also be considered. Unusual expenses like Trade Show
participation etc shall be flagged at the bottom of Proforma Income Statement. New machinery
depreciation shall be added. Proforma Income statement shall be prepared First year month
wise, and for the year 2 and 3, it shall also be prepared year wise. This can be done through
calculating percentages of cost of goods sold and operating expense in relation to the sales
and multiplying these percentages with the next year forecasted figures. For projected expenses
in year 2 and 3, first look at the expenses that remain stable e.g. depreciation, utilities, rent,
insurance etc. Be conservative for initial planning purposes. In case of an Internet Startup,
purchase/lease computers, extensive advertising expenses e.g. banner advertisement, Search
Engine Listing etc, and inventory expenses are more important.

49. Proforma Cash Flow Cash flow is the difference between cash receipts and cash
payments (not all sales are made in cash and not all bills are paid in cash) Deprecation expense
don’t account for cash outlay, similarly in an internet startup, fee going as merchant charges
through credit card transactions sales are not received by the companies. Using profit as the
only measure of a success may mislead if there is a negative cash flow. Mostly used method for
calculating cash flow is Indirect method, objectives of which is to understand that there are
some adjustments that need to be made to the net income based on the fact that actual cash
may or may not have actually been received or disbursed (figure 10.5). Monthly projections of
cash flow shall be prepared. If disbursement are more than receipts, entrepreneur a has to
borrow or use cash in bank an if receipts are more, he shall invest in short term or deposit in
banks. It is difficult to project cash flows on exactly on the basis of monthly receipts and
disbursements. One easy method is anticipate that 60% of sale in each month is received as
cash and 40%^ in the subsequent month. Per month cash flow helps in determining level of
borrowings and surplus cash can be used to repay any debt or invested in highly liquid assets or
used to purchase any new equipment.

50. Proforma Balance Sheet. Summarizes the projected assets, liabilities and net
worth of the business. It depicts the situation of the business at end of the First year. Assets
represents items that are owned or available to be used by the business. Divided in to Current

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Assets, that are highly liquid assets including cash or can be converted in to cash and
consumed in a period of less than one year. Fixed Assets are tangible and will be used over a
long period of time. Liabilities represents every thing that is owed to the creditors. Current
Liabilities are those which are due within a year whereas Long term Liabilities includes
loans/debts taken by the business for a long time period. Owner Equity represents excess of all
assets over all liabilities showing net worth of the business. It is the amount invested by the
owner. Profits are shown as Retained Earnings in the Proforma Balance Sheet.

51. Break Even Analysis. Break Even is the volume of sales where the venture
neither makes a profit nor incur a loss. This point dictates volume of sales need to cover Total
Variable and Fixed Expenses. It is important to find out when a profit may be achieved thus
showing financial potential for the startup business. Break Even analysis shows how much units
must be sold or how much sales volume must be achieved in order to break even.

Determining the Break Even Formula

Total Revenue (TR) = Total Cost (TC)

Where TR = Selling Price x Quantity (SP x Q)

And TC = Total Fixed Cost (TFC) + Total Variable Cost (TVC)

SP x Q = TFC + TVC

where TVC = Variable cost per unit x Qty (VC/Unit x Q)

SP x Q = TFC + VC/Unit x Q

(SP x Q) – VC/Unit x Q = TFC

Q(SP – VC/Unit)) = TFC

Q = TFC/SP-VC/unit

Which is the break even quantity. There is a major problem in declaring which cost is variable
and which is fixed. Reasonably deprecation, salaries, wages, rent and insurance are considered
as fixed whereas materials, selling expenses and direct labor are taken as variable costs.
Companies having more than one product, Break Even is calculated for every product
differently.

52. Proforma Sources and Uses of Funds. Summaries all the projected
sources of funds available for the venture and how these funds will be disbursed. Purpose is to
show how net income and financing were used to increase assets or pay off debts. Typical
sources of funds are from operations, new investments, long term borrowings and sale of
assets. Profit is also included as source of fund and deprecation is added back as it does not go
out of pocket. Applications of funds may include increased assets, retire long term liabilities,
reduce owner equity and pay dividends.

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The statement of Proforma Sources and Application of funds statement helps the entrepreneur
and investors in understanding the financial well being of the company and effectiveness of
financial management policies of the company.

Software Packages

Used for tracking financial data and generate financial statements. Other purpose may include
check writing, payroll, invoicing, inventory management, bill paying, credit management and
taxes. They are helpful in presenting different scenarios and to asses their impact on the
Proforma statements. MS Excel, Quick Book, Peach Tree Accounting, MS Financial Manager
are few good options as ready made packages.

Startup Company shall select very simple and easy to use soft wares.

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