Principles of Entrepreneurship

Unit – I Introduction to Entrepreneurship

What is Entrepreneurship?

The term entrepreneurship is derived from a French word ‘Entreprendre’ which

means ‘to undertake’, ‘to pursue opportunities’, or ‘to fulfill needs and wants’ through
innovation and creating businesses.

Entrepreneurship is the act of being an entrepreneur or “one who undertakes

innovations, finance and business acumen in an effort to transform innovations into economic
goods”. This may result in new organizations or may be part of stimulating mature
organizations in response to a perceived opportunity.

Entrepreneurship is the immense strength and human spirit of which made possible
the great geographical discoveries of the world. Entrepreneurship is a vital activity to bring
about changes in the economy and society not only in a country but also of those in the
world.

It affects all aspects of political-legal, socio-cultural, technological, economic and

demographical environment of life and society. Entrepreneurship is the pioneering force that
connects the world societies with its activity of exchange from the early period of our human
history.

Who is an Entrepreneur?

The entrepreneur is defined as someone who has the ability and desire to establish,
administer and succeed in a startup venture along with risk entitled to it, to make profits. The
entrepreneurs are often known as a source of new ideas or innovators, and bring new ideas in
the market by replacing old with a new invention. It can be classified into small or home
business to multinational companies.

An entrepreneur is a creator or a designer who designs new ideas and business

processes according to the market requirements and his/her own passion. To be a successful
entrepreneur, it is very important to have managerial skill and strong team building abilities.

An entrepreneur is an innovator or a creator who introduces something new to the

firm or economy. It can be a new method of production, a new product, a new source of
material, a new market or any other similar innovation. Thus, an entrepreneur is an innovator,

1 | Page
Unit - I
Principles of Entrepreneurship
creator, borrower, purchaser, etc. Some famous entrepreneurs are Azim Premji, Lakshmi
Mittal, Dhirubhai Ambani, Ratan Tata Ekta Kapoor.

In a nutshell, anyone who has the will and determination to start a new company and
deals with all the risks that go with it can become an Entrepreneur.

Definition of Entrepreneur –

“Entrepreneurship entails bearing the risk of buying at a certain price and selling at
uncertain prices.”- Ricardo Cantillon.

“Entrepreneurship is any kind of innovative function that could have a bearing on the
welfare of an entrepreneur.”-Joseph A. Schumpeter (1934).

“Entrepreneurship is the dynamic process of creating incremental wealth.” – Robert

C. Ronstadt (1984)

“Entrepreneurship is that form of social decision making performed by economic

innovators.” -Robert K. Lamb (1952).

“Entrepreneurship is the process of creating something new with value by devoting

the necessary time and effort, assuming the accompanying financial, psychic and social risks
and receiving the resulting rewards of monetary and personal satisfaction and independence.”
- Robert D. Hisrich and Michael P. Peters (1998)

Entrepreneurial Traits

1. Risk-Taking Ability - The willingness to take risks is the essence of entrepreneurship.

Not every business idea gets support, funding or recognition. There is a considerable
amount of failure risk when it comes to building something from the ground up. As an
entrepreneur, you need to be prepared for all kinds of risks and have measures in
place to tackle them. You need to prioritize risk evaluation.
2. Creativity and Innovation - Starting a new venture means coming up with a new
business idea which should be unique to get funding and to earn profits.
3. Vision - To be successful, the entrepreneur should have a clear vision of his new
venture. To drive for vision and mission the entrepreneur need to be able to
communicate and guide the employees in the right direction.

2 | Page
Unit - I
Principles of Entrepreneurship
4. Open – Mindedness - In a business, every circumstance can be an opportunity and
used for the benefit of a company. An entrepreneur should be with open – mindedness
and flexible to change according to the situation and have the power to adapt quickly.
5. Goal Oriented – Goal oriented means having an individual willingness to achieve a
goal set. This willingness encourages and orients the person to develop habits to reach
the results expected on this specific goal. The entrepreneurs are successful because
they know what they want to achieve and have a set of plans on how to achieve their
goals.
6. Profit – Oriented – The key factor for any entrepreneur is to generate the profit. In
order to drive profits and enhance business growth, the entrepreneur should need to
pay attention towards the changes in the industry and market trends. Being
accountable and meeting the needs and expectations of the customers and clients is a
vital part of entrepreneurship.
7. Self – Motivated - driven by one's own desires and ambitions. Self-motivation is, in
its simplest form, the force that drives you to do things. The ability to motivate
yourself—self-motivation—is an important skill. Self-motivation drives people to
keep going even in the face of set-backs, to take up opportunities, and to show
commitment to what they want to achieve.

Functions of Entrepreneur

An entrepreneur performs all the necessary functions which are essential from the
point of view of operation and expansion of the enterprise. The main functions of
entrepreneur are as follows:

✓ Planning
✓ Risk and Uncertainty Bearing
✓ Organization Building
✓ Managing
✓ Decision-Making
✓ Innovation
✓ Leading
✓ Managing Growth

3 | Page
Unit - I
Principles of Entrepreneurship

Nature and Characteristics of Entrepreneurs

Considerable research has been dedicated to the task of identifying the traits and
characteristics of the typical entrepreneur. According to John Hornaday the characteristics of
successful entrepreneurs are as follows:

✓ Self-confidence ✓ Resourcefulness
✓ Energy, diligence ✓ Need to achieve
✓ Ability to take calculated risk ✓ Initiative
✓ Creativity ✓ Independence
✓ Flexibility ✓ Foresight
✓ Positive Response to Challenges ✓ Profit orientation
✓ Dynamism, Leadership ✓ Perceptiveness
✓ Ability to get along with people ✓ Optimism
✓ Responsiveness to suggestions ✓ Versatility
✓ Responsiveness to criticism ✓ Knowledge of product and
✓ Knowledge of market technology
✓ Perseverance, determination

Entrepreneur Vs Manager

COMPARISON ENTREPRENEUR MANAGER

Entrepreneur refers to a person

Manager is an individual who takes
who creates an enterprise, by
Meaning the responsibility of controlling and
taking financial risk in order to get
administering the organization.
profit.

Focus Business startup Ongoing operations

Primary Motivation Achievement Power

Approach to task Informal Formal

Status Owner Employee

4 | Page
Unit - I
Principles of Entrepreneurship

Reward Profit Salary

Decision Making Intuitive Calculative

Driving force Creativity and Innovation Preserving status quo

Risk Orientation Risk taker Risk averse

Vision and Mind-set Make profits and serve society Self development & growth

Accumulates land, labor, tools, Utilize available resources,

Functions machinery, technology for implement strategies, ensures proper
organization functioning of an organization

Process of Entrepreneurship

1. Identify an Opportunity – An entrepreneur senses opportunities and visualizes a

market since they are creative and open to new ideas and seek challenges. Since their
ideas are innovative they gain first movers advantage which provides product
identification and higher credibility in the market.
2. Establish a Vision – It involves generation of ideas using past experience and
creativity to develop new and innovative ways to solve a problem. Establishing vision
is comprehensive dreaming which can be converted into reality, if right decisions are
taken at the right time.
3. Persuade Others – The entrepreneur forms the foundation team which consists of a
group of individuals who work together to turn his vision into reality. A major tool in
persuading others will be the business plan which would be the key factor for the
realization of the vision.
4. Gather Resources – To bring the plan into reality, gathering resources will play a
vital role. It involves using a business plan to attract investors, venture capitalists,
partners, financial institutions, promoters etc. Resources can be categorized into –
a) Financial Resources – Personal savings, Retained Capital, Banks,
Government Institutions, Family, Friends, Partnerships, Venture Capital,
Public Issue.

5 | Page
Unit - I
Principles of Entrepreneurship
b) Operating Resources – can be of tangible or intangible. Machines, Raw
Materials, Land and Buildings, Office Equipments, etc is tangible. Companies
Image, Operating Procedures, Transportation and Management etc are
Intangible.
c) Human Resources – Temporary / Permanent employees, Recruitment,
Selection, Training of Staff, Compensation, Organizational Culture.
d) Knowledge / Information Resource – An efficient management information
system is needed in order to have timely information about customers,
markets, competitors and external environment. All the data is networked on
real time basis to speed up actions based on information
5. Create New Venture – When all the resources are arranged, the next step is creation
and establishment of a new venture and running the venture successfully. It requires a
lot of enthusiasm and persuasion to gather optimum resources and it requires a lot of
determination and passion to believe in self.
6. Change / Adapt with time – It is necessary to monitor and upgrade the organization
with changing market conditions. It requires availability of funds to make changes
and the adaptability of human resource towards changed environment.

Creating and Starting a New Venture

Venture is often use for referring to a risky start up. Starting a business venture is
never an easy task, and surprisingly, not always planned. New venture is a business plan that
gives an opportunity or chance to set up a company / business on the basis of innovative
business ideas. An entrepreneur should start with appropriate planning. Planning is the first
step and the most crucial step for starting a business. Entrepreneur has to go through some
steps while planning a venture.

Outline the Main Goal – What are the objectives? Focusing on solution for a
problem? Focusing on only developing a solution is not a main criterion but you
should work on achieving the vision by framing the simple and scalable objectives.
Outline the Values – The principles and values will govern how you will do
business. The fundamental principles and values that had been the key ingredients of
the founder’s original vision.
Build a Product Concept that Works – Come up with an innovative idea that should
be different from your competitors. Make it a point to start small– show your target

6 | Page
Unit - I
Principles of Entrepreneurship
market that it works, and then expand your market, constantly working out the
defects.
Find the Market that Appreciates your Product - Start in markets you can win. A
market entry strategy gives you and your team the overall direction for your product.
A market entry strategy is where you spell out such all-important specifics. It outlines
your business goals, an overview of the target market, precisely what you will sell
there, expected sales and how you will achieve them.
Map your Networks – Networks are assets that are nurtured and developed. Build
your networks methodologically.
Outline Key Indicators of Performance (KPI) - A Key Performance Indicator is a
measurable value that demonstrates how effectively a company is achieving key
business objectives. Organizations use KPIs at multiple levels to evaluate their
success at reaching targets. High-level KPIs may focus on the overall performance of
the business, while low-level KPIs may focus on processes in departments such as
sales, marketing, HR, support and others.
Provide Value to Stakeholders - A stakeholder is any person or entity that has an
interest in a business. Stakeholders can have a significant impact on decisions
regarding the operations and finances of an organization. Examples of
stakeholders are investors, creditors, employees, and even the local community.
Maximizing shareholder value is and should be a primary goal for the corporation, but
getting there requires the corporation to provide value to others as well.
Be Careful about what you Promise - Keeping promises to customers is a business
necessity today, in order to achieve customer loyalty. It would be safe to say that
keeping promises to customers should underlie everything that a company does, and
is at the core of customer service excellence. Breaking promises to customers is a sure
shot way of driving them away, and ensuring that they never come back.

Sources of New Idea –

Some of the more fruitful sources of ideas for entrepreneurs include consumers, existing
products and services, distribution channels, the federal government, and research and
development.

Consumers - Potential and nascent entrepreneurs should always pay close attention to
potential customers. This can take the form of informally monitoring potential ideas

7 | Page
Unit - I
Principles of Entrepreneurship
and needs or formally arranging for consumers to have an opportunity to express their
opinions. The idea or need has to have a large enough market to support a new
venture.
Existing Organization: competing products and services of existing organization and
evaluation thereof is successful source of new idea.
Existing Products and Services - Potential entrepreneurs should also establish a
method for monitoring and evaluating competitive products/services on the market.
Frequently, this analysis uncovers ways to improve on these offerings that may result
in a new product/service that has more market appeal and sales and profit potential.
Distribution Channels - Members of the distribution channels are also excellent
sources for new ideas reflecting their familiarity with the needs of the market. Not
only do channel members frequently have suggestions for completely new products,
but they can also help in marketing the entrepreneur’s newly developed products.
Government - The government can be a source of new product ideas in many ways.
Government – Government Publication, Product Plan, Product Possibilities,
Evaluation Business Idea, Patent Office Files
Research & Development - The largest source of new ideas is the entrepreneur’s
own “research and development” efforts, which may be a formal endeavor connected
with one’s current employment or an informal one.
Personal Experience - Many ideas come to entrepreneurs from their day-to-day
dealings in life, or from their hobbies and interests.
Observation - Simply observing what goes on around you can be a good way of
spotting an idea. Often an idea will be launched in another country and has not yet
been tried in other, similar economies.

Methods of Generating Ideas –

Even with a wide variety of sources available, coming up with an idea to serve as the basis
for a new venture can still pose a problem, particularly since the idea is the basis for the
business. The entrepreneur can use several methods to help generate and test new ideas, such
as focus groups, brainstorming, brain writing, and problem inventory analysis.

Focus Groups - In a focus group, a moderator leads a group of people through an open,
in-depth discussion rather than simply asking questions to solicit participant response.
The group of frequently 8–14 participants is stimulated by comments from each other in

8 | Page
Unit - I
Principles of Entrepreneurship
creatively conceptualizing and developing a new product/service idea to fill a market
need.

In addition to generating new ideas, the focus group is an excellent method for
initially screening ideas and concepts. The results can be analyzed more quantitatively,
making the focus group an even more useful method for generating new product ideas.

Brainstorming - Is a group creativity technique for obtaining new ideas and solutions for
a specific problem. The brainstorming method stimulates people to be creative by
meeting with others and participating in an organized group experience. Although most of
the ideas generated by the group have no basis for further development, sometimes a
good idea emerges. When using brainstorming, four rules need to be followed:
✓ No criticism is allowed by anyone in the group—no negative comments.
✓ Freewheeling is encouraged—the wilder the idea, the better.
✓ Quantity of ideas is desired—the greater the number of ideas, the greater the
likelihood of the emergence of useful ideas.
✓ Combinations and improvements of ideas are encouraged; ideas of others can be
used to produce still another new idea.

The brainstorming session should be fun, with no one dominating or inhibiting the
discussion.

Problem Inventory Analysis - Problem inventory analysis uses individuals in a manner

analogous to focus groups to generate new product ideas. However, instead of generating
new ideas themselves, consumers in the group are provided with a list of problems in a
general product category. They are then asked to identify and discuss products in this
category that have the particular problem. This method is often effective since it is easier
to relate known products to suggested problems and arrive at a new product idea than to
generate an entirely new product idea by itself.

Creative Problem Solving

Creativity is an important attribute of a successful entrepreneur; unfortunately

creativity tends to decline with age, education, lack of use, and bureaucracy. Creativity can be
unlocked and creative ideas and innovations generated by using any of the creative problem-
solving techniques –

9 | Page
Unit - I
Principles of Entrepreneurship
1. Brainstorming - In creative problem solving, brainstorming can generate ideas about
a problem within a short time frame through the spontaneous contributions of
participants. A good brainstorming session starts with a problem statement that is
neither too broad nor too narrow. Once the problem statement is prepared, usually 8–
12 individuals are selected to participate. To avoid inhibiting responses, no group
member should be a recognized expert in the problem area. All ideas, no matter how
illogical, need to be recorded, with participants prohibited from criticizing or
evaluating during the brainstorming session.
2. Reverse Brainstorming - Reverse brainstorming is similar to brainstorming, except
that criticism is allowed. In fact, the technique is based on finding fault by asking
such questions as “In how many ways can this idea fail?” Since the focus is on the
negative aspects of a product, service, or idea, care needs to be taken to maintain the
group’s morale. Reverse brainstorming can be effectively used better than other
creative techniques to stimulate innovative thinking.
3. Brainwriting - Brainwriting is a form of written brainstorming. It was created by
Bernd Rohrbach at the end of the 1960s. Brainwriting is a silent, written generation of
ideas by a group of people. The participants write their ideas on special forms or cards
that circulate within the group, which usually consists of six members. Each group
member generates and writes down three ideas during a five-minute period. The form
is passed on to the adjacent person who writes down three new ideas, and so on, until
each form has passed all participants. A leader monitors the time intervals and can
reduce or lengthen the time given to participants according to the needs of the group.
4. Gordon Method - The Gordon method, unlike many other creative problem-solving
techniques, begins with group members not knowing the exact nature of the problem.
This ensures that the solution is not clouded by preconceived ideas and behavioral
patterns. The entrepreneur starts by mentioning a general concept associated with the
problem. The group responds by expressing a number of ideas. Then a concept is
developed, followed by related concepts, through guidance by the entrepreneur. The
actual problem is then revealed, enabling the group to make suggestions for
implementation or refinement of the final solution.
5. Checklist Method - In the checklist method, a new idea is developed through a list of
related issues or suggestions. The entrepreneur can use the list of questions or

10 | P a g e
Unit - I
Principles of Entrepreneurship
statements to guide the direction of developing entirely new ideas or concentrating on
specific “idea” areas. The checklist may take any form and be of any length.
6. Collective Notebook Method - In the collective notebook method, a small notebook
that easily fits in a pocket—containing a statement of the problem, blank pages, and
any pertinent background data—is distributed. Participants consider the problem and
its possible solutions, recording ideas at least once, but preferably three times, a day.
At the end of a week, a list of the best ideas is developed, along with any suggestions.
This technique can also be used with a group of individuals who record their ideas,
giving their notebooks to a central coordinator who summarizes all the material and
lists the ideas in order of frequency of mention.
7. Attribute Listing - Attribute listing is an idea-finding technique that has the
entrepreneur list the attributes of an item or problem and then look at each from a
variety of viewpoints. Through this process, originally unrelated objects can be
brought together to form a new combination and possibly a new product/service that
better satisfies a need.
8. Big – Dream Approach - The big-dream approach to coming up with a new idea
requires that the entrepreneur dream about the problem and its solution; that is, the
entrepreneur should think big. Every possibility should be recorded and investigated
without considering any negatives involved or the resources required. Ideas should be
conceptualized without any constraints until an idea is developed into a workable
form.

Business Plan

The business plan is a written document prepared by the entrepreneur that describes
all the relevant external and internal elements involved in starting a new venture. It is often
an integration of functional plans such as marketing, finance, manufacturing, and human
resources. The Business Plan addresses both the short-term and long-term decision making
for the first three years of operation. Thus, the business plan is sometimes referred to, the
game plan or road map which answers the questions – Which Market? Where? When? How ?
and Who?

Good business plans should include an executive summary, products and services,
marketing strategy and analysis, financial planning, and a budget. A good business plan
should outline all the projected costs and possible pitfalls of each decision a company makes.

11 | P a g e
Unit - I
Principles of Entrepreneurship
The business plan may be read by employees, investors, bankers, venture capitalists,
suppliers, customers, advisors, and consultants. Who is expected to read the plan can often
affect its actual content and focus. In some ways, the business plan must try to satisfy the
needs of everyone, whereas in the actual marketplace the entrepreneur’s product will be
trying to meet the needs of selected groups of customers.

Elements / Writing a Business Plan

The length of the business plan varies greatly from business-to-business. All of the
information should fit into a 15- to 20-page document. If there are crucial elements of the
business plan that take up a lot of space—such as applications for patents—they should be
referenced in the main plan and included as appendices. The common and key parts of a
business plan are as follows:-

1. Introductory Page - This is the title or cover page that provides a brief summary of
the business plan’s contents. The introductory page should contain the following:
✓ The name and address of the company.
✓ The name of the entrepreneur(s), telephone number, fax number, e-mail
address, and Web site address if available.
✓ A paragraph describing the company and the nature of the business.
✓ The amount of financing needed. The entrepreneur may offer a package (e.g.,
stock or debt). However, many venture capitalists prefer to structure this
package in their own way.
✓ A statement of the confidentiality of the report. This is for security purposes
and is important for the entrepreneur.

This title page sets out the basic concept that the entrepreneur is attempting to
develop. Investors consider it important because they can determine the amount of
investment needed without having to read through the entire plan.

2. Executive Summary - This section outlines the company and includes the mission
statement along with any information about the company's leadership, employees,
operations, and location. It should highlight in a concise and convincing manner the
key points in the business plan. Generally the executive summary should address a
number of issues or questions that anyone picking up the written plan for the first time
would want to know. For example:
✓ What is the business concept or model?
12 | P a g e
Unit - I
Principles of Entrepreneurship
✓ How is this business concept or model unique?
✓ Who are the individuals starting this business?
✓ How will they make money and how much?
3. Environment and Industry Analysis - It is important to put the new venture in a
proper context by first conducting an environmental analysis to identify trends and
changes occurring on a national and international level that may impact the new
venture. Examples of these environmental factors are:
a) Economy - The entrepreneur should consider trends in the GNP, unemployment
by geographic area, disposable income, and so on.
b) Culture - An evaluation of cultural changes may consider shifts in the population
by demographics, for example, the impact of the baby boomers or the growing
elderly population.
c) Technology - Advances in technology are difficult to predict. However, the
entrepreneur should consider potential technological developments determined
from resources committed by major industries
d) Legal concerns - There are many important legal issues in starting a new venture.
The entrepreneur should be prepared for any future legislation that may affect the
product or service, channel of distribution, price, or promotion strategy.

All the preceding external factors are generally uncontrollable. However, as indicated,
an awareness and assessment of these factors using some of the sources identified can
provide strong support for the opportunity and can be invaluable in developing the
appropriate marketing strategy.

Once an assessment of the environment is complete, the entrepreneur should conduct

an industry analysis that will focus on specific industry trends. Some examples of these
factors are:

a) Industry Demand - Demand as it relates to the industry is often available from

published sources. Knowledge of whether the market is growing or declining, the
number of new competitors, and possible changes in consumer needs are all
important issues in trying to ascertain the potential business that might be
achieved by the new venture.
b) Competition - Most entrepreneurs generally face potential threats from larger
corporations. The entrepreneur must be prepared for these threats and should be

13 | P a g e
Unit - I
Principles of Entrepreneurship
aware of who the competitors are and what their strengths and weaknesses are so
that an effective marketing plan can be implemented.
4. Description of Venture - The description of the venture should be detailed in this
section of the business plan. This will enable the investor to ascertain the size and
scope of the business.
This section should begin with the mission statement or company mission of the new
venture. This statement basically describes the nature of the business and what the
entrepreneur hopes to accomplish with that business.
This mission statement or business definition will guide the firm through long-term
decision making. After the mission statement, a number of important factors that provide a
clear description and understanding of the business venture should be discussed. Key
elements are the product(s) or service(s), the location and size of the business, the personnel
and office equipment that will be needed, the background of the entrepreneur(s), and the
history of the venture.

The location of any business may be vital to its success, particularly if the business is
retail or involves a service. Thus, the emphasis on location in the business plan is a function
of the type of business.

✓ What is the mission of the new venture?

✓ What are your reasons for going into business?
✓ Why will you be successful in this venture?
✓ What development work has been completed to date?
✓ What are your product(s) and/or service(s)?
✓ Describe the product(s) and/or service(s), including patent, copyright, or
trademark status.
✓ Where will the business be located?
✓ Is your building new? Old? In need of renovations? (If renovation is needed, state
costs.)
✓ Is the building leased or owned? (State the terms.)
✓ Why is this building and location right for your business?
✓ What office equipment will be needed?
✓ Will equipment be purchased or leased?
✓ What experience do you have and/or will you need to successfully implement the
business plan?
14 | P a g e
Unit - I
Principles of Entrepreneurship
5. Production Plan - If the new venture is a manufacturing operation, a production plan
is necessary. This plan should describe the complete manufacturing process. If the
manufacturing is to be carried out in whole or in part by the entrepreneur, he or she
will need to describe the physical plant layout; the machinery and equipment needed
to perform the manufacturing operations; raw materials and suppliers’ names,
addresses, and terms; costs of manufacturing; and any future capital equipment needs.
6. Operations Plan - All businesses manufacturing or non manufacturing should
include an operations plan as part of the business plan. This section goes beyond the
manufacturing process and describes the flow of goods and services from production
to the customer. It might include inventory or storage of manufactured products,
shipping, inventory control procedures, and customer support services. For Example,
an Internet retail sports clothing operation would need to describe how and where the
products offered would be purchased, how they would be stored, how the inventory
would be managed, how products would be shipped, and, importantly, how a
customer would log on and complete a transaction.
7. Marketing Plan - The marketing plan is an important part of the business plan since
it describes how the product(s) or service(s) will be distributed, priced, and promoted.
Marketing research evidence to support any of the critical marketing decision
strategies as well as for forecasting sales should be described in this section. Specific
forecasts for a product(s) or service(s) are indicated to project the profitability of the
venture.

Thus, the entrepreneur should make every effort to prepare as comprehensive and
detailed a plan as possible so that investors can be clear as to what the goals of the venture
are and what strategies are to be implemented to effectively achieve these goals.

8. Organizational Plan - The organizational plan is the part of the business plan that
describes the venture’s form of ownership—that is, proprietorship, partnership, or
corporation.

If the venture is a partnership, the terms of the partnership should be included.

If the venture is a corporation, it is important to detail the shares of stock authorized

and share options, as well as the names, addresses, and resumes of the directors and officers
of the corporation.

15 | P a g e
Unit - I
Principles of Entrepreneurship
It is also helpful to provide an organization chart indicating the line of authority and
the responsibilities of the members of the organization.

9. Assessment of Risk - Every new venture will be faced with some potential hazards,
given its particular industry and competitive environment. It is important that the
entrepreneur make an assessment of risk in the following manner.

First, the entrepreneur should indicate the potential risks to the new venture. Next
should be a discussion of what might happen if these risks become reality. Finally, the
entrepreneur should discuss the strategy that will be employed to prevent, minimize, or
respond to the risks should they occur.

Major risks for a new venture could result from a competitor’s reaction; weaknesses
in the marketing, production, or management team; and new advances in technology that
might render the new product obsolete.

10. Financial Plan - Like the marketing, production, and organization plans, the financial
plan is an important part of the business plan. It determines the potential investment
commitment needed for the new venture and indicates whether the business plan is
economically feasible. Generally, three financial areas are discussed in this section of
the business plan.

First, the entrepreneur should summarize the forecasted sales and the appropriate
expenses for at least the first three years, with the first year’s projections provided monthly.

The second major area of financial information needed is cash flow figures for at least
three years, although sometimes investors may want to see five-year projections. The first
year of projections, however, should be on a monthly basis.

The last financial item needed in this section of the business plan is the projected
balance sheet. This shows the financial condition of the business at a specific time. It
summarizes the assets of a business, its liabilities, and the investment of the entrepreneur.

11. Appendix - The appendix of the business plan generally contains any backup material
that is not necessary in the text of the document.

Reference to any of the documents in the appendix should be made in the plan itself.
Letters from customers, distributors, or subcontractors are examples of information that
should be included in the appendix.

16 | P a g e
Unit - I
Principles of Entrepreneurship
Any documentation of information—that is, secondary data or primary research data
used to support plan decisions—should also be included.

Leases, contracts, or any other types of agreements that have been initiated also may
be included in the appendix.

Finally, price lists from suppliers and competitors may be added.

Evaluating Business Plan

When evaluating your Business Plan, it is important to look at industry trends and
ensure that you are making the best of current trends that impact your business. It is also
essential that you examine the ways in which competitors have changed their functioning to
accommodate the change in trends.

Analyze each section individually, and then look at the plan as a whole to determine
the viability of the business and the likelihood of its success in the manner proposed. Also
consider the writing skills and attention to detail that went into formulating the plan.

Read and Understand the Executive Summary

The first step in a business plan assessment is reading the business' executive
summary. This should be a concise not a summary of the business plan. In one or two pages,
it should convey the market opportunity and the uniquely compelling features of the business
that will help it meet that opportunity. The executive summary should excite you and make
you want to turn to the next page.

Analyze Opportunity in the Market

Evaluate the market opportunity. Ideally, the market should be growing at least 10%
per year and have a substantial potential relative to the size of the business and investment.
The larger the potential market and the faster it is growing, the greater the opportunity in the
market.

Evaluate the Company's Business Strategy

Examine the company strategy for capturing its market. The plan must clearly
describe the problem the company is solving or need it is meeting for customers, and then
propose a solution.

Examine the Business Environment

17 | P a g e
Unit - I
Principles of Entrepreneurship
The business plan should describe the competitive landscape in which the company
operates, preferably by referencing Porter's 5 Forces. Porter's 5 Forces is an evaluation model
that looks closely at the five competitive forces at play in the business landscape. These
forces are present in every industry and by evaluating how they manifest in an individual
industry, one can gauge that industry's strengths and weaknesses. Porter's 5 Forces are:

i. Competition in the industry

ii. Potential of new entrants in the industry
iii. Power of suppliers
iv. Power of customers
v. Threat of substitutes

Evaluate the Leadership Team

The company should have experienced advisers, either formally or informally. It is

paramount that the principals involved in the business convey their passion and drive toward
success with this project.

Understand the Finances

Ensure that the financial projections are both promising and realistic. Financial figures
should be based on historical data if available, or very conservative projections if the
company is not yet profitable. Investigate the returns provided by the investment. Good
business plans include exit strategies for pulling the initial investment back out of the
company, and have a realistic valuation of their shares.

View the Business Plan as a Living Document

Evaluate the business plan as a whole document, and as a reflection of a real-world

company. Determine whether the market need is adequate, the company's offerings are
compelling, the management team experienced and committed, and the financial statements
realistic. Does this company as a whole have a chance of success?

18 | P a g e
Unit - I