ENTREPRENEURSHIP

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ENTREPRENEURSHIPDEVELOPMENTE. GordonM.Com., M.Phil.,Former Professor and Head,Dept. of Commerce,A.N.J.A. College, Sivakasi.Dr. K. NatarajanM.Com., M.Phil., Ph.D.,Former Principal,S.V.N. College, Madurai.Former Principal/Director,Sri Kaliswari Institute of Management and Technology, Sivakasi.ISO 9001:2008 CERTIFIED

AuthorsNo part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission ofthe publisher and author.First EditionReprintSecond Revised EditionThird Revised EditionFourth Revised EditionReprintFifth Revised EditionEditionReprintSixth Revised EditionPublished by:Branch 20162017Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd.,Ramdoot, Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004Phone: 022-23860170/23863863; Fax: 022-23877178E-mail: [email protected]; Website: www.himpub.comNew Delhi:Pooja Apartments, 4-B, Murari Lal Street, Ansari Road, Darya Ganj,New Delhi - 110 002. Phone: 011-23270392, 23278631; Fax: 011-23256286Nagpur:Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur - 440 018.Phone: 0712-2738731, 3296733; Telefax: 0712-2721216Bengaluru:Plot No. 91-33, 2nd Main Road Seshadripuram, Behind Nataraja Theatre,Bengaluru - 560020. Phone: 08041138821; Mobile: 09379847017, 09379847005Hyderabad:No. 3-4-184, Lingampally, Besides Raghavendra Swamy Matham, Kachiguda,Hyderabad - 500 027. Phone: 040-27560041, 27550139Chennai:New No. 48/2, Old No. 28/2, Ground Floor, Sarangapani Street, T. Nagar,Chennai - 600 012. Mobile: 09380460419Pune:First Floor, Laksha Apartment, No. 527, Mehunpura, Shaniwarpeth(Near Prabhat Theatre), Pune - 411 030. Phone: 020-24496323, 24496333;Mobile: 09370579333Lucknow:House No. 731, Shekhupura Colony, Near B.D. Convent School, Aliganj,Lucknow - 226 022. Phone: 0522-4012353; Mobile: 09307501549Ahmedabad:114, SHAIL, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura,Ahmedabad - 380 009. Phone: 079-26560126; Mobile: 09377088847Ernakulam:39/176 (New No. 60/251), 1st Floor, Karikkamuri Road, Ernakulam,Kochi - 682011. Phone: 0484-2378012, 2378016; Mobile: 09387122121Bhubaneswar:5 Station Square, Bhubaneswar - 751 001 (Odisha).Phone: 0674-2532129; Mobile: 09338746007Kolkata:108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank, Kolkata - 700 010.Phone: 033-32449649; Mobile: 07439040301DTP by:RakhiPrinted at:M/s. Aditya Offset Process (I) Pvt. Ltd., Hyderabad. On behalf of HPH.

Preface to the Sixth Revised EditionThe ecosystem, at present, is favourable in India for entrepreneurialdevelopment. The initiatives taken by the Government of India and StateGovernments, the growing number of funding agencies such as angel investors,venture capitalists, NBFCs, Fintech start-ups, etc., the rise in number of acceleratorsand incubators, and the attitude of family and community have created a conduciveecosystem for the growth of sustainable business ventures. Knowledge about thechanges in the ecosystem, opportunities and challenges in the globalised businessbecomes imperative for youth and students who wish to pursue entrepreneurshipas their career. The present edition provides comprehensive knowledge aboutentrepreneurship, various aspects of starting a new industrial units and makethem viable and sustainable.This present edition includes a new chapter on “Start-ups”.This book is organised into 19 chapters and incorporates current trends andstatistics. We hope that this revised edition will be an invaluable guide to students,teachers and those who want to become entrepreneurs.Critical comments and constructive suggestions for the improvement of thisbook are most welcome.E. GordonK. Natarajan

Preface to the First EditionEntrepreneurs have to play a prominent role with the advent of the industrialrevolution and the consequent technological developments in the developingcountries where the process of economic liberalisation is in full swing. In India,the Government is determined to achieve 8% economic growth rate in the TenthPlan which is in the offing. Unfortunately, the growth rate in recent years hasbeen hampered by the ever increasing problems of unemployment, poverty andregional imbalances. These economic ills can be cured to a large extent onlywhen the educated young come forward to opt for entrepreneurship profession.Having felt the need to create and develop qualities of leadership and stimulatethe hidden talents of entrepreneurship embedded in the minds of youth, almostall universities have incorporated a component relating to entrepreneurship intheir undergraduate as well as postgraduate programmes.No doubt, entrepreneurs are specially talented persons capable of identifyingprojects, marshalling resources, innovating ideas, assuming risks and establishingventures. In these days of highly uncertain business environment and highlysophisticated information technology, prospective entrepreneurs have to be inspiredand motivated to take up some self-employment ventures and thereby, createemployment opportunities for many people. In addition, the changing policiesare so demanding that they make a prospective entrepreneur’s task more difficultthan that of a man, who, over the years, has got quite accustomed to theinnumerable problems and pitfalls of running a business or industry.The main objective of the present work entitled “ENTREPRENEURSHIPDEVELOPMENT” is to serve as an invaluable guide to all those who want toenter into the entrepreneurial arena. It is also designed as a textbook to all thosewho pursue higher education with a course on ‘Entrepreneurship Development.’The salient features of this book are:zPresentation of various aspects of entrepreneurship in a simple languageand lucid style.zLogical arrangement of chapters in an adequate manner.zExhaustive coverage of project report and its appraisal comprehensivelyand critically.zCritical analysis of problems faced by small-scale as well as womenentrepreneurs.

zProvision of concise information on technical know-how to start anew enterprise.zInclusion of both objective and descriptive type questions at theend of each chapter.We express our sincere thanks to Shri S. Kumaravelkani, B.Com., ACA andMr. T. Dhanasekaran, MBA, B.L., Regional Manager, TIIC for their valuableguidance in preparing this book. Our publishers deserve special thanks for theirwholehearted support and cooperation in bringing out this edition elegantly andin time.Critical comments and constructive suggestions for the improvement of thisbook are most welcome and will be greatly appreciated.We wish to express our thanks to Mr. K. Sivadasan, Area Manager andmembers of Himalaya Publishing House Pvt. Ltd. for their active support andwholehearted cooperation.E. GordonK. Natarajan

Contents1. Entrepreneur1 – 212. Entrepreneurship22 – 383. International Entrepreneurship39 – 444. Entrepreneurship Development in India45 – 565. Women Entrepreneurs57 – 676. Micro, Small and Medium Enterprises — An Overview68 – 807. Starting a Micro, Small and Medium Industry81 – 918. Project Identification9. Project Report92 – 104105 – 13310. Start-ups134 – 14611. Project Appraisal147 – 15812. Forms of Ownership159 – 17013. Institutional Support to Entrepreneurs171 – 18914. Institutional Finance to Entrepreneurs190 – 19715. Incentives for MSME Units198 – 20816. Cluster Development Programme209 – 21617. SME Credit Rating Service217 – 21918. Franchising and the Entrepreneur220 – 22519. Sickness in Micro, Small and Medium Enterprises226 – 235

CHAPTER1ENTREPRENEURCONTENTS Definitions Characteristics of an Entrepreneur Functions of an Entrepreneur Entrepreneur vs. Manager Intrapreneur/Corporate Entrepreneur Types of Entrepreneurs Motivating Factors to Become Entrepreneur Entrepreneurial Competencies What Makes a Successful Entrepreneur? Entrepreneur and Economic DevelopmentAll over the globe, the dream of growing number of people is to own and operate their ownbusinesses. The study conducted by the Global Entrepreneur Motor Monitor found that, in USA,11.3% of the adult population, roughly, one in nine people is working to start a business. The surge inentrepreneurial activity is found in all countries and India is no exception.The entrepreneurial spirit is the most significant one in the recent business history. The newentrepreneurs are reshaping the business environment. Their businesses have introduced innovativeproducts and services, created new jobs and opened new markets. The rate of entrepreneurial activitydetermines the growth of a nation.Who are the Entrepreneurs?The word ‘Entrepreneur’ is derived from the French word ‘Entreprendre’ meaning to undertake.In fact, in the 16th century, the Frenchmen who undertook military expeditions were referred to as‘Entrepreneurs.’ Later on, in the 18th century, this term got associated with persons who started theirown enterprises. Richard Cantillon, an Irish man living in France, was the first economist who introducedthe term ‘entrepreneur’ referring to the risk-taking function of establishing a new venture.–1–

2Entrepreneurship DevelopmentDefinitionsVarious experts have defined the term entrepreneur in different words. Some of the definitions areas follows:According to Collins Cobuild English Language Dictionary, 1987, “An entrepreneur is a personwho sets up business deals in order to make a profit.”According to J.B. Say, “An entrepreneur is the economic agent who unites all means ofproduction”.Richard Cantillon says, “All persons engaged in economic activity are entrepreneurs.”In the words of Quesnay, “A rich farmer is an entrepreneur who manages and makes his businessprofitable by his intelligence and wealth.”J.A. Schumpeter is of the view that, “A person who introduces innovative changes is anentrepreneur and he is an integral part of economic growth.”According to Webster, “Entrepreneur is one who assumes risk and management of business.”In the words of Walker, “True entrepreneur is one who is endowed with more than averagecapacities in the risk of organising and co-ordinating various factors of production.”Peter Drucker says, “Entrepreneur is one who always searches for change, responds to it andexploits it as an opportunity. Innovation is a specific tool of entrepreneurs, the means by which theyexploit change as an opportunity for different business or service.”Dewing has rightly put it as follows: “The function of entrepreneur is one that promotes ideas intobusiness.”Thus, an entrepreneur is always action-oriented. He has the ability to visualise the necessary stepsinvolved from idea generation to its actualisation. He is both a thinker and doer; planner and worker. Heaccepts risk and manages it. All the above definitions portray an entrepreneur as an initiator of action,stimulator of social economic change and a harnesser of resources.Characteristics of an EntrepreneurAnybody can become an entrepreneur provided he has got a certain set of behavioural traits andmental aptitude. His success depends more on hard work than good luck. He must be a DOER and nota DREAMER. The success of an entrepreneur largely depends on his intelligence, imagination, capacityto innovate and his ability to turn visions into realities. It is not necessary that he should possess aprofessor’s intelligence, a prophet’s foreseeing capacity, a salesman’s persuasiveness, a banker’s financialtalent, a politician’s power, a filmstar’s magnetic personality and so on. The only capacity, very essentialto become an entrepreneur is the willingness to work hard. There are certain characteristic featureswhich make an entrepreneur successful in his venture. They have been briefly discussed hereunder:1. Hard Work: A successful entrepreneur is one who is willing to work hard from the verybeginning of his enterprise. An entrepreneur with his tenacity and hard work and pervasive perseverancecan revive his business even from the verge of collapse.

Entrepreneur32. Business Acumen and Sincerity: Business acumen stands for shrewdness and ability. Again,the success of an enterprise depends upon the sincerity of the people behind the enterprise. If a personis sincere about his venture, he will move heaven and earth to make it a success.3. Prudence: A successful entrepreneur must be prudent in all his dealings. He should have theability to work out the details of the venture from all angles, assess the favourable factors and pitfallsand take suitable measures to overcome the pitfalls.4. Achievement Motivation: The achievement motivation is the most important characteristic ofan entrepreneur since all other characteristics emanate from this motivation. He must have a strongdesire to achieve high goals in business. In fact, this achievement motivation helps him to surmount theobstacles, suppress anxieties, repair misfortunes and devise plans for success.5. Self-reliance and Independence: A successful entrepreneur wants to follow his own routinepolicies and procedures and he does not like to be guided by others. He is found to be self-reliant byacting as his own master and making him responsible for all his decisions. He does not like to work forothers.6. Highly Optimistic: Successful entrepreneur is always optimistic about his future and he isnever disturbed by the present problems. He always expects a favourable situation for his business andhence, he is able to run his business successfully in the midst of temporary hurdles. He does not allowthe past to obsess him.7. Keen Foresight: An entrepreneur must have keen foresight to predict the future businessenvironment. He has the capacity to visualise the likely changes to take place in the market, customer’sattitude, technological developments, Government’s policy, etc., and take timely actions accordingly.8. Planning and Organising Ability: An entrepreneur is a firm believer in planning and systematicwork. Above all,