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MGT601 - SME Management - Lecture Handout 15

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THE START UP PROCESS OF A SMALL

This lecture Deals with the start up process for obtaining a Bank loan, identification of projects and its sources.

The Start up Process of a Small Enterprise

The challenges of starting a new enterprise from the stage of its conception till functioning are indeed stupendous or multidimensional as indeed its contribution to the society in various forms such as employment, economic growth, balanced development, equitable distribution of wealth etc. Success is a slave to those who only correctly perceive the nature and intensity of problems that they are likely to encounter but also plan appropriate remedial actions. This lecture is devoted to studying the following:

  1. The Identification of New Venture Opportunities and
  2. The Field Problems of Starting a new Enterprise.

Identification of New Venture Opportunities

In the search for new ventures, entrepreneurs explore both (a) external and (b) internal resources. The external resources include:-

  1. Newspapers, trade journals, professional journals etc. which tell about trends in fashions, customs and other social areas.
  2. Professional magazines catering to particular interests such as electronics, computers, oils and banaspati etc.
  3. Trade fairs and exhibitions displaying new products and services.
  4. Government agencies.
  5. Ideas put forth by others.

Internal resources basically consist of storehouse of knowledge build up by an individual over the years. An entrepreneur draws upon it and undertakes the following exercise:

  1. Analysis of concepts in the light of existing problems and their capacity to solve them.
  2. Search of memories to find similarities and elements related to the concept and its problems.
  3. Recombining the elements found in new and useful ways.

Steps in Innovative Process

  1. Comprehension of a need: Innovation follows from clear perception of a need that should be fulfilled. A number of products or services have been developed from such a perception. These range from xerographic copying machine, credit card, instant photography etc.
  2. Collection of data and definition of concept.
  3. Outlining the problem.
  4. Searching memory for similarities that seem related to the concept and its problem.
  5. Evaluating the possibility to combine similarities and related ideas.
  6. Reaching tentative solution.
  7. Critical scrutiny of solution.
  8. Practical implementation.

Sources of Ideas for New Products

  1. Necessity
    It involves the identification of potential customer needs and then tailoring the product and services to meet them.
  2. Hobbies/ Personal Interest
    For example, an aircraft designer working for a large company developed a catamaran for his own pleasure. Later he was asked to build a similar catamaran for a friend. Gradually, it took the shape of a successful business.
  3. Watching Trends in Fashions and Customs
    Alert observers of the fashion scene can capitalize the opportunity thrown by the change of fashion. Demand for handcrafted jewelry, fast foods etc. have made many professionals in these fields.
  4. Observing Other’s Deficiencies
    It helps improve performance or add desirable features, for instance, development of a key that would identify the person and open the door only to him. It would sound an alarm if the door is forced open or in case an improperly coded key is used.
  5. Gap Filling
    Business opportunities may be found to exist in reply to the question, why is not there a gadget for doing this? Several products have been developed to fill up a felt gap. For instance, the difficulty of cleaning an old paint brush has led to the discovery of a disposable paint brush with plastic handle into which a polyurethane tapered brush can be inserted and later an discarded after finishing painting.
  6. Novel Use of Known Products
    With ingenuity, it is possible to think of new uses of existing products e.g. Use of fly ash- a common effluent in thermal plants, to make bricks and light-weight concrete etc. Similarly, rice husk (a common product in rice sheller) could be used for making hardboards.
  7. Ancillarisation
    An entrepreneurially oriented brain can conceive new ideas or think of improvements in products with which they are familiar: As a consequence, a unit ancillary of an existing industry could be started.

Pitfalls in Selecting New Venture Opportunities

  1. Lack of objectivity
    Some entrepreneurs get so obsessed with their idea that they overlook the need to scrutinize its feasibility. No wonder such projects end up as failures.
  2. Market Myopia
    A shortsighted approach of concentrating on production rather than on marketability could lead to avoidable disaster. An entrepreneur may fail to properly assess the market acceptability of his product. He may not appreciate that no product can become instantaneously profitable or could have an endurable success. Selection of the right time for introducing the product is important for its success. If actions are taken too soon or too late, it will result in failure.
  3. Inadequate Understanding of Technical Aspects
    Technical difficulties involved in the production of a product are a time consuming and thorough job. Inexperience in this area can prove quite costly and swamp a budding enterprise.
  4. Improper Estimation of Financial Requirements
    Sometimes in their enthusiasm to initiate an enterprise or due to pre occupation with other details, entrepreneurs overlook the financial details. Later it could be the cause of either over capitalization or under capitalization.
  5. Lack of Product Differentiation
    To capture the market, the product should have distinctive characteristics in terms of design, utility and other features. Assured superior performance over the products is essential to provide it a competitive edge. Pricing is no problem in the case of such products. Product differentiation is essential so that the potential customer could recognize the product merely by looking at it.
  6. Overlooking Legal Issues
    A shrewd entrepreneur should be alive to meeting the various legal requirements. For instance, workers should be provided with legitimate legal dues, consumers are provided with reliable and safe products, copyright, trade mark etc. should be observed.

Books References

  1. Entrepreneurship and small business By C L Bansal
  2. How to approach Banks By ITC (UNO) & SMEDA

Book Recommended

How to approach Banks by ITC (UNO) & SMEDA

Key Term

  1. Myopia: Short sightedness of vision

Related Content: MGT601 - VU Lectures, Handouts, PPT Slides, Assignments, Quizzes, Papers & Books of SME Management