UNIT – 5 BUSINESS PLAN AND LAUNCHING OF

SMALL BUSINESS

Matching Entrepreneur with the Project

An entrepreneur possessing the keen attitude for setting up a small scale unit
and formulate a business plan and take a number of steps to give shape to his
business today idea.

Steps for 'Starting up a Business'

The various steps to be taken by entrepreneurs to start a small business unit.

Step 1 : Selection of the Product

An entrepreneur may select a product according to his own capacity and
motivation. As an innovative entrepreneur he may design a new product or like an
imitative one he may copy an established existing product in terms of additional
uses, comfort or saving in cost.
The economic viability of product should cover the following demand
aspects,

• Volume of existing demand in the domestic market

• Volume of aggregate existing demand

• Volume of potential demand

• The degree of import substitution

• Degree of substitution of an existing product

• The volume of demand by big unit for ancillary product

 The information can be obtained from various technical publication, state
development agencies etc.
Step 2 : Selection of firm of ownership

The most commonly chosen firms of ownership for SSI are

• Sole proprietorship

• Family ownership

• Partnership

• Private limited company

The first two firms are mostly preferred for having unified control over the unit.
The next two firms highly facilitate the pooling of financial resources, managerial
and technical skills and business experience.

Step 3 : Selection of Site

An entrepreneur have options for the selection of site,

1. From state development corporation like SIDCO, SIPCOT, MMDA, TNHB

2. From the industrial estate constructed by the state industrial development

agency (SIDA)

3. Choose from plot/sheds developed by private developers

4. Buy private land and develop the same for industrial use

5. The last option is to select a site/shed available in free trade zone

While selecting, following factors to be considered,

• Situated in one's native place

• Site which enjoys all the incentives provided by the Government

• The place near the market

• The site which covers a suitable labour supply and raw material

• The site with modern infrastructural facilities

Step 4 : Designing Capital Structures

The initial capital of a new venture comes from the following sources,

• Own capital

• Long term loan

• Loan from banks and financial institutions

Step 5 : Acquisitions of Manufacturing know-how?

Many institution like government research laboratories, research and

development divisions of industries and also individual consultants provide the
manufacturing know - how. In the case of ancillary units, it is provided by the main
unit itself, both domestic as well as foreign.
 Sometimes, it is provided by the plant and machinery suppliers, both
domestic as well as foreign. The scale of operation is linked closely with technology,
financial and market demand

Step 6 : Preparation of Project Report

It is necessary to prepare a project report according to the format of the

loan application of the concerned team building institution. An entrepreneur may get
these reports done by a consultant or technical consultancy organization.

The project report being compiled by the entrepreneur should accomplish

the purpose of providing a 'Bird's eye view' of the entire spectrum of activity.

The project report may contain the following feasibility

• Technical feasibility
• Economic viability
• Financial implication
• Managerial competency
1. Management and Leadership Skills.
2. Communication Skills.
3. Collaboration Skills.
4. Critical Thinking Skills.
5. Finance Skills.
6. Project Management Skills.
Feasibility Report Preparation and Evaluative Criteria
The feasibility report should include an analysis of the industry to which the
project belongs. It should deal with the past performance of the industry.

1. General Information
The description of the type of industry should be given (i.e) the priority of
the industry, increase in production, role of the public sector, allocation of
investment funds, choice of technique etc. This should contain information about the
enterprise submitting the feasibility report.
2. Preliminary Analysis of Alternatives
This should contain present data on the gap between demand and supply for
the outputs.
which are to be produced, date on the capacity that would be available from projects
that are in production or under implementation at the time the report is prepared.
All opinions are technically feasible should be considered at this
preliminary stage. An account of the foreign exchange requirement should be taken.
The profitability of different opinions should also be looked into an account of the
foreign exchange requirement should be taken.
3. Project Description
The feasibility report should provide a brief description of the technology
chosen for the project. Information relevant for determining the optimality of the
location chosen should also be included.
To assist on the assessment of the environmental effects of the project very
feasibility report must present the information on specific point (i.e) population,
water, land air, effects raising out of the project pollution, other environmental
disruption etc.
Report should contain a list of important items of capital equipment and
also the list of the operational requirements of the plant, requirement of water,
power, personnel, organizational structure envisaged, transport cost and factors
affecting it.
4. Marketing Plan
It should contain the following items/ data on the marketing plan. Demand
and prospective supply in each of the area to be served.
 The method and the data used for making estimates of domestic supply and
selection of the market area should be presented.
Estimates of the degree of price sensitivity should be presented. It should
contain an analysis of past trends in prices.
5. Capital Requirement and Cost
The estimates should be reasonably complete and properly estimated
information on all items of costs should be carefully collected and presented.
6. Operating Requirements and Cost
Operating cost are essentially those cost which are included after the
commencement of commercial production.
Information about all items of operating cost should be collected. Operating
cost relate to cost of raw materials and intermediaries, fuels, utilities, labour, repair
and maintenance, selling and other expenses.
7. Financial Analysis
The purpose of this analysis is to present measures to assess the financial
viability of the project. A performance balance sheet for the project data should be
presented.
Depreciation should be allowed on the basis specified by the Bureau of
public enterprises. Foreign exchange requirements should be cleared by the
department of economic affairs.
The feasibility report should take into account income tax rebates for priority
industries, incentives for backward areas, accelerated depreciation etc.
The sensitivity analysis should also be presented. The report must analyze
the sensitivity of the rate on the level and pattern of product price.
8. Economic Analysis
Social profitability analysis need some adjustments in the data relating to
the cost and return to the enterprises. One important type of adjustment involves a
correction in input and cost to react the true value of foreign exchange, labour and
capital.
The enterprise should try to access the impact of its operation on foreign
trade. Indirect cost and benefits should be included. If they cannot be quantified they
should be analyzed.
Financial Planning - Launching of Small Business
Working capital management is concerned with making sure we have exactly
the right amount of money and lines of credit available to the business at all times

Working Capital Management - Introduction

• Working capital management is concerned with making sure we have exactly
the right amount of money and lines of credit available to the business at all
times
• Working Capital is the money used to make goods and attract sales
• The less Working Capital used to attract sales, the higher is likely to be the
return on investment
• Working Capital = Current Assets − Current Liabilities

Working Capital Management - Categories

• Cash Management
• Receivables Management
• Inventory Management
Cash Management
• Identify the cash balance which allows for the business to meet day to
day expenses reduces cash holding costs
Receivables Management
• Money which is owed to a company by a customer for products and
services provided on credit
• Identify the appropriate credit policy
Inventory Management
• Identify the level of inventory which allows for uninterrupted
production
• Reduces the investment in raw materials, minimizes reordering costs
and hence increases cash flow
Inventory Management Techniques
Policies, procedures, and techniques employed in maintaining the optimum
number or amount of each inventory item. The objective of inventory management
is to provide uninterrupted production, sales, and/or customer-service levels at the
minimum cost.
Techniques: -
• ABC
• JIT
• FSN
• VED
• BILLS OF MATERIAL
• BIN CARDS
• EOQ-ECONOMIC RE-ORDER QUANTITY
• INVENTORY/TURNOVER

Importance:-
– TRANSCATIONS MOTIVE:
It emphasizes the need to maintain inventories to facilitate smooth
production and sales operations
– PRECAUTIONARY MOTIVE: -
It necessitates holding of inventories to guard against the risk of
unpredictable changes in demand and supply forces and other factors
– SPECULATIVE MOTIVE: -
It influences the decision to increase or reduce inventory levels to take
the advantage of price level fluctuations

Objective: -
• determine and maintain optimum level of inventory investment
• to maintain sufficient inventory for the smooth production and sales operations
• to avoid excessive and inadequate levels of inventories
• Making adequate inventories available for production & sales when required.
Benefits of holding inventories:
Avoiding losses of sales avoid non-supply of goods at times demands by
understands.
Reducing ordering costs cost associated with individual order such as typing
approving mail, yet can be reduced.
Achieving efficient production run Supply of sufficient inventories protects
against shortage of raw materials that may interrupt production operation.

Cost of holding inventories:-

Ordering cost: which are associated with placing of orders to purchase raw
materials & components. Salary, rent. “More the order the more will be ordering
costs vice verse”.
Carrying costs: cost involved in holding or carrying inventories like insurance.
Charger for covering risk, thefts. It includes opportunity cost.
Opportunity cost: Money blocked in inventories been invested. It would earn a
certain return. Loss of such return may be considered opportunity cost.

Models of inventory mgt:-

Several models & methods have been developed in recent past for determing the
optimum level of inventories. Classified into two types,
Deterministic models:-
There is no uncertainty associated with demand supply of inventory.
Probabilistic models:-
It always some degree of uncertainty associated with demand pattern & lead times
of inventories.
Unusually deterministic models associated with:
• Economic ordering quantity (EOQ)
• ABC analysis.
• Inventory return over ratio.
EOQ:
Important decision to be taken by a firm in inventory mgt is how much to buy at a
time. This is called EOQ.
EOQ give solution to other problem like: How frequently to buy? When to buy?
What should be the reserve stock?
Assumptions:-
EOQ is based on certain assumption.
• The firm knows how much items of particular inventories will be used or
demanded. Use of inventories/sales made by the firm remains constant, or
unchanged.
• The moment inventories reach the zero level, the order of inventory is placed
without delay. These assumptions are also called limitations of EOQ.
Determination of EOQ:-
Ordering cost:
Cost concerned with the placing of an order to acquire inventories. Yes it way from
time to time depending upon the no of items orders places & no of items ordered in
each order.
Carrying cost:
Cost related to carrying or keeping inventories in a firm.
Ex: interest on investment, obsolescence, losses, insurance, premium.

Approaches in determining EOQ:

The order-formula approach to determine EOQ:-
There are number of mathematical formula to calculate EOQ. The most frequently
used formula is

Q = EOQ.
U = Quantity purchased in a year/month.
P = Cost of placing an order. (ordering cost)
S = Annual/ monthly cost of storage of one unit known (carrying cost)

FSN – Fast moving, Slow moving, Non-moving.

Fast moving in order of have smooth production. High demand – adequate inventory
of these items maintained.
Slow moving items:-Slowly moving indicated by a low turnover ratio needed to
maintain at minimum level.
Dormant/obsolete items have no demand these should be disposed of a early as
possible to curb further losses caused by them.

Inventory turnover Ratio: =Cost of goods consumed or sold during year/ Average
inventory during the year x 100
Human Resource Mobilization
Meaning of Manpower Planning: Small scale enterprises also need to draw
plans to take various decisions and perform multi various activities. In simple
words, plans are basic to any sort of enterprise - whether large, medium or small.

Meaning of Manpower Planning:

Small scale enterprises also need to draw plans to take various decisions and
perform multi various activities. In simple words, plans are basic to any sort of
enterprise - whether large, medium or small. This includes the plans or provisions
for manpower also. Unfortunately, the man power planning is neglected area in the
Indian context especially in small scale industry. Under manpower planning, the
management needs to ask itself two basic questions of:

1.What kinds of people do we need?

Before we ask this question, we must first understand the types of jobs to be filled.
For example, do these jobs require someone with training in typing or shorthand or
can they be done by an individual without any specialized training but who can learn
our billing system quickly and who enjoys assignment requiring attention to small
details?
To answer such questions in a systematic manner, enterprises often do develop job
descriptions. In simple words, job descriptions are written explanations of the duties
of a job together with a list of the minimum qualification necessary to hold the job.
The use of these guides makes the selection process to a great extent, more effective.

2. How many people do we need?

In fact, the previous question deals with the quality of personnel. This question deals
with the quantity of personnel the enterprise needs. We must answer several
questions to determine the number of people required for various positions
throughout the enterprise.
1. Is the demand for certain skills and occupations growing, constant or shrinking?
2. How much work can the average person do in a specified period of time?
3. What is the level of absenteeism?
4. What is the level of turnover?
Job Requirements:
The job requirements must be identified before an enterprise select employees for
itself.
1. Conducting Job Analysis:
This is an investigation into various aspects of a task in terms of skill, qualification,
duties and responsibilities.
It covers job title, the department to which it relates line of supervision, relationship
with other jobs, types of material and equipment used, mental and manual dexterity,
working condition etc.
2. Job Description:
Simply stated, job description deals with what, why, when and how tasks are to
performed. In other words, it is a written statement of work conditions, time
involvement and job responsibilities.
3. Job Specification:
Job specification is a description of the salient features of the person to be recruited
in the specific job.

Recruitment:
Recruitment in small scale industries is more difficult because they cannot
compete with their large counterparts in salary, fringe benefits and apparent stability.
These limitations impose severe problems for small enterprises for attracting
qualified and committed work force. The entrepreneur should also strive hard to
create a public image of his enterprise as a worthy place to work and proper.
As regards recruitment in small scale industries, the most prevalent practice
exercised in small scale units is to seek out and select candidates rather than wait for
applications as happens in the case of large scale industrial unit.
Broadly, these could be two sources of recruitment in small scale enterprises:
1. Internal Sources:
Internal sources refer to recruitment from the present workforce of the enterprise
itself. Filling vacancies from own existing employees boost the morale of the
employees because they look forward scope and avenues for their career
development and advancement. Such hope for future often motivates the employees
to put in their best performance. This manner of recruitment has other side also. One
of the serious drawbacks of this manner, to mention, is what while the quality of
level of employee remains limited to that of the existing employees, on the other
hand, the advantages of including the induction of fresh blood is missed.

2. External Sources:
(a) Employees Referrals: Many a times, the existing employees of the enterprise and
other sister organizations can refer to suitable candidates. In this case, kinship,
friendship and village ties of the existing employees expectedly play a major role in
the recruitment process.
(b) Recommendations: Sometimes the entrepreneurs receive recommendations from
their friends and relatives to employ the persons known to them. The experience
suggests that the entrepreneurs need to be cautions in considering such
recommendations. The best principle in such case will be ”Never hire a person to
please someone, make sure that you want him.”
(c) Unsolicited Applications: This is one of the common manners exercised to
recruiting employees in small enterprises. The enterprise receives application and
require for jobs from several sources. The applications are kept and as and when
there is a need to recruit people, these applicants are contacted if still available.
(d) Advertisements: If the entrepreneurs have sufficient time at their disposable to
process and interview the candidates. They advertise their vacancies in the
newspaper and other medias like radio and television. This manner ensures better
choice for entrepreneurs to recruit the employees.
Other resources,
• Recruitment Kinship, friendship and relatives Unsolicited applications
• Gate hiring
• Referrals and recommendations Advertisements
• Employment Exchanges
Selection:
Selection process starts where recruitment ends. Selection means fitting a
round peg in a round hole. This is done by comparing the requirements of job with
the qualifications and experience of a candidate.
Although, the selection procedure varies from place to place and enterprise to
enterprise, most commonly used selection procedures in small scale industries are:
1. Preliminary Interview:
If the recruitment programme is non-selective, the preliminary interview is
likely to be used in selection. This interview is short, often lasting for ten-fifteen
minutes. The basic purpose of the preliminary interview is to determine an
applicant’s suitability for further consideration. The kind of work available in the
enterprise is explained by the interviewer. If there is felt some chance of successful
placement, the applicant is allowed to continue the rest of the selection procedure.
2. Application Blank:
It is commonly used in the selection process. Questions like work history, education
level, work experience and the type of work applied for are asked in the question
blank. Application blanks certain questions related to the probability of job success.
3. Psychological Test:
Most psychological tests administered in the enterprise are paper and pencil. The
test taker is given a series of questions and a choice of two or more possible answers
to each question.
Aptitude Test: This is a test measuring intelligence of the applicant and his ability to
learn certain skills.
Performance Test: It is a test that measures one’s current knowledge of a specific
test.
Personality Test: Under the test, an applicant’s personality traits such as dominance,
sociability and conformity are measured.
Interest Test: As the name of the test itself denotes, this is the test measures one’s
interest in various fields of work.
4. References:
Personal references are generally unreliable and biased. Many a times reference
persons are not well qualified to judge one‟s past work performance. Therefore, the
names of previous employees and teachers are considered more reliable and
unbiased in giving judgment about one‟s past experienced/performance.
5. Interview:
Interview facilitates an interviewer to evaluate more eff ectively the applicant‟s
potential for success in the particular job. The basic objective of an interview device
should be to measure those facilitating qualities and traits that cannot be better
measured by some other devices like testing or application blank.
6. Physical Examination:
A physical examination is usually placed towards the end of the selection process. It
gives the enterprise current information about the applicant‟s physical health at the
time of selection or hiring.
7. Placement:
Once a new employee has been selected, he/she is finally placed to perform the
specific job. A new comer should be properly introduced to his fellow workers,
shown the location of facilities available, informed of regulations if any and
encourages asking any needed information.
8. Orientation:
The employees selected should be made familiar with their enterprises objectives
and activities and acquainted with their jobs. Thus begins their orientation period to
learn about their work environment. Henceforth starting the training and
development of newly selected employees.

Training and Development:

Training may be defined as any procedure, initiated by an enterprise, which intends
to foster and enhance learning among the employees working in the enterprise.
Training in small scale unit is concerned, the owner himself takes the responsibility
for developing and conducting the training program with an objective to enhance the
employee’s job related skills and knowledge.

Objectives of Training:
1. To improve job performance by enhancing employee’s knowledge and skill.
2. To prepare employee’s well competent to discharge the new responsibilities.
3. To impart skill how to operate the new machinery and equipments.
4. To reduce the wastages and accidents.
5. To build a second line for more responsible position at a later stage.
Characteristics of a Successful Training Programme:
1. Its objectives and scope are clearly defined.
2. The training techniques are related directly to the need and objectives of the
organization.
3. It employs accepted principles of learning.
4. As far as possible, it is conducted in the actual job environment.

Methods of Training:

1. On the job Training: The oldest and most commonly used training technique in
the small scale units is the on the job training. It consists of the employees receiving
training from their supervisors and other departmental members while they perform
their regular jobs. Such training is considered essential on every job available in the
enterprise.
On the job training has three categories:
(a) Demonstration: The job is demonstrated to the employees and each step involved
in the process is explained thoroughly.
(b) Performance: The trainees perform the task what they have learned in the step
one.
(c) Inspection: In the third and final step, the work performed by the employees, as
mentioned in the step two, is inspected and immediate feedback of the job
performance to the employees.

2. Apprenticeship Training: Apprentice training combines both formal classroom

learning and on the job experience. This kind of training programme is provided
mainly in the technical cadres.

3. Job Rotation: This kind of training is particularly beneficial in the case of small
scale industries where each employee has a thorough understanding of the diff erent
functions performed in the enterprises. In this training programme, employees are
moved from one job to job for a few hours a day, a few days or several weeks.
4. Outside Training: The outside training consists of the employees being trained
at schools/institutes outside the enterprise. Training is a continuous process of the
employee development.

Remuneration and Benefits:

Employees remuneration expressed in terms of wages is of critical concern to
personnel relations in small scale industry, whereas wages represent income to the
employees, they represent cost of the employer and potential taxes to the
government. Wages constitute the largest part of the employee’s purchasing power
and therefore have an important bearing on the level of economic activity.
As regards labor is organized (i.e.) large industrial sector, he is politically awakened
and is ready to protest to secure his rights. Wages in the small sector are around one-
half of those in the large organized sector through labor productivity does not so
diff er between them. The high wages in the organized sector have been described
as ”islands of prosperity” when compared to the poor wages or ”oceans of distress”
in a small sector.
The wages in small enterprises are not fixed on well established norms and principles
of equal pay for equal work. In fact, wage fixation is usually done based on the
bargaining strengths of the employer and employee in which the former dominates
the scene. Even knowing wide differences in wages between the two sectors,
employee in the small sector/unorganized sector, they are not in the position to voice
their concerns is an effective manner due to their poor bargaining strength.

Employee Benefits and Services:

In addition to remuneration (i.e.) wages to the employees for their work done,
enterprises nowadays also pay for a wide variety of supplementary items - often
called fringe benefits. These benefits are the indirect payments made to the
employees in addition to their direct wages and salaries. The employer‟s federation
of India considers fringes as those benefits provided by the employer (a) which
materially add to the welfare of the employees either during the tenure of their
service or their retirement - (b) the expenditure of which does not form part of his
normal wages and other allowances. Days are gone when the fringe benefits were of
secondary importance. Over the period, these benefits have risen to such an extent
but these now command a significant proportion of the total employee
compensations.
All the fringe benefits can be broadly classified into
1. Premium payments consisting of bonus
2. Payments for overtime
3. Payments for not-worked
4. Payments for employee welfare.
Production and Operation Management - Small
Business
Both launching new product first time or diversified the product line involve
investment. Basic objective of every investment is to maximise the profit. Hence the
scarce capital should be invested in those opportunities which could give the
maximum return on capital employed (profit).

Investment Analysis
Both launching new product first time or diversified the product line involve
investment. Basic objective of every investment is to maximise the profit. Hence the
scarce capital should be invested in those opportunities which could give the
maximum return on capital employed (profit).

Tools for investment analysis:

NPV, IRR, Payback Period, ARR, Benefit cost Ratio.

Technique of ratio analysis and capital budgeting have been used as most important
tool of investment analysis. Investment analysis deals with the interpretation of the
data incorporated in the Performa financial statement of a project and presentation
of data in the form in which it can be utilised for comparative appraisal of the
projects

Ratio Analysis:
Ratio analysis established arithmetical relationship between two relevant figures.
normally it is expressed in percentage.

Return on proprietor’s fund( Equity) = Net Profit after tax and interest /
Proprietors fund x 100
Objectives of investment is to earn maximum profit whether investment to be worth
making in terms of return compared to risk.
Return on Capital Employed
(Net profit before interest and tax / Capital Employed) x 100
Equity Capital = 5 lakhs, Loan = 3 lakhs, Rs. 80,000 net profit before tax and
interest.
80,000/8,00,000 X100 = 10% (compare with other industry)

Return on Total Investment

Net Profit after interest and tax/ Total Asset x100 = Overall profitability of business.

Capital Budgeting
Involves investment decision balancing the sources and uses of funds for acquiring
fixed assets like plant and machinery. Investment in fixed asset implies the choice
of a particular project. The project selection is made on certain techniques.

Techniques of Capital Budgeting:

• Pay Back or Payout Period
How long he / she to wait before the invested capital is recovered. Cash flow start
coming and accumulate after certain period of time, the accumulated amount equal
to the original investment made.
• Average rate of return
Accounting rate of return is a reverse of payback period method. Pay back based on
cash flow. Average rate of return based upon principles of accounting. It does not
consider the time period. The average rate of return is calculated by dividing the
average net income after taxes by the average investment over the life of the project.
ARR = Average net income after tax/ Average investment over the life of the
project. X 100
Product Layout
During the course of technical arrangement of various facilities such as machinery,
equipment etc., it is very necessary to give considerable emphasis on a proper plant
layout to achieving their optimum utilization.
Some important aspects while deciding the plant layout. There are
1. Production technology and production mix.
2. Efficiency, economic and uninterrupted flow of men and material
3. Adequate space for maintenance work
4. Scope for future expansion and diversification of the project
5. Health conducive layout of the plant
6. Proper lighting and ventilation.
Marketing and Channel Selection - Small Business
Before any production/ service is offered for sale to market, several decision
need to taken in regarding marketing. Ex: price of product has to determined, the
methods of marketing has been identified and the channels of distribution have to be
worked out.
Marketing
Market : it is a place where the sellers and buyers assemble to exchange their
products for money and vice versa. Concept has been change time to time.
Traditional concepts:
Early days, marketing includes activities involved in the flow of goods and services
from production to consumption.
Modern Concepts:
Due to changes of customers, behaviour concepts are also changed customers started
to buy the goods or services that were more beneficial to them in terms of quality,
price, satisfaction, durability, look and so on. The benefits to the consumers may be
tangible and intangible.
The new approach relies on to produce the goods or offer services that satisfy the
customers demands.
Traditional approach focus on the needs of the sellers (Buyers Beware).
Modern approach focus on the needs of the buyers. (sellers beware).

Problems of Marketing of small industries:

• Competition with modern section Lack of sales promotion
• Weak in bargaining power
Demand forecasting:
Demand refers to willingness and ability of customers to buy products or services.
When we consider this definition for all the potential customers having both
willingness and ability to buy a product it is termed as “total Market”
There are number of techniques available for forecasting demand.
1. Survey Method Statistical method
2. 2. Leading indicator method
Market Segmentation:
Market segmentation is the sub- dividing of a market into homogeneous subsets of
customers, where any subset may conceivable be selected on a market target to be
reached with a distinct marketing mix.
Basic of Market segmentation:
• Geographic variable Demographic variable Education variable
• Income variable
Marketing Mix:
Marketing mix classified the four factor under 4 P‟s vie Product, Price, Promotion,
Place.
“Marketing mix is the tailoring the product its price, its promotion and distribution
to reach the target customers”.
Brand:
A brand is a name, term, sign, symbol or design or a combination of them, intended
to identify the goods or services of one seller or group of sellers and to differentiate
them from those of competitors.
Brand mark is a symbol or mark used fr the purpose of identification of the product.
Packaging:
Packaging is an art science and technology of preparing goods for transport and
sales.
Pricing Policy:
Price is the money that customers must pay for a product or services. Pricing the
product is something different from its price.
Salient features:
Pricing cover all marketing aspect like the item- goods and service. Mode of
payment, methods of distribution, currency used etc. pricing may carry with it
certain benefits to the customers like free delivery, guarantee, installation from after
sales servicing.
Pricing refers to different prices of a product for different customers and different
prices for the same customers at different times.
Factors affecting prices:
Economic and non- economic
1. Product characteristics
2. Product cost
3. Objectives of the firm
4. Competitive situation
5. Demand for the product
6. Customers behaviour
7. Government regulation
Pricing methods / policies
Cost plus method:
Total cost + profit = selling price. Total cost includes fixed cost + variable cost.
Profit refers to margin.
Skimming Pricing:
It suitable for a product introduced is innovative and innovative and it used mainly
by sophisticated group of customers. High price is usually promoted by heavy
promotion. Recover the cost with in a shorter period of time.
Penetration Pricing:
It is Contrary to skimming to attract more customers are very particular for price and
which product is an items of mass consumption. Under this policy, the price of the
product is set at lower level of penetrate into the market.
Market rate policy:
This policy adopts the prevailing market rates for determining the price of the
product. Unusually this policy used for unbranded products like oils, couriers,
tailoring, repairing.
Variable price policy:
The price of the same product varies from customers to customers depending upon
the situation prevailing in the market.
Resale price Maintenance
The manufacturer of the product fixes prices of the whole seller and retailer. The
retailer price of the product like drugs and detergents are printed on the package.
Retail price is fixed somewhat higher to meet of the cost of inefficiency retailers not
selling the goods timely.
Distribution Channels / Methods of Marketing
A channel of distribution or marketing channels is the structure of intra-company
organisation units and extra-company agents and dealers, wholesale and retails
through which a commodity, product or service is marketed.
In view of number of intermediaries of the product channels, it can be classified into
three.

• Zero level Channel: producer to consumer

• One level Channel: Producer, retailer to consumer
• Two level Channel: producer, whole seller, retailer to consumer.
Growth strategies in small business
Types of growth:- Strategy in a sense tactics to handle some technique to grow our
business. Growth strategy mean a plan to help the enterprise grow big course of
time.
Types of growth vary from enterprise. 1. Internal growth 2. External growth

Stages of Growth:-
Start-up:
It refers to the birth of a business enterprise in the economy. The production takes
place in limited scale. The enterprise is cot faced with any competition during this
stage. Profits may not be earned during the start up stage.
A. Growth stage
B. Expansion stage
C. Maturity stage
D. Decline stage
Types of growth:-
Strategy in a sense tactics to handle some technique to grow our business. Growth
strategy mean a plan to help the enterprise grow big course of time. Types of growth
vary from enterprise.
1. Internal growth
2. External growth
Internal growth:-
These imply that enterprise grow their own without joining hands with other
enterprises. Expansion and diversification (FMCG Heavy vehicle manufacturing).
These two are popular forms of internal growth strategies.
External growth:-
Enterprises grow by joining hands with other enterprises.
• Joint ventures
• Mergers
• Sub-contracting
Expansion
1) Production strategy:-
Focuses on the firms existing product in its existing market, & the entrepreneur
attempts to penetrate this product or market further by encouraging existing
customers to buy more of the firms current products. Marketing can be effective in
encouraging more frequent repeat purchase.
2) Marketing development strategies:-
It involves selling the firms existing product to new groups of customers. New
groups of customers can be categorized in terms of geographic, demographic of
based on a new product use. New location, new customer.
3) Expansion through product development / modification:-
It implies developing/modifying the existing product to meet the requirement of the
customers.
Advantages:-
Expansion provides the following benefits growth through expansion is natural &
gradual enterprise grows without making major changes in its organisational
structure.
Expansion makes possible the effective utilization of existing resources of an
enterprise.
Gradual growth of enterprise becomes easily manageable by the enterprise.
Expansion result in economics of large, scale operations.

Diversification:-
Not possible for a business growth by adding the new product / market to the existing
one, such an approach to growth by adding new products to the existing product line
is called “diversification” other word defined as “a process of adding more product
/ market / service to the existing one.
1. L & T – engineering company – cement
2. LIC – mutual fund
3. SBI – merchant banking (expand their business activities)
Advantages:-
• Diversification helps an enterprise make more effective use of its resource.
• Diversification also helps minimize risk involved in the business.
• Diversification adds to the competitive strength of the business.
Types of diversification:- There are 4 types
1) Horizontal
2) Vertical
3) Concentric
4) Conglomerate
Horizontal diversification:-
The same type of product / market is added to the existing ones. Adding
refrigerator to its original steel locks by godrej.
Vertical diversification:-
Complementary products or service are added to the existing product or service line
of the enterprise. AVT manufacturing start producing picture tube sugar will may
develop a sugarcane farm to supply raw material or input for it.
Concentric diversification:-
An enterprise enter into the business related to its present one in terms of technology,
marketing or both. Nestle originally baby food producer entered into related product
like tomato ketchup magi noodles.
Conglomerate diversification:-
It is just contrary to concentric diversification an enterprise diversifies into the
business which is not related to its existing business neither in terms of technology
nor marketing inter into unrelated to its present one.
• JVG carrying newspaper & detergent calee & powder.
• Godrej manufacturing steel safes & showing creams.
Joint venture:
Type of external growth J.V. is a temporary partnership b/w two or more firms to
undertake jointly a complete a specific venture. The purities who enter into
agreement are called co-ventures. Purities are should b/w the co-ventures in their
agreed ratio & in the absence of such agreement the profits or losses are should
equally.
Advantage:
1) J.V. reduce risk involved in business.
2) It helps increase competitive strength of the business.
Merger:
Merger means combination of 2 or more existing enterprise into one. In other words,
when 2 or score existing enterprises are combined into one it is called merger. It take
place in 2 ways.
Absorption:
An enterprise or enterprises may be acquired by another enterprise is called
absorption.
Amalgamation:
When two or more existing enterprises merge into one to form a new enterprise. It
is called amalgamation.
Advantages of Merger:
1) Provide benefits of economic scale in terms of production & sales.
2) It facilitate better use of resource.
3) It enables sick enterprise to merger into healthy ones.
Disadvantage:-
1) leads to monopoly in the particular some

Sub-contracting system:-
Sub-contracting system relationship exists when a company (called a contractor)
places on order with another company (called sub-contracter) for the production of
parts components, sub-assemblies or assembliest be incorporated into a product sold
by the contractor.
• Whirlpool sub contract
Large scale industries do not produce all goods on their own instead they reply on
small scale enterprises called sub-contractors for a great deal of production.
When the work assigned to small enterprise involves manufacturing wont it is called
industrial sub-contracting. In India sub-contracting has emerged in the name of
ancillary units.
Advantage:-
• It increase production in the fastest way without making much efforts.
• The contractor can produce products without investing in plant & machinery.
It is suitable to manufacturing goods temporarily.
• It enables the contractor to make use of technical & managerial abilities of the
sub-contractor.
Franchising:-
Defined as a form of contractual arrangement in which a retailer (franchiser) enter
into an agreement with a producer (franchiser) to sell the producer‟s goods or
services for a specified fee or commission.
Advantages:-
Product franchising:
Dealers were given the right to distribute goods for a manufacturer. eg: singer.
Manufacturing franchising:
Manufacturer given the dealer the exclusive right to produce & distribute the product
in a particular area, soft drinks industry.
Business format:
Is an arrangement, under which the franchiser offers a wide range of service to the
framer including marketing advertising strategic planning, training.
Product Launching - Launching of Small Business

Launching a new product attracts consumers as well as corporate buyers, and

informs the public about your product and business. Your product launch needs to
be exciting and informative. Here are a few suggestions on how to launch a new
product.
1. Design attractive packaging
Create packaging that is colorful and pleasing to the consumer's eye. Smart
packaging is the first step to getting your new product noticed. Include your
company name, product name and any main selling points you want to convey on
the outside of the packaging.
2. Determine your target audience
Decide what demographic will benefit most from your product. This is the
target audience that should receive the most attention when you market a new
product. Consumers of this age, gender and social and economic background will be
most receptive to the new idea and will, most likely, buy your product.
3.Implement a unique slogan
Prepare for your product launch by creating a catchy and unique slogan that
will be used to identify it. The slogan should consist of simple language and could
rhyme or contain words beginning with the same letter to make it more memorable.
4. Know your competition
Research products similar to the one you're planning to launch that are already well-
known by consumers. Use this information to direct the attention of your launch at
ways that your product is different and better than the competition.
5.Consult a public relations firm
Work with a public relations agent with experience in your industry or in marketing
new products. An expert can help you solidify your target audience, determine the
best forms of media advertising and plan promotions.
6.Write a product sheet
Create a list of product features and details. This should explain the product to
consumers while still making it attractive. Include general usage, product
components or ingredients and any relevant safety warnings or liability information.
7.Launch a website
Design a website advertising your new product and offering more information for
consumers. Include user testimonials, product comparisons and ordering
information or promotional offers to entice buyers.
8.Purchase advertising
Place ads in several media outlets to reach the maximum number of consumers.
Websites work well for posting ads and linking to the product's website. Buy ad
space in local newspapers or trade publications to increase the awareness of your
new product.
9.Hold a press conference
Schedule a press conference with consumers and members of industries related to
your product or service. This will allow you explain the product, offer samples,
answer questions and create a buzz in the industry.
Incubation - Launching of Small Business

"Business incubation is a unique and highly flexible combination ofbusiness

development processes, infrastructure and people designed to nurture new and small
businesses by helping them to survive and grow through the difficult and vulnerable
early stages of development."
Business incubation provide SMEs and start-ups with the nurturing
environment needed to develop and grow their businesses, offering everything from
virtual support, rent-a-desk through to state of the art laboratories and everything in
between. They provide direct access to hands on intensive business support, access
to finance and experts and to other entrepreneurs and suppliers to really make
businesses and entrepreneurs to grow.
Business incubation provides a nurturing, instructive and supportive
environment for entrepreneurs during the critical stages of starting up a new
business. The goal of incubators is to increase the chance that a start-up will succeed,
and shorten the time and reduce the cost of establishing and growing its business. If
successful, business incubators can help to nurture the companies that will form the
true creators of a region‟s or nation‟s future wealth and employment.
Incubators serve as a launching pad for young and small businesses. Start-ups,
which are innately dynamic entities, need access to support, and incubators are a
means of providing this.
Centre for Innovation, Incubation and Entrepreneurship was setup at th
e Indian Institute of Management Ahmedabad (IIMA) with support from Gujarat
Government and Department of Science and Technology (Government of India) to
promote innovation and entrepreneurship in India. Experience and expertise at IIMA
in the areas of management, innovation, technology networks along with
entrepreneurship provide the necessary impetus and intellectual basis for this
initiative.
We comprise of faculty, alumni and students of IIMA, mentors and service
providers from the industry who span a variety of functional areas, sectoral domains
and geographies and are passionately committed to helping disruptive innovations
and aspiring entrepreneurs succeed commercially.
We know that it takes more than just early stage risk-capital to get a company
off the ground - we enable most of what may be required by entrepreneurs through
seed-funding, incubation, mentoring, training, knowledge dissemination and best
practice research.
Venture capital and IT startups - Launching of Small
Business
Venture capital (VC) is financial capital provided to early-stage, high-
potential, growth startup companies. The venture capital fund earns money by
owning equity in the companies it invests in, which usually have a novel technology
or business model in high technology industries, such as biotechnology and IT.
Venture capitalists (VCs) represent the most glamorous and appealing form
of financing to many entrepreneurs. They're known for backing high-growth
companies in the early stages, and many of the best-known entrepreneurial success
stories owe their growth to financing from venture capitalists.
VCs can provide large sums of money, advice and prestige by their mere
presence. Just the fact that you've obtained venture capital backing means your
business has, in venture capitalists' eyes, at least, considerable potential for rapid and
profitable growth.
VCs make loans to--and equity investments in--young companies. The loans
are often expensive, carrying rates of up to 20 percent. Many venture capitalists seek
very high rates; a 30 percent to 50 percent annual rate of return. Unlike banks and
other lenders, venture capitalists frequently take equity positions as well. That means
you don't have to pay out hard-to-get cash in the form of interest and principal
installments. Instead, you give a portion of your or other owners' interest in the
company in exchange for the VCs' backing.
The catch is that often you have to give up a large portion of your company to
get the money. In fact, VC financiers so frequently wrest majority control from and
then oust the founding entrepreneurs that they are sometimes known as "vulture
capitalists." But VCs come in all sizes and varieties, and they're not all bad.
Venture capitalists typically invest in companies they anticipate being sold
either to the public or to larger firms within the next several years.
Companies they will consider investing in usually have the following features:
• Rapid, steady sales growth
• A proprietary new technology or dominant position in an emerging market
• A sound management team
• The potential for being acquired by a larger company or taken public in a
stock offering
 In addition, venture capitalists often define their investments by the business' life
cycle: seed financing, start-up financing, second-stage financing, bridge financing,
and leveraged buyout. Some venture capitalists prefer to invest in firms only during
start-up, where the risk is highest but so is the potential for return. Other venture
capital firms deal only with second-stage financing for expansion purposes or bridge
financing where they supply capital for growth until the company goes public.
Finally, there are venture capital companies that concentrate solely on supplying
funds for management-led buyouts.
There are several types of venture capital:
Private venture capital partnerships: are perhaps the largest source of risk capital
and generally look for businesses that have the capability to generate a 30 percent
return on investment each year. They like to actively participate in the planning and
management of the businesses they finance and have very large capital bases--up to
$500 million--to invest at all stages.
Industrial venture capital pools: usually focus on funding firms that have a high
likelihood of success, like high-tech firms or companies using state-of-the-art
technology in a unique manner.
Investment banking firms: traditionally provide expansion capital by selling a
company's stock to public and private equity investors. Some also have formed their
own venture capital divisions to provide risk capital for expansion and early-stage
financing.
The way to contact venture capitalists is through an introduction from another
business owner, banker, attorney, or other professional who knows you and the
venture capitalist well enough to approach them with the proposition.

IT startups
Being an entrepreneur is tough. Having your startup make it past year one is
even more so and generating revenue can at times seem next to impossible. So, for
those startups that have successfully gotten over these humps and made it look easy.
There is additional encouraging news for aspiring entrepreneurs on many
fronts, just in case you are thinking about joining the existing ranks:
1. Valuations of successful startups have hit an all-time high.
2. Initial Public Offerings (IPO) are back as an exit strategy.
3. Funding for early-stage startups is more available than ever.
4. Cost of entry for a startup is at an all-time low.
5. Startup incubators and accelerators are popping up everywhere.
6. The world is a now single market, both homogeneous and heterogeneous.
7. Social media is a boon for entrepreneurs and startups.
8. Large corporations have lost their ability to innovate.
9. Entrepreneurs.
10. Baby Boomers are joining the fun in record numbers.