ASSIGNMENT

DRIVE FALL 2013

Program BBA Semester 5
BBA505 - Entrepreneurship Management

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Q. No1 Define entrepreneurship. Explain the importance of Entrepreneurship.

Answer:

Definition of entrepreneurship:
The term entrepreneur is often used interchangeably with entrepreneurship. But conceptually they are
different. An entrepreneur is an individual, whereas the activities for starting up the enterprise are
collectively referred to as entrepreneurship. Entrepreneurship is the tendency of a person to organize his
own business and run it profitably, exploiting the qualities of leadership, decision making, managerial
caliber, etc. Entrepreneurship is concerned with the development and coordination of entrepreneurial
functions. Entrepreneurship is a role played by or the task performed by an entrepreneur.
Importance of Entrepreneurship
Entrepreneurship is the essence of free enterprise because the birth of new businesses gives a market
economy its vitality. Most economists today agree that entrepreneurship is a necessary ingredient for
stimulating economic growth and employment opportunities in all societies. By its very definition, it is

entrepreneurs who bring new processes to fruition, coordinate economic activity, combine labour and
capital in new or proven ways, and create their own individual fortunes out of which the economys
overall, aggregate direction emerges. Entrepreneurship transforms ideas into economic opportunities. That
is the crux of entrepreneurship. Innovative entry by entrepreneurs is the force that sustains long-term
economic growth. History of the Industrial Revolution in Europe is a pragmatic example of how
economic progress has been significantly advanced by entrepreneurship. In most developing countries,
successful small businesses are the prerequisites of income growth, job creation, and poverty reduction. In
India, private sector development in the last two decades has been a powerful engine of economic growth
and wealth creation. It has been crucial for improving the quality, number and variety of employment
opportunities for the poor. It has become increasingly apparent, over the years, that entrepreneurship
makes an important contribution to economic development. Government support for entrepreneurship is a
crucial strategy for economic development, for two basic reasons that are as follows:
(i) Economically, entrepreneurship stimulates and revitalizes markets. The formation of new business
leads to job creation and has a multiplying effect on the economy.
(ii) Socially, entrepreneurship empowers citizens, generates innovation and creates opportunities for new
ways of doing things. These changes have the potential to integrate developing countries and give them
greater capacity to compete in the global economy. There is another important, but usually overlooked,
advantage to having entrepreneurs control the economys overall direction. Central planning has the
disadvantage that when the national planners are wrong, the entire economy suffers. As entrepreneurs
make their decisions individually, the decisions are decentralized. Such decisions minimize the harm that
can be caused to the entire economy through making of poor choices.

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2 What is meant by business plan? Describe the contents of a business plan.

Answer:
Meaning
Business plan is a written description of business. It is comprehensive in nature and comprises details like
promoters, existing and proposed products and/or services, know-how and techniques intended to use,
potential markets and customers, proposed strategies for the marketing of products and services, details of
manpower, available or planned infrastructure, sources of supply of input items, organizational structure,
estimated costs and revenues, estimated investment in fixed assets as well as working capital, and finally
projection of financing needs.

A brief description of contents of business plan is given as under, and the feasibility study in the next
section:
(i) Description of venture: For an existing business, the details like date of establishment, journey over
time with significant milestones, employee data, sales and profit data over time (if history is too long then
selected period of say, five years data would be enough), organization structure, operating
philosophy, vision and mission statements, and details of enabling factors are important.
(ii) Production plan: In case of manufacturing activity, the details of technology and its constraints,
success factors, realistic assumptions regarding utilization of plant capacity supported with evidences
from other businesses, processes, manpower requirement (skilled, semi-skilled and unskilled) as well as
their availability, sources of material and several other details that can have an impact on production
would become an essential part of production plan. Finally, year-wise production plan in units as well as
rupee terms must be presented. In case of services, similar information but with different components
would become relevant in production plan. Equipment needed, trained manpower availability, office
space, necessary hardware and software, marketing assumptions in terms of demand for services and such
other information is used for preparing production plan for a service organization. This plan perhaps can
be renamed as service plan.
(iii) Operations plan: Several operations have to be carried out with a view to succeed in providing
products and services. The business activity must be clearly broken down into the discreet operations and

details must be provided how those operations will be performed given the resources. If the operations
plan fail then production plan would also automatically fail.
(iv) Marketing plan: A business needs to define a market in terms of geographical area or demographic
details of potential customers or consumers. Market feasibility report would help in identifying the scope
of business opportunity, and from that canvass, a businessman has to determine the right segment of
market wherein he would like to do business. Promotion plan, distribution network and other marketing
policies are useful in evaluating the potential market for the goods and services offered by the business.
(v) Organizational plan: In the absence of strong organizational backing the most lucrative business can
also fail measurably. Business operates in a very dynamic environment, whether internal or external. A
business organization must develop capability of capturing information regarding the changing external
variable that may affect the current business or future opportunities of the business. Internal competency
of deciphering the signal picked from the market and responding to it in time is critical for converting
plans into a profitable action.
(vi) Assessment of risks: The production and marketing plans are usually prepared on the most realistic
scenario. If actual scenario turns out to be better than anticipated (sales price is higher, sales quality is
higher, expenses are lower, among others), then there is a positive surplus profit. But what if things do not
turn out as good as estimates and cost of project goes up, cost of capital is higher, enough capital is not
available, sales price remain low, sales quantity is less, expenses are higher, skilled
people are not available, among others. The assessment of down-side impact of risk must be assessed, if
not upside reward of risk.
(vii) Financial plan: The contents of the business plan are now converted into the financial numbers to
present the financial plan. The financial plan gives income statements and balance-sheets for the projected
period, depreciation schedule, interest payment schedule, working capital schedule, taxability schedule,
cash flow statements, working capital financing schedule and schedule of funds to be raised and serviced.
The financial plan also includes calculation of several ratios that are useful in the evaluation of funding
options. Cost of capital is calculated, net present value is calculated, internal rate of return is calculated
and in some cases other needed aspects like pay-back-period and accounting rate of returns are also
presented in the financial plan.

Q3 Write short notes on the following:

1. Venture capital
Answer:
Venture Capital
Venture capitalists have come into being to help people with idea but not much money. Oxford dictionary
defines venture capital as capital invested in a project in which there is a substantial element of risk,
typically a new or expanding business. As per this definition, one would safely conclude that venture
capital fund is available for a start-up firm and small businesses that might have a potential of long-term
growth and profitability.
Characteristics of Venture Capital Venture Capitalist
All venture capital and venture capitalists are equal in their characteristics, though they defer in terms of
their expertise and focus area. There are three very basic characteristics that distinguish venture capital
from other sources of equity funds. These three characteristics are:
it is equity investment or quasi-equity investment
it is a long-term investment, and
it is an active form of investment in equity. The participation of venture capitalist in equity or quasiequity is without any collateral. They take same risk as any ordinary equity shareholder would take.
Venture capitalists invest significant amount of money for a longer period, and therefore, they participate
in the management of the firm, they participate in the board meetings, help in converting idea into a
marketable commodity, and assume greater risk, including liquidity risk. They help in establishing the
firm, introducing the product, managing growth and so on before they stage an exit.

2. Marketing the new venture

Answer:
Marketing is a function over which we can have only an influencing power but hardly any control over
the outcome. Therefore, marketing function is very important especially for a new enterprise. The market
analysis is done before a business plan is prepared and it is included in the business plan, i.e., at the
project phase of a proposed business.

Market Assessment
Market is first assessed when a business plan is prepared. That is usually broad base, primarily aimed at
checking whether there is gap between demand and supply if the product or service that will be offered by
the entrepreneur is an existing product with or without modifications. In case of a new product, the
market assessment at time is just an informed evaluation of potential market. Market assessment aims at
defining the market that would be most appropriate for the product and that would give strongest
opportunity for the long-term growth. This involves matching the product with customer needs. This
strategy of defining the market segment for you is derived from customer research and competitive
analysis.
Impact of Market Dynamics
An entrepreneur must understand the market dynamics. Conceptually, demand and supply determine the
price. Demand and supply constantly change and, therefore, pricing mechanism becomes dynamic, which
is called market dynamics. Several factors play a role in affecting supply and demand and thereby, the
prices of products. Competitors price, income level, employment level, inflation, production level,
government policies and a host of other factors individually and collectively affect the pricing of a
product.

Q3. Exit Strategies for Entrepreneurs

Answer: Entrepreneurs need to have an exit strategy. Two main reasons can be cited here exit at the
right time gives more than expected returns and once a business gets going, an entrepreneur may not
remain excited about it and may like to try hands on newer ideas and may want to nurture them. A ready
exit strategy is, therefore, important for an entrepreneur.
What is Sold in Exit?
One must have a clear idea about what is being sold when a business is sold. This knowledge would help
in terms of strategizing for maximizing the benefits from exit. Some important things that are sold when a
business is sold would include the following:
your client base
intellectual property created by the firm
brand name
unique product and processes
team of people that an entrepreneur has put together

 the bricks and mortars of business

How to Maximize Benefits from an Exit?
Exiting a business is easy, but exiting with the maximum benefits would require care and strategy. Some
points that an entrepreneur may like to take into consideration when planning for an exit are listed here.
They are self-explanatory, therefore, explanation is avoided.
Think about the various ways of exit and weigh the pros and cons of each one of them.
Set clear goals for exit and weigh how realistic they are. You need to have a clear understanding about
the inherent or intrinsic value of what you are selling.
Be willing to negotiate the terms of payment and mode of payment. Negotiate your involvement, either
as a consultant or as senior executive, in the affairs of sold business; of course for a payment.
Consider selling to your own employees, if that is more profitable after factoring the tax implications.
Use services of expert intermediaries, like merchant bankers, to get to more potential buyers and get
favorable terms.