Entrepreneurship Development UNIT - III PDF

ENTREPRENEURSHIP DEVELOPMENT UNIT – III Starting A Small Industry: Concept of Business opportunity - scanning the environment for opportunities- evaluation of alternatives and selection based on personal competencies - An overview of the steps involved in...

ENTREPRENEURSHIP DEVELOPMENT UNIT – III Starting A Small Industry: Concept of Business opportunity - scanning the environment for opportunities- evaluation of alternatives and selection based on personal competencies - An overview of the steps involved in starting a business venture – Location- Clearances and Permits required – Formalities- Licensing and Registration Procedures - Assessment of the market for the proposed project - Importance of financial- technical and social feasibility of the project BUSINESS OPPORTUNITY A business opportunity is not an easily definable term. For starters, it is often confused with a business idea. But an idea is just the beginning. We can compare it to a seed. On the other hand, an opportunity is an idea that has already been thought through. Our seed has started developing. Of course, that does not happen automatically. There is a long way from an idea of making a moving company, to the business opportunity of a startup, and finally to a successful company like bigapplemoving.com. The idea needs a lot of shaping, refining, researching, and testing before becoming a possible business opportunity, and eventually a prosperous business. A business opportunity is defined as a packaged business investment allowing the buyer to begin a certain business. But it is not always that simple. A business opportunity doesn’t always have the same implications Their definitions are not entirely identical, and it so happens that what’s considered to be a business opportunity in one state is not covered by the definition in another. However, here are some parts that they do have in common: A business opportunity includes selling or leasing a certain product, equipment or service to enable the buyer to start a business. The initial fee that the buyer pays is equal to or more than $500. The seller is obliged to help the buyer find the ideal location for their business or provide the product to the buyer/licensee. The seller guarantees an income that is equal to or more than the price the buyer pays for the product when it is resold. Also, the seller is obliged to buy back any product bought by the buyer/licensee in case it can’t be sold to prospective customers of the business.  ENTREPRENEURSHIP DEVELOPMENT The buyer/licensee is obliged to buy any products or services developed by the seller/licenser. Business opportunity classification Not every business opportunity has the same functioning principle. Let’s take a look at the four most common types of venture opportunities and their examples: 1. Franchising: We have already explained how this type of business opportunity works. It is the best choice for entrepreneurs who do not like experimenting. They get the business plan already made up and brand recognition is not something they should be worried about. Some of the most successful examples are 7/11, Dunkin’ Donuts, McDonald’s, Anytime Fitness, etc. 2. Distributing and dealing: A distributor agrees to sell products and/or services another company makes or provides. Barns &Noble is a good example of the distribution model. A dealer is pretty much the same as a distributor, but this person focuses more on the product they are selling. People selling life insurance or cars are great representatives of a dealership. 3. Network Marketing: A network marketer is a person who strives to recruit other marketers in order to create a network of distributors. If they are good at what they do, they can earn considerable income through commissions made by the distributors working for them. People selling Tupperware are the ones who have opted for a network marketing type of business opportunity. 4. Licensing: Licensing is when you get a license to use a brand name on your products. For instance, if you are selling T-shirts, leather jackets, etc. with a license from Harley Davidson company to use their name, that is called licensing. ENVIRONMENT SCANNING Business environment The business environment consists of a number of factors which have different types and degrees of influence on the business. Some factors have a favorable impact on some business, some adversely affect them while some are neutral as far as their impact on certain business. A factor that has a favorable effect on some business may adversely affect some others. For example, while import liberalization favorably affects the user industries it harms the import competing industries. While certain factors have a direct impact on certain specific businesses, some other factors affect the business in general. On the basis of the extent of intimacy with the firm, the environmental factors may be classified in to different types or levels. As indicated above, there are, broadly, two types of environment,  ENTREPRENEURSHIP DEVELOPMENT the internal environment, i.e., factors internal to the firm and external environment, i.e., factors external to the firm which have relevant to it. The internal factors are generally regarded as considerable factors because the company has control over these factors; it can alter or modify such factors as its personnel, physical facilities, organization and functional means, such as marketing mix, to suit the environment. The external factors, on the other hand, are, by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio cultural factors, government and legal factors, demographic factors, geo – physical factors etc., are therefore, generally regarded as uncontrollable factors. It may, however, be noted that a firm may not sometime have complete control overall the internal factors. Also, it is sometimes possible to change certain external factors. Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are classified as micro environment, also known as task environment and operating environment. There are other external factors which affect an industry very generally (such as industrial policy, demographic factors etc.). they constitute what is called macro environment. General environment or remote environment. We may, therefore consider the business environment at three levels Internal environment Micro environment Macro environment Although business environment consists of both the internal and external environments, many people often confine the term to the external environment of business. In any business organization, there is an internal and external environment. They comprise all the factors that can affect the business of a company in any way. And they also present opportunities for the business to grow and threats that may harm the business. So these environments need constant monitoring. This is where environmental scanning comes into the picture.  ENTREPRENEURSHIP DEVELOPMENT BUSINESS ENVIRONMENT Internal environment EXTERNAL ENVIRONMENT Promoters / shareholders values Mission / objectives Management structure / nature Internal power relationship Co. Image / Brand Equity Macro environment Micro environment Physical assets / Economic factors facilities Customers Social or cultural R & D and technological factors Suppliers capabilities Demographic Competitors Human Resources factors Marketing capabilities Political / Publics governmental Financiers factors Natural factors Marketing Technological intermediaries factors global factors Environment scanning  ENTREPRENEURSHIP DEVELOPMENT Environmental scanning meaning is the gathering of information from an organizations internal and external environment, and careful monitoring of these environments to identify future threats and opportunities. It is the analyses of all factors that may affect the future of the organization. Now that we know the environmental scanning meaning, let us see the purpose. The purpose of this process of environmental scanning is to provide the entrepreneur with a roadmap to the changes likely to happen in the future. So, this way they can adapt the business to overcome the threats and capitalize on the opportunities coming their way. Importance of Environmental Scanning 1] SWOT Analysis: As we saw previously in the environmental scanning meaning, it is a complex process. The close study of the internal and external environment of an organization will reveal some very valuable information, i.e. the strengths, weaknesses, opportunities, and threats of a company. Let us take a brief look. Strength: After analysis of the internal environment of a company, we will be able to identify the strengths that give the company a competitive advantage. The entrepreneur can use this information to maximize these strengths and earn more profits. Weakness: Study of the internal environment also point out the weaknesses of the company. For the growth and stability of the company, these identified weaknesses must be corrected without delay. Opportunity: Analysis of the external environment helps with the identification of possible opportunities. The entrepreneur can prepare to capitalize on these. Threats: Analysis of the external environment will also help in the identification of any business threats from competitors or any other factors. The company can come up with a strategy to diffuse such threats or minimize its impact. 2] Best Use of Resources: Environmental scanning helps us conduct a thorough analysis and hence leads to the optimum utilization of resources for the business. Whether it is capital resources, human resources or other factors of production, their best use and utilization is very important for any business. Environmental scanning will help us avoid any wastages and allow for the most effective and economical use of these resources. 3] Survival and Growth of the Business: It is a very competitive world and for any business to survive and thrive it is a difficult task. But if the business employs all the techniques of environmental scanning it can gain a significant advantage. It will allow the firm to prepare for future threats and opportunities while at the same time eliminating their weaknesses and improving on their strengths.  ENTREPRENEURSHIP DEVELOPMENT 4] Planning for Long Term: A business must have a plan for both short term and long term. The planning of long-term objectives can only occur after proper analysis and environmental scanning meaning. This will help the entrepreneur plan the necessary business strategy. 5] Helps in Decision Making: Decision making is the choice of the best alternative done by management. Environmental scanning allows the firm to make the best decision keeping in mind the success and growth of the business. They point out all the threats and weaknesses. And they also identify the strengths of the firm. ENTREPRENEURIAL COMPETENCY Definition Entrepreneurial competencies can be defined as underlying characteristics such as generic specific knowledge, motives, traits, self-images, social roles and skills that results in venture birth, survival, and/or growth. Total ability the entrepreneur to perform this role successfully. Several studies have found positive relationship between existence of competencies and venture performance. Types of competencies Personal entrepreneurial competencies 1. Initiative 2. Sees and acts on opportunities 3. Information seeking 4. Concern for high quality of work 5. Commitment to work contract 6. Efficiency orientation 7. Systematic planning 8. Problem solving 9. Self confidence 10. Persuasion 11. Use of influence strategies 12. Monitoring 13. Concern for employee welfare Venture initiation and success competencies In addition to personal competencies entrepreneur must also possess the competencies required to launch the enterprise and for its growth and survival. 1. enterprise launching competencies  ENTREPRENEURSHIP DEVELOPMENT 2. enterprise management competencies Enterprise Launching Competencies 1. Competency to understand the nature of business 2. Competency to determine the potential as an entrepreneur 3. Competency to develop a business plan 4. Competency to a choose the type of ownership 5. Competency to locate the business 6. Competency to finance business 7. Competency to deal wit the business 8. Competency to comply with government regulation Enterprise Management Competencies 1. Competency to manage business 2. Competency to manage human resource 3. Competency to promote the business 4. Competency to manage sales efforts 5. Competency to keep business records 6. Competency to manage the finances 7. Competency to manage customer credit and collection 8. Competency to protect the business STEPS INVOLVED IN STARTING A BUSINESS VENTURE mid Step 1: Do Your Research  ENTREPRENEURSHIP DEVELOPMENT Most likely you have already identified a business idea, so now it's time to balance it with a little reality. Does your idea have the potential to succeed? You will need to run your business idea through a validation process before you go any further. In order for a small business to be successful, it must solve a problem, fulfill a need or offer something the market wants. There are a number of ways you can identify this need, including research, focus groups, and even trial and error. As you explore the market, some of the questions you should answer include: Is there a need for your anticipated products/services? Who needs it? Are there other companies offering similar products/services now? What is the competition like? How will your business fit into the market? Don't forget to ask yourself some questions, too, about starting a business before you take the plunge. Step 2: Make a Plan You need a plan in order to make your business idea a reality. A business plan is a blueprint that will guide your business from the start-up phase through establishment and eventually business growth, and it is a must-have for all new businesses. The good news is that there are different types of business plans for different types of businesses. If you intend to seek financial support from an investor or financial institution, a traditional business plan is a must. This type of business plan is generally long and thorough and has a common set of sections that investors and banks look for when they are validating your idea. If you don't anticipate seeking financial support, a simple one-page business plan can give you clarity about what you hope to achieve and how you plan to do it. In fact, you can even create a working business plan on the back of a napkin, and improve it over time. Some kind of plan in writing is always better than nothing. Step 3: Plan Your Finances Starting a small business doesn't have to require a lot of money, but it will involve some initial investment as well as the ability to cover ongoing expenses before you are turning a profit. Put together a spreadsheet that estimates the one-time startup costs for your business (licenses and permits, equipment, legal fees, insurance, branding, market research, inventory, trademarking,  ENTREPRENEURSHIP DEVELOPMENT grand opening events, property leases, etc.), as well as what you anticipate you will need to keep your business running for at least 12 months (rent, utilities, marketing and advertising, production, supplies, travel expenses, employee salaries, your own salary, etc.). Those numbers combined is the initial investment you will need. Now that you have a rough number in mind, there are a number of ways you can fund your small business, including: Financing Small business loans Small business grants Angel investors Crowdfunding You can also attempt to get your business off the ground by bootstrapping, using as little capital as necessary to start your business. You may find that a combination of the paths listed above work best. The goal here, though, is to work through the options and create a plan for setting up the capital you need to get your business off the ground. Step 4: Choose a Business Structure Your small business can be a sole proprietorship, a partnership, a limited liability company (LLC) or a corporation. The business entity you choose will impact many factors from your business name, to your liability, to how you file your taxes. You may choose an initial business structure, and then reevaluate and change your structure as your business grows and needs change. Depending on the complexity of your business, it may be worth investing in a consultation from an attorney or CPA to ensure you are making the right structure choice for your business. Step 5: Pick and Register Your Business Name Your business name plays a role in almost every aspect of your business, so you want it to be a good one. Make sure you think through all of the potential implications as you explore your options and choose your business name. Once you have chosen a name for your business, you will need to check if it's trademarked or currently in use. Then, you will need to register it. A sole proprietor must register their business name with either their state or county clerk. Corporations, LLCs, or limited partnerships typically register their business name when the formation paperwork is filed.  ENTREPRENEURSHIP DEVELOPMENT Don't forget to register your domain name once you have selected your business name. Try these options if your ideal domain name is taken. Step 6: Get Licenses and Permits Paperwork is a part of the process when you start your own business. There are a variety of small business licenses and permits that may apply to your situation, depending on the type of business you are starting and where you are located. You will need to research what licenses and permits apply to your business during the start-up process. Step 7: Choose Your Accounting System Small businesses run most effectively when there are systems in place. One of the most important systems for a small business is an accounting system. Your accounting system is necessary in order to create and manage your budget, set your rates and prices, conduct business with others, and file your taxes. You can set up your accounting system yourself, or hire an accountant to take away some of the guesswork. If you decide to get started on your own, make sure you consider these questions that are vital when choosing accounting software. Step 8: Set Up Your Business Location Setting up your place of business is important for the operation of your business, whether you will have a home office, a shared or private office space, or a retail location. You will need to think about your location, equipment, and overall setup, and make sure your business location works for the type of business you will be doing. You will also need to consider if it makes more sense to buy or lease your commercial space. Step 9: Get Your Team Ready If you will be hiring employees, now is the time to start the process. Make sure you take the time to outline the positions you need to fill, and the job responsibilities that are part of each position. The Small Business Administration has an excellent guide to hiring your first employee that is useful for new small business owners. If you are not hiring employees, but instead outsourcing work to independent contractors, now is the time to work with an attorney to get your independent contractor agreement in place and start your search.  ENTREPRENEURSHIP DEVELOPMENT Lastly, if you are a true solopreneur hitting the small business road alone, you may not need employees or contractors, but you will still need your own support team. This team can be comprised of a mentor, small business coach, or even your family, and serves as your go-to resource for advice, motivation and reassurance when the road gets bumpy. Step 10: Promote Your Small Business Once your business is up and running, you need to start attracting clients and customers. You'll want to start with the basics by writing a unique selling proposition (USP) and creating a marketing plan. Then, explore as many small business marketing ideas as possible so you can decide how to promote your business most effectively. Once you have completed these business start-up activities, you will have all of the most important bases covered. Keep in mind that success doesn't happen overnight. But use the plan you've created to consistently work on your business, and you will increase your chances of success. CLEARANCES AND PERMITS REQUIRED IN MALAWI Types of environmental permits or licenses  ENTREPRENEURSHIP DEVELOPMENT Permit/license Requirements Act/regulation Implementing agency Water permit To use and/or abstract water, Water Resources Act Water Resource Board/ build dams Water Abstraction Committee Effluent discharge To control water pollution Water Pollution Environmental Affairs consent Control Regulation Department Air pollution To emit any gas or other Environmental Environmental Affairs license pollutants into the atmosphere Management Act Department Waste license To handle, store, transport, Environmental Environmental Affairs classify or destroy waste other Management Act Department than domestic waste, or operate a waste disposal site Hazardous waste To import or export and Environmental Environmental Affairs license transport any hazardous waste Management Act Department in Malawi LICENSING AND REGISTRATION PROCEDURE IN MALAWI  ENTREPRENEURSHIP DEVELOPMENT Investors establishing their business investments are required to take the following steps: 1. Apply for a Certificate of Incorporation at the Registrar General of the Ministry of Justice 2. Register for income tax at the Malawi Revenue Authority 3. Apply for a license from the City Assembly to operate in the chosen area 4. Foreign businesses must pay the requisite fee and obtain the license from Ministry of Industry, Trade and Tourism 5. Apply for a registration of the workplace 6. Receive inspection of the company premises by the Occupational Safety, Health, and Welfare Department 7. Register for PAYE and fringe benefit tax at the Malawi Revenue Authority Licensing and Registration Procedures No. Procedure Time to Associated Costs Complete 1 Apply for a Certificate of Incorporation at the 5 days on MWK 1,000 for Registrar General of the Ministry of Justice average if done name search + Agency: Registrar General in person, 14 MWK 25,000 + days by mail MWK 500 for first Company name search is done manually at the same MWK 1,000 of desk of company registration by completing a form and capital, and MWK submitting it to the Registrar general. The Business 20 for every MWK Registration Act 2013, Government Notive No. 11, 2,000 or part of dated 24th of May 2013, established the electronic capital thereafter Malawi Business Registration Database which stores information for both non incorporated and incorporated businesses. Although it is not fully implemented yet, the registry is moving towards automation. The law provides standard articles of association. By law, registration has to be completed in a maximum delay of 21 days. How to register: You can register online. Click here to register  ENTREPRENEURSHIP DEVELOPMENT No. Procedure Time to Associated Costs Complete You can apply through the One Stop Service Centre at MITC or You can submit an application straight to the Office of the Registrar General or any of its branch offices. 2 Register for income tax at the Malawi Revenue 1 day if no charge Authority application is Agency: Malawi Revenue Authority hand delivered Company promoters must register with the Malawi Revenue Authority by filing the memorandum and articles of association, the certificate of incorporation (copy), and an application letter or completed online application for registration, including the accounting date, the name of a public officer, and the nature of the business. The Malawi government then issues a taxpayer income tax number. 3 Obtain a company seal 3 days on MWK 19,000 Agency: Seal maker average Making a seal may take up to a week. Costs depend on the length of the name of the company and the size of the seal. *4 Apply for a license from the City Assembly 7 days, MWK 400 Agency: City Assembly simultaneous Blantyre City with previous Assembly Under the Business Licensing Act, wholesalers must procedure apply for a wholesaler’s license; and retailers, for a retailer’s license. For industrial activities, relevant fees, procedures, and licensing requirements depend on the  ENTREPRENEURSHIP DEVELOPMENT No. Procedure Time to Associated Costs Complete manufactured goods. Licenses are thus administered by the corresponding ministry. By law, a business is to be deemed as fully licensed if the authority does not respond within 7 days of the day of the application. The Department of Planning checks whether the premises location and business use is consistent with the city code. *5 Pay the requisite fee and Obtain the license 1 day, MWK 20,000- Agency: Ministry simultaneous MWK 120,000 with procedure On approval, the license is issued in a couple of days 5 and mailed to the investor. The amount payable depends on the type and location of the business in the city. *6 Apply for a registration of the workplace 28 days, MWK 1,000, Agency: Occupational Safety, Health, and Welfare simultaneous depends on the Department of the Ministry of Labor with procedure number of 5 employees Promoters must file Form Lab/W/1 (application for registration of workplace) with the Occupational Safety, Health, and Welfare Department of the Ministry of Labor. Fee schedule for workplace registration: - Fewer than 20 employees: MWK 1,000. - 21 to 50 employees: MWK 3,000. - 51 to 200 employees: MWK 5,000. - 201 to 500 employees: MWK 10,000. - More than 500 employees: MWK 15,000.  ENTREPRENEURSHIP DEVELOPMENT No. Procedure Time to Associated Costs Complete *7 Receive inspection of the company premises by the 7 days, no charge Occupational Safety, Health, and Welfare simultaneous Department with procedure Agency: Occupational Safety, Health, and Welfare 5 Department When a company files an application for the registration of its workplace, officers from the Occupational Safety, Health and Welfare Department inspect the premises. If they are satisfied with its conditions, they issue a Certificate of registration to the Company. Otherwise, they will advise the company on certain measures to implement in order to improve the working conditions. 8 Register for PAYE and fringe benefit tax at the 4 days no charge Malawi Revenue Authority (by mail) Agency: Malawi Revenue Authority Promoters must file Form P1 (PAYE) and Form FBT1 (fringe benefit tax). On registering for pay-as-you-earn (PAYE) tax, applicants are provided with the following forms: WTF1 (withholding tax certificate); WTF2 (summary of withholding tax); P9 (PAYE certificate of total emoluments and tax deducted); P10 (advice of employees tax deduction certificates issued); P12 (PAYE monthly deduction payment form; and P16 (reconciliation of the number of tax deduction certificates and schedule of tax deductions to be sent to the Inspector of Taxes). Feasibility Study: Types and Importance in  ENTREPRENEURSHIP DEVELOPMENT The growth and recognition of project management have changed significantly over the past few years, and these changes are expected to continue and expand. And with the rise of project management comes the need for a feasibility study. What is a Feasibility Study? As the name implies, a feasibility analysis is used to determine the viability of an idea, such as ensuring a project is legally and technically feasible as well as economically justifiable. It tells us whether a project is worth the investment—in some cases, a project may not be doable. There can be many reasons for this, including requiring too many resources, which not only prevents those resources from performing other tasks but also may cost more than an organization would earn back by taking on a project that isn’t profitable. A well-designed study should offer a historical background of the business or project, such as a description of the product or service, accounting statements, details of operations and management, marketing research and policies, financial data, legal requirements, and tax obligations. Generally, such studies precede technical development and project implementation. Types of Feasibility Study A feasibility analysis evaluates the project’s potential for success; therefore, perceived objectivity is an essential factor in the credibility of the study for potential investors and lending institutions. There are five types of feasibility study—separate areas that a feasibility study examines, described below. 1. Technical Feasibility This assessment focuses on the technical resources available to the organization. It helps organizations determine whether the technical resources meet capacity and whether the technical team is capable of converting the ideas into working systems. Technical feasibility also involves the evaluation of the hardware, software, and other technical requirements of the proposed system. As an exaggerated example, an organization wouldn’t want to try to put Star Trek’s transporters in their building— currently, this project is not technically feasible.  ENTREPRENEURSHIP DEVELOPMENT 2. Economic Feasibility This assessment typically involves a cost/ benefits analysis of the project, helping organizations determine the viability, cost, and benefits associated with a project before financial resources are allocated. It also serves as an independent project assessment and enhances project credibility—helping decision-makers determine the positive economic benefits to the organization that the proposed project will provide. 3. Legal Feasibility This assessment investigates whether any aspect of the proposed project conflicts with legal requirements like zoning laws, data protection acts or social media laws. Let’s say an organization wants to construct a new office building in a specific location. A feasibility study might reveal the organization’s ideal location isn’t zoned for that type of business. That organization has just saved considerable time and effort by learning that their project was not feasible right from the beginning. 4. Operational Feasibility This assessment involves undertaking a study to analyze and determine whether—and how well—the organization’s needs can be met by completing the project. Operational feasibility studies also examine how a project plan satisfies the requirements identified in the requirements analysis phase of system development. 5. Scheduling Feasibility This assessment is the most important for project success; after all, a project will fail if not completed on time. In scheduling feasibility, an organization estimates how much time the project will take to complete. Importance of Feasibility Study The importance of a feasibility study is based on organizational desire to “get it right” before committing resources, time, or budget. A feasibility study might uncover new ideas that could completely change a project’s scope. It’s best to make these determinations in advance, rather than to jump in and to learn that the project won’t work. Conducting a feasibility study is always  ENTREPRENEURSHIP DEVELOPMENT beneficial to the project as it gives you and other stakeholders a clear picture of the proposed project. Below are some key benefits of conducting a feasibility study: Improves project teams’ focus Identifies new opportunities Provides valuable information for a “go/no-go” decision Narrows the business alternatives Identifies a valid reason to undertake the project Enhances the success rate by evaluating multiple parameters Aids decision-making on the project Identifies reasons not to proceed Apart from the approaches to feasibility study listed above, some projects also require other constraints to be analyzed - Internal Project Constraints: Technical, Technology, Budget, Resource, etc. Internal Corporate Constraints: Financial, Marketing, Export, etc. External Constraints: Logistics, Environment, Laws, and Regulations, etc.