UNIT-I

Introduction to Entrepreneurship

Entrepreneurship comes from a french word `Entrependre’ and the German word `Uternehmen’ both
meaning individuals who are `undertakers’ i.e. those who took the risk of a new enterprise. Entrepreneurship
is a dynamic activity which helps the entrepreneur to bring changes in the process of production, innovation
in production, new usage of materials, creator of market etc. It is a metal attitude to foresee risk and
uncertainty and do something new in an effective manner to achieve certain goals.
An entrepreneur is an economic change agent with knowledge, skills, initiative, drive and spirit of innovation
to achieve goals. He identifies and seizes opportunity for economic benefits. He is a risk bearer, an organizer
and an innovator.
According to Economists → An entrepreneur is the one who brings resources, labour, material and other
assets into combination to produce a socially viable product, and also one who introduces changes,
innovation and new order.
According to Management → A person with a vision and action plan to achieve it is an entrepreneur.

Functions of an entrepreneur

 Identification of opportunities
 Introduction of a new product
 Gathering resources or Introducing new methods of production
 Developing new markets

Characteristics of an Entrepreneur
 Vision – He is able to visualize market demand, socio-economic environment and the future of business
venture.
 Knowledge – He has sound conceptual knowledge about all the technicalities of his business.
 Desire to succeed – He has multiple goals and a seeks opportunities to be productive.
 Independence – He is independent in work and decision making
 Optimism – He knows how to exploit opportunities.
 Value addition – He does not follow the conventional rule of thumb, they have a desire to create, innovate
and add value.
 Initiative – He takes the initiative to make an action plan from limited resources.
 Goal setting – He sets realistic goals.
 Problem solver – He is creative in problem solving.
 Good human relations – He is a good leader, motivator and team builder.
 Communication skills – He has the ability to persuade others.

Types of Entrepreneur
(i) According to Clarence Banhof →
♦ Aggressive/Innovative entrepreneur – The one who uses various combinations of information and factors
of production to assemble and engineer new and innovative products.
♦ Imitative/Adoptive entrepreneur – The one who simply adopts a successful innovation introduced by other
entrepreneurs.
♦ Fabian entrepreneur – The one who is timid and cautious in making bold decisions. Such an entrepreneur
adopts innovations in his business only when he fears that not innovating may damage his business.
♦ Drone entrepreneur – A drone entrepreneur is one who refuses to adopt new innovations even at the cost of
reduced returns.
(ii) According to Authur H. Cole →
♦ Empirical entrepreneur – An entrepreneur who does not innovate and follows the rule of thumb.
♦ Rational entrepreneur – An rational entrepreneur is one who keeps himself updated with his business, the
market and economic conditions, and introduces revolutionary ideas.
♦ Cognitive entrepreneur – An entrepreneur that seeks advice and services of experts to make changes which
are revolutionary and reflect a complete shift from its existing structure.
(iii) According to Ownership →
♦ Public entrepreneurship – These are individuals who partner with the government to create enterprises
which serve the public in innovative ways.
♦ Private entrepreneurship – These entrepreneurs are profit oriented and do not enter market which have low
monetary rewards associated with it.
(iv) According to Scale of enterprise →
♦ Large scale entrepreneur – Large scale entrepreneurs are usually found in developed countries. These
entrepreneurs introduce revolutionary ideas and are able to sustain high profits and develop new technologies
as they possess the financial capacity and necessary resources to do so.
♦ Small scale entrepreneur – Small scale entrepreneurs do not have the necessary funds and technology to
initiate large scale production and introduce revolutionary ideas.

Nature of Entrepreneurship
♦ Creation of an enterprise – It involves creation and operation of an enterprise.
♦ Organizing function – It brings together various factors of production for economic use.
♦ Innovation – It is an automatic, spontaneous and creative response to changes in the environment.
♦ Risk bearing capacity – It assumes uncertainty of future.
♦ Managerial and leadership function – It is responsible for controlling and coordinating the human resource
and giving direction to an enterprise.
♦ Gap filling – It fills the gap between human needs and available products and services.

Process of Entrepreneurship

(A) Identify an opportunity – An Entrepreneur senses opportunities and visualizes a market since they are
creative and open to new ideas and seek challenges. They look for needs, wants, problems and challenges
that are not met or dealt effectively. Since their ideas are innovative they gain first movers advantage which
provides product identification and higher credibility in the market.
(B) Establishing a vision – It involves generation of ideas using past experience and creativity to develop
new and innovative ways to solve a problem, or satisfy a need. Out of many ideas the most feasible and
profitable are chosen and narrowed to one best idea. He evaluates different opportunities and the business
environment to assess the (i) Real and Perceived value of the product/service (ii) Risks and rewards
associated with the project (iii) and differential advantage in its competitive environment.
(C) Persuade others – He forms a foundation team which consists of a group of individuals who work
together to turn his vision into reality. They may be partners, financiers, family members etc.
(D) Gathering Resources – It involves using a business plan to attract investors, venture capitalists, partners,
financial institutions, promoters etc. The main task is to research and identify resources that are needed to
turn the idea into a viable venture.
Resources can be categorized into –
• Financial Resources – Personal savings, retained capital, banks, government institutions, family, friends,
partnerships, venture capital, public issue.
• Operating Resources – They can be Tangible or Intangible.
Tangible – (a) machines (b) raw materials (c) land and building (d) office equipments (An entrepreneur has
to make a decision to buy, rent or hire them).
Intangible resources – (a) company’s image (b) operating procedures (c) transportation (d) management
• Human – Temporary/permanent employees, Amount of man power needed, Recruitment, Selection and
Training of staff, Compensation, Organization culture.
• Information – An efficient management information system is needed in order to have timely info about
customers, markets, competitors and external environment. All the data is networked on real time basis to
speed up actions based on information.
(E) Create new Venture – When all the resources have been arranged, the next step is Creation and
establishment of a new venture and running the business venture successfully. It requires a lot of enthusiasm
and persuasion to gather optimum resources and it requires a lot of perseverance and passion to believe in
self.
(F) 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.

Entrepreneurial Traits
1. Passionate
Strong and barely controllable emotion You need to be driven by a clear sense of purpose and passion.
Typically, that passion comes from one of two sources: the topic of the business, or the game of business-
building itself .Why do you need passion? Simply because you’re likely to be working too hard, for too long,
for too little pay with no guarantee that it’ll work out… so you need to be motivated by something
Intrinsic and not money-related.
2. Resilient
If you’re going to build a startup, you’ll need a spirit of determination coupled with a high pain tolerance.
You’ll need to be willing and able to learn from your mistakes – to get knocked down repeatedly, get up, dust
yourself off, and move forward with renewed motivation.
People will constantly tell you your baby’s ugly, that your business won’t work. Now, you should listen
carefully and be open to constructive criticism. But after a while, having the door slammed in your face
repeatedly can be withering, and the best entrepreneurs learn to feed off the negativity and actually gain
strength from it.
3. Self-Possessed
You need a strong sense of self. You can’t be threatened by being surrounded by talented, driven people. To
truly succeed, you’ll need the self-confidence to surround yourself with people “who don’t look like you”…
that is, people with skills, background and domain knowledge that complement your own. And check your
ego at the door: you shouldn’t be too proud to make coffee for the team, empty the waste baskets, or do the
bank runs.
4. Decisive
You’ll need to develop a comfort-level with uncertainly and ambiguity. Entrepreneurs gather as much
information as they can in a short period of time, and then MOVE, MOVE, MOVE!! The attitude is that it’s
not going to be perfect… We only have 9% or so of the data from which to base our decision… but if we
wait to have all the information, we’ll never get moving… and be mired in indecision. (Big organizations are
really good at this – the mired thing – saying, We don’t have enough information, so let’s continue to
study… form a committee or a task force)
5. Fearless
On the sliding scale from “risk-averse” to “risk-seeking,” it shouldn't surprise anyone that entrepreneurs tend
to be closer to the latter. But you don’t need to be a nut-case, the sort who bungee-jumps without a helmet.
Smart entrepreneurs develop an intuitive ability to sniff out and mitigate startup business risk. But you know
you’re going to fall down, and feel comfortable with that fact and that you’re going to learn from your
Failures and adjust as you go.
6. Financially Prepared
You’ll need the right personal financial profile to make the leap. This doesn’t mean that only the rich can be
entrepreneurs. But unless and until you’ve got the personal financial ‘runway’ (ability to go without a steady
paycheck and subsidized benefits) of at least 18 to 24months (ideally longer), you might hold off on quitting
your day job.Consider launching the startup as a side-business if that’s possible, while continuing to work the
8-to-5 shift to cover the bills. Or approach your boss about going part-time. Then, once your business
generating cash flow, you can dial back on your hours, or submit your resignation and go full-time with your
startup.
7. Flexible
I challenge you to find an entrepreneur running a startup four or more years old where that business doesn’t
differ dramatically from the vision sketched out in their original business plan. The point is that the folks who
stay on their feet are the ones who stay flexible and adjust to new information and changing circumstances.
8. Zoom Lens-Equipped
You may not start out with a fool-proof gyroscope, but to survive as an entrepreneur, you’ll need that strong
sense of perspective. How to maintain simple, clear focus. How to be at peace with, and learn from, a failure.
Understanding that not all battles are worth winning, and when to walk away. Knowing that most in your
startup aren’t as entrepreneurial as you – that this may be a very cool job for them, but it’s still a job.
Knowing when to go home and give your loved ones a hug. When to go for a run.
Can you ‘pan out’ to see a compelling big vision for your business, then ‘zoom in’ and focus on near-term
startup goals? Successful entrepreneurs can facilely move back and forth between these two views. They’re
able to articulate the big picture, while simultaneously managing and executing to the ‘zoom-in’ picture.
9. Able to Sell
Whether you’re a born extrovert or introvert, as a founder/CEO, you’ll find yourself always selling. You’ll be
selling your vision to prospective partners and funding sources. You’ll be selling prospective recruits on why
they should quit their day jobs and join this startup they’ve never heard of. You’ll be selling your products
and services (yes, you’ll probably be personally closing at least the first few sales). You’ll be selling your
employees on why they should remain calm and stay with the ship when the seas inevitably get rough.
10. Balanced
You may not start out with a fool-proof gyroscope, but to survive as an entrepreneur, you’ll need that strong
sense of perspective. How to maintain simple, clear focus. How to be at peace with, and learn from, a failure.
Understanding that not all battles are worth winning, and when to walk away. Knowing that most in your
startup aren’t as entrepreneurial as you – that this may be a very cool job for them, but it’s still a job.
Knowing when to go home and give your loved ones a hug. When to go for a run.
 Entrepreneur vs. Manager
The terms Entrepreneur and Manager are considered one and the same. But the two terms have different
meanings.
The following are some of the differences between a manager and an entrepreneur.
· The main reason for an entrepreneur to start a business enterprise is because he comprehends the venture for
his individual satisfaction and has personal stake in it where as a manager provides his services in an
enterprise established by someone.
· An entrepreneur and a manager differ in their standing, an entrepreneur is the owner of the organization and
he bears all the risk and uncertainties involved in running an organization where as a manager is an employee
and does not accept any risk.
· An entrepreneur and a manager differ in their objectives. Entrepreneur’s objective is to innovate and create
and he acts as a change agent where as a manager’s objective is to supervise and create routines. He
implements the entrepreneur’s plans and ideas.
· An entrepreneur is faced with more income uncertainties as his income is contingent on the performance of
the firm where as a manager’s compensation is less dependent on the performance of the organization.

CREATING AND STARTING VENTURE

Sources of new ideas

Entrepreneurs throughout the world use the following sources to tap to identify good ideas:
1. Customers
 Prospective customers know best what they want and the habits/tastes that will be popular shortly.
 New product or service ideas may come from customers’ reactions to the present product and the expected
product idea.
 Contacts with prospective consumers can also reveal the features that should be built into a product or
service.
 The attention to the customers can take the form of informally monitoring potential ideas and needs or
formally arranging surveys among prospective customers.
 Care needs to be taken to ensure that the idea or need represents a large enough market to support a new
venture.
2. Existing organization
 Competing products and services of existing organizations and evaluation thereof is a successful source of
new ideas.
 Frequently, this analysis uncovers ways to improve on these offerings, resulting in a new product that has
more market appeal.
 The analysis of profitability and break-even level of various industries or organizations indicate promising
investment opportunities which are profitable and relatively risk-free.
 An examination of the capacity utilization of various industries provides information about the potential for
further investment.
3. Distribution channels
 Member of the distribution channels; intermediaries, transient customer preference, and possible expectations
may be a good business idea.
 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.
4. Government
 The government can be a source of new product ideas in many ways.
 First, the files of the Patent Office contain numerous new product possibilities. They can suggest other more
marketable new product ideas.
 Secondly, new product ideas can respond to government regulations, industrial policy, investment guidelines,
annual plan, Five-year plan, etc.
 Thirdly, several government agencies nowadays assist entrepreneurs in discovering evaluating business
ideas.
 Fourthly, government publications on trade and industry can also help set new venture ideas.
5. Financial institutions and Development Agencies
 These organizations also provide ready projects and offer suggestions to potential entrepreneurs who help
identify promising projects.
 Community Development Financial Institutions Fund, Small Business Administration, Office of
Advocacy, United States Chamber of Commerce, Economic Development Administration, Small Business
and Entrepreneurship Council, House Committee on Small Business, and many other bodies in the USA are
working to improve entrepreneurship and small businesses.
6. Research and Development
 The entrepreneur’s own “research and development” is the largest source of new ideas. It may be a more
formal endeavor connected with one’s current employment or an informal laboratory in the private premises.
 Formal institutional research and development are often better equipped, enabling the entrepreneur to
conceptualize and develop successful new product ideas.
 But many amazing product ideas have come from informal research endeavors at the private level.
7. Trade Shows, Fairs aid Exhibitions
 These sources display new products and innovations in processes and services.
 An innovative entrepreneur can get product ideas to adapt or modify and produce with indigenous materials
and technology.
8. Focus Groups
 Focus groups are good sources of product ideas.
 A moderator leads a group of people through an open, in-depth discussion rather than simply asking
questions to solicit participant response; for a new product area, the moderator focuses the group’s discussion
in either a directive or a nondirective manner.
 The group of 8 to 14 participants is stimulated by comments from other group members to conceptualize and
develop a new product idea to fulfill market needs.
 This is an excellent method for initially screening ideas and concepts too.
9. Brainstorming
The brainstorming method for gejnerating new product ideas is based on the fact that people can be
stimulated to greater creativity by meeting with others and participating in organized group experiences.
This method would be effective if the effort focuses on a specific product or market area. The following four
rules should be followed when using this method:
 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 useful ideas
emerging.
 Combinations and improvements of ideas are encouraged – ideas of others can still produce another new
idea.
 The brainstorming session should be fun, with no one dominating or instituting the discussion.
10. Collective Notebook Method
 In the collective notebook method, a small notebook that easily it’s 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 the month, a list of the best ideas is developed, along with any suggestions.
11. Heuristics Method
 Heuristics relies on the entrepreneur’s ability to discover through a progression of thoughts, insights, and
learning.
 The technique is probably used more than imagined because entrepreneurs frequently must settle for an
estimated outcome of a decision rather than a certainty.
 One specific heuristic approach is called the heuristic ideation technique (HTT).
 The technique involves locating all relevant concerts – that could be associated with a given product area and
generating a set of all possible combinations of ideas.
Value analysis Method: The value analysis technique develops methods for maximizing value to the
entrepreneur and the new venture. It is a method for developing a new idea by evaluating the worth of aspects
of ideas.
 Under this technique, regularly scheduled times are established to develop, evaluate, and refine ideas.
12. Checklist Method
A new idea is developed through a lot of related issues or suggestions.
The entrepreneur can use the list of questions or 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.
One general checklist is :
 Put to other uses? New ways to use as is? Other uses if modified?
 Adapt? What else is like this? What other ideas does this ‘ suggest? Does the past offer parallel? What could
I copy? Whom could I emulate?
 Modify? New twist? Change meaning, sour, motion, odor, form, shape? Other changes?
 Magnify? What lo add? More time? Greater frequency? Stronger? Larger? Thicker? Extra value? Plus
ingredient? Duplicate? Multiply? Exaggerate?
 Minify? What substitute? Smaller? Condensed? Miniature? Lower? Shorter? Lighter? Omit? Streamline?
Split up? Understated?
 Substitute? Who else instead? What else instead? Another ingredient? Other material? Another process?
Other power? Other places? Other approaches? Other tones of voice?
 Rearrange? Interchange components? Other Pattern? Other layouts’.’ Other sequences? Transpose cause and
effect? Change pact? Change schedule?

 Reverse? Transpose positive and negative? How about opposites? Turn it backward? Turn it upside-down?
Reverse roles? Change shoes? Turntables? Turn other cheeks?
 Combine? How about a bend, an alloy, an assortment, an ensemble? Combine units? Combine purposes?
Combine /appeals? Combine ideas?

13. Synectics Method

Synectic is a creative process that forced individuals to solve problems through four analogy mechanisms: ‘
personal, direct, symbolic, and fantasy. A group works through a two-step process.
 The first step is to make the strange familiar.
Through generalizations or models, this involves consciously reversing the order of things and putting the
problem into a readily acceptable or familiar perspective, thereby eliminating the strangeness.
 Once the strangeness is eliminated, participants engage in the second step making the familiar strange.
Through personal, direct, or—symbolic analogy, which ideally results in a unique solution being developed.
14. Dream Approach
The big dream approach to coming up with a new idea requires that the entrepreneur dreams about the
problem and. Its solution- thinking big.
Every possibility should be recorded and investigated without regard to all the negatives involved or the
resources required.
In other words, ideas should be conceptualized without any constraints until an idea is developed into a
workable form.
15. Market Gap Analysis
Market gap analysis is a powerful method used to uncover areas in the market in which the needs and wants
far exceed the supply.
This method has a hopper or gathering effect of converting everyday information into bunches of lucrative
product and service gaps that few have thought of before.
16. Life-style analysis Method
Entrepreneurs can use lifestyle analysis effusively for product-service ideas. Lifestyle is a person’s pattern of
living expressed in his or her psychographics (Kotler and Armstrong. 181:2001).
It involves measuring consumers’ major activities (work, hobbies, shopping, sports, social events), interests
(food, fashion, family, recreation), and opinions (about themselves, social issues, business, products).
The lifestyle analysis will help entrepreneurs understand new needs and want under the changed conditions.
It will also reflect the changing consumer values that may be a good source of product-service ideas.

Methods of generating ideas

1. The Storyboarding Method
A storyboard is like a cartoon strip: you place pictures or written words to do with ideas, one after the other,
on a sheet of paper. Then, you try to develop a story through them. When you storyboard ideas for an
ideating session, you take ideas from everyone, write each down on a sticky note, paste it on a board, and
then try to form a story around it. It’s a great way to see how these ideas interact and see if there is a
connection that can be made among them.

2. The Mind Mapping Method

Creating mind maps is common in many creative fields. To create a mind map, you write down the problem
on a whiteboard and then surround it with words that indicate the things that you feel you may need in order
to solve the problem. If the problem is growing website traffic, for instance, the solutions are the things that
you need, like SEO or organic traffic. As a second mind map layer, you can take an individual need, like
SEO, and add potential solutions, including hiring an SEO strategist, taking up a marketing course and so on.
It’s possible to add third or fourth mind map layers, as well. It’s a proven creative technique that works.

3. Sketching As a Group
Sketching helps visual thinking, something that is often more effective than discussions conducted through
speech. In group sketching, a person begins the idea-making process by sketching something on the
 whiteboard. Another person then comes along and adds to the sketch with his own idea. As everyone
contributes to the idea through sketches, they add up to something substantial.

4.Creating Word Banks

To create a word bank, you start with a word or a problem and then create a large set of words that you would
associate with the word. It’s a word association activity, but it works with large groups of words. Creating
word banks helps you break a problem down in your mind and form manageable parts. When a word banking
session is ready, you start to form relationships among the words that you’ve thought of. When you do this,
you come up with new ideas.

5. The Thinking Hats Technique

Otherwise known as the Six Thinking Hats technique, this method was invented by Edward de Bono involves
role-play. In a group of six people, each person takes up a different role and addresses the problem in that
capacity. One participant uses logic to think about the problem, another one uses optimism, a third one plays
devil’s advocate. The others take up roles for emotion, creativity, and management. As each person takes up
a role, they get to think very clearly about the problem in that capacity. This method can bring up far more
viewpoints than any other technique.

6. Brainstorming in Reverse
Knowing what not to do is just as important as knowing what to do. When you set up a reverse brainstorming
session, your aim is to think up every mistake that it would be possible to make in a given situation. In a
reverse brainstorming session for marketing knowledge, for example, participants would think of mistakes
such as not using social media and social media ads, not paying attention to various metrics and so on.
Bringing up problems is a useful way to know what mistakes to avoid.

7. Brainwriting
In this technique, a group of people writes their ideas on a piece of paper. After the designated time for
writing is over the paper is given to a different person.
Now this person reads the ideas on the paper they got and adds their ideas on the paper. This continues until
everyone has put their ideas on all the papers. And following this, there is a discussion on each idea.

8. Forced Relationship
This technique helps to come up with unique ideas. Here you take two unrelated things and imagine putting
them together to see what new thing you can come up with.
For example, take a calculator and a pencil, these are unrelated to each other. Now try putting them together.
You might get some interesting ideas like a calculator with a touch screen and a pencil to write on it and a lot
more.

9. Collaboration
This technique is self-explanatory. Here you collaborate with others to come up with ideas. If you collaborate
with a diverse group of people your ideas will be more unique.
 This happens because every person brings a different perspective. For example, if you want to increase the
sale of a particular product you might want to collaborate with industry experts, specialists, or people
working in domains other than sales.

10. The 5 W’s

Who, What, Where, When, and Why are the five W’s. Answering these five W’s helps us achieve a very
holistic view of the topic under discussion. And it is an efficient way to come up with solutions and ideas.
For example, suppose you want to create a new product or a service. You can do so by asking questions like,
who would use the product, why would people buy it, what would it do, etc.

11. Listening
People prove to be a very good resource when you are trying to generate ideas. Even those who aren’t your
employees and customers can be very resourceful.
So, you must always go beyond your immediate circle and invest in listening. Socializing with people in
your immediate social circle and even those beyond it can be very effective.

12. Accidental Genius

This idea generation technique believes that writing can help you come up with good ideas. Here writing is
believed to be a trigger for ideas. This technique asks you to write freely without any editing.
So, whatever problem you are facing just start writing the answer without being concerned about the right or
wrong aspect of it.

13. Visualization
In this technique, we approach the problem visually. This is because visualization makes things easy to
understand. And as a result, we can come up with ideas and solutions easily. For example, suppose you want
a new setup for your production unit.
You can have pictures taken of the current setup and work on it. Looking at the pictures will give you a
better idea. You will be able to make changes to the setup so that it increases productivity and saves on time.

Creative problem solving

1. Clarify and identify the problem

2. Research the problem
3. Formulate creative challenges
4. Generate ideas
5. Combine and evaluate the ideas
6. Draw up an action plan
7. Do it! (implement the ideas)
1. Clarify and identify the problem
Arguably the single most important step of CPS is identifying your real problem or goal. This
may seem easy, but very often, what we believe to be the problem is not the real problem or
goal. For instance, you may feel you need a new job. However, if you break down your
problem and analyse what you are really looking for, it may transpire that the actual issue is
that your income does not cover your costs of living. In this case, the solution may be a new
job, but it might also be to re-arrange your expenses or to seek a pay rise from your existing
employer.
Five whys: A powerful problem-definition technique
The best way to clarify the problem and understand the underlying issues is to ask yourself –
or better still, ask a friend or family member to ask you – a series of questions about your
problem in order to clarify the true issues behind the problem. The first question to ask is
simply: “why is this a problem?” or “why do I wish to achieve this goal?” Once you have
answered that, ask yourself “why else?” four more times.

More questions you can ask to help clearly define the problem
In addition, you can further clarify your problem by asking questions like: “What do I really
wish to accomplish?”, “What is preventing me from solving this problem/achieving the
goal?”, “How do I envision myself in six months/one year/five years [choose most relevant
time span] as a result of solving this problem?” and “Are my friends dealing with similar
problems? If so, how are they coping?”

By the time you have answered all these questions, you should have a very clear idea of what
your problem or real goal is.

Set criteria for judging potential solutions

The final step is to decide what criteria you will eventually use to evaluate or judge the ideas.
Are there budget limitations, timeframe or other restrictions that will affect whether or not
you can go ahead with an idea? What will you want to have accomplished with the ideas?
What do you wish to avoid when you implement these ideas? Think about it and make a list
of three to five evaluation criteria. Then put the list aside. You will not need it for a while.

2. Research the problem

The next step in CPS is to research the problem in order to get a better understanding of it.
Depending on the nature of the problem, you may need to do a great deal of research or very
little. The best place to start these days is with your favourite search engine. But do not
neglect good old fashioned sources of information and opinion. Libraries are fantastic for in-
depth information that is easier to read than computer screens. Friends, colleagues and family
can also provide thoughts on many issues. Fora on sites like LinkedIn and elsewhere are ideal
for asking questions. There’s nothing an expert enjoys more than imparting her knowledge.
Take advantage of that. But always try to get feedback from several people to ensure you get
well-rounded information.

3. Formulate one or more creative challenges

By now, you should be clear on the real issues behind your problems or goals. The next step
is to turn these issues into creative challenges. A creative challenge is basically a simple
question framed to encourage suggestions or ideas. In English, a challenge typically starts
with “In what ways might I [or we]…?” or “How might I…?” or “How could I…?”
Creative challenges should not include evaluation criteria. For example: “How might I find a
more challenging job that is better paying and situated close to my home?” If you put criteria
in the challenge, you will limit your creative thinking. So simply ask: “How might a I find a
more challenging job?” and after generating ideas, you can use the criteria to identify the
ideas with the greatest potential.

4. Generate ideas
Finally, we come to the part most people associate with brainstorming and creative problem
solving: idea generation. And you probably know how this works. Take only one creative
challenge. Give yourself some quiet time and try to generate at least 50 ideas that may or may
not solve the challenge. You can do this alone or you can invite some friends or family
members to help you.

Irrespective of your idea generation approach, write your ideas on a document. You can
simply write them down in linear fashion, write them down on a mind map, enter them onto a
computer document (such as Microsoft Word or OpenOffice) or use a specialized software
for idea generation. The method you use is not so important. What is important is that you
follow these rules:

Write down every idea that comes to mind. Even if the idea is ludicrous, stupid or fails to
solve the challenge, write it down. Most people are their own worst critics and by squelching
their own ideas, make themselves less creative. So write everything down. NO
EXCEPTIONS!

If other people are also involved, insure that no one criticizes anyone else’s ideas in any way.
This is called squelching, because even the tiniest amount of criticism can discourage
everyone in the group for sharing their more creative ideas. Even a sigh or the rolling of eyes
can be critical. Squelching must be avoided!

If you are working alone, don’t stop until you’ve reached your target of 50 (or more) ideas. If
you are working with other people, set a time limit like 15 or 20 minutes. Once you have
reached this time limit, compare ideas and make a grand list that includes them all. Then ask
everyone if the have some new ideas. Most likely people will be inspired by others’ ideas and
add more to the list.

If you find you are not generating sufficient ideas, give yourself some inspiration. A classic
trick is to open a book or dictionary and pick out a random word. Then generate ideas that
somehow incorporate this word. You might also ask yourself what other people whom you
know; such as your grandmother, your partner, a friend or a character on you favourite TV
show, might suggest.
Brainstorming does not need to occur at your desk. Take a trip somewhere for new
inspiration. Find a nice place in a beautiful park. Sit down in a coffee shop on a crowded
street corner. You can even walk and generate ideas.

In addition, if you browse the web for brainstorming and idea generation, you will find lots of
creative ideas on how to generate creative ideas!

One last note: If you are not in a hurry, wait until the next day and then try to generate
another 25 ideas; ideally do this in the morning. Research has shown that our minds work on
creative challenges while we sleep. Your initial idea generation session has been good
exercise and has certainly generated some great ideas. But it will probably also inspire your
unconscious mind to generate some ideas while you sleep. Don’t lose them!

5. Combine and evaluate ideas

After you have written down all of your ideas, take a break. It might just be an hour. It might
be a day or more. Then go through the ideas. Related ideas can be combined together to form
big ideas (or idea clusters).

Then, using the criteria you devised earlier, choose all of the ideas that broadly meet those
criteria. This is important. If you focus only on the “best” ideas or your favorite ideas, the
chances are you will choose the less creative ones! Nevertheless, feel free to include your
favorite ideas in the initial list of ideas.

Now get out that list of criteria you made earlier and go through each idea more carefully.
Consider how well it meets each criterion and give it a rating of 0 to 5 points, with five
indicating a perfect match. If an idea falls short of a criterion, think about why this is so. Is
there a way that it can be improved in order to increase its score? If so, make a note. Once
you are finished, all of the ideas will have an evaluation score. Those ideas with the highest
score best meet your criteria. They may not be your best ideas or your favorite ideas, but they
are most likely to best solve your problem or enable you to achieve your goal.

Depending on the nature of the challenge and the winning ideas, you may be ready to jump
right in and implement your ideas. In other cases, ideas may need to be developed further.
With complex ideas, a simple evaluation may not be enough. You may need to do a SWOT
(strengths, weaknesses, opportunities and threats) analysis or discuss the idea with others who
will be affected by it. If the idea is business related, you may need to do a business case,
market research, build a prototype or a combination of all of these.

Also, keep in mind that you do not need to limit yourself to one winning idea. Often you can
implement several ideas in order to solve your challenge.
6. Draw up an action plan
At this point, you have some great ideas. However, a lot of people have trouble motivating
themselves to take the next step. Creative ideas may mean big changes or taking risks. Some
of us love change and risk. Others are scared by it. Draw up an action plan with the simple
steps you need to take in order to implement your ideas. Ideas that involve a lot work to
implement can be particularly intimidating. Breaking their implementation down into a series
of readily accomplished tasks makes these ideas easier to cope with and implement.

7. Do it!
This is the simplest step of all. Take your action plan and implement your idea. And if the
situation veers away from your action plan steps, don’t worry. Rewrite your action plan!

Business Plan

A 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 addresses both
short- and long-term decision making. The business plan is like a road map for the business’
development. The Internet also provides outlines for business planning. Entrepreneurs can
also hire or offer equity to another person to provide expertise in preparing the business plan.
In developing the business plan the entrepreneur can determine how much money will be
needed from new and existing sources.

The business plan is valuable to the entrepreneur and investors because:

1. It helps determine the viability of the venture in a designated market.
2. It gives guidance in organizing planning activities.
3. It serves as an important tool in obtaining financing.

Potential investors are very particular about what should be included in the plan. The process
of developing a business plan also provides a self-assessment of the entrepreneur. This self-
‘evaluation requires the entrepreneur to think through obstacles that might prevent the
venture’s success. It also allows the entrepreneur to plan ways to avoid such obstacles.

WRITING THE BUSINESS PLAN

The business plan should be comprehensive enough to give a potential investor a complete
understanding of the venture.

Introductory Page
The title page provides a brief summary of the business plan's contents, and should include:
□The name and address of the company
□The name of the entrepreneur and a telephone number
□A paragraph describing the company and the nature of the business
□The amount of financing needed
□A statement of the confidentiality of the report
□It also sets out the basic concept that the entrepreneur is attempting to develop.

Executive Summary
This is prepared after the total plan is written. It should be three to four pages in length and
should highlight the key points in the business plan. The summary should highlight in a
concise manner the key Points in the business plan.
Issues that should be addressed include:
1. Brief description of the business concept
2. Any data that support the opportunity for the venture.
3. Statement of you this opportunity will be pursued.
4. Highlight some key financial results that can be achieved
5. Because of the limited scope of the summary, the entrepreneur should ascertain what
is important to the audience to whom the plan is directed.

Environmental and Industry Analysis

The entrepreneur should first conduct an environmental analysis to identify trends and change
occurring on a national and international level that may impact the new venture. Examples of
environmental factors are:
□Economy
□Culture
□Technology
□Legal concerns
All of the above external factors are generally uncontrollable. Next the entrepreneur should
conduct an industry analysis that focuses on specific industry trends Some examples of
industry factors include:
• Industry demand
• Competition
The last part of this section should focus on the specific market. This would include such
information as who the customer is and what the business environment is like. The market
should be segmented and the Target market identified.

Description of the Venture

The description of the venture should be detailed in this section. This should begin with the
mission Statement or company mission, which describes the nature of the business and what
the entrepreneur hopes to accomplish. The new venture should be described in detail,
including the product, location, personnel, background of entrepreneur, and history of the
venture. The emphasis placed on location is a function of the type of business. Maps that
locate customers, competitors, and alternative locations can be helpful. If the building or site
decision involves legal issues, the entrepreneur should hire a lawyer
 Evaluating Business Plans
The following areas are of interest to lenders and investors:
a) The purpose of the loan (expansion or startup business)
b) Sources and uses of the funds
c) Management of the business
d) Industry information
e) Financial analysis
f) Collateral (secured)
g) Personal debt/credit history of borrower

Technical Business Plans may be evaluated on the following:

1. Viability
2. Management background
3. Market advantage
4. Technology
A.Viability
The viability of a business is measured by its long-term survival, and its ability to have
sustainable profits over a period of time. If a business is viable, it is able to survive for many
years, because it continues to make a profit year after year. The longer a company can stay
profitable, the better its viability.
Example
The small company showed its viability by making a profit every year of its existence.
B.Management Background
For every Business Plan we have to check the background of Management, because for every
business finance is very important without capital no business will run.
C.Market advantage
It means that if the product is giving less profit means Entrepreneur has to introduce several
offers and discounts to give pick up of the product. It means that taking the Market to sell as
they wish.
D.Technology
Technology gives to evaluate the Business Plans efficiently and fastly for better output. Now
a day’s technology plays a vital role in the business world.

Using and Implementing Business Plans:

The core of your business plan is your vision for the future. From this vision, you will be able
to set objectives for various parts of the business and these objectives will need to be well
communicated to all involved to ensure a coherent approach to the tasks in hand. Your
business objectives are statements about what you want individual parts of the business to
achieve. You may, for instance, have a series of objectives about the financial side of the
business, or about its products and services, or about your marketing. The objectives you set
create a 'strategy' for the business.
Business Plan Implementation

Here is where the business plan implementation puts theory into practice. If theory and
practice do not come together, the plan will remain on the drawing board. The business plan
must be implemented with due regard to deadlines set. The responsibility of each individual
involved in the plan must be clearly delineated. The implementation plan must form an
integral part of the business plan. The manager must have a clear idea of the practical impact
of his business ideas.

Business Plan Implementation Steps

❖ Establishing the business objectives
❖ Defining and assigning the tasks needed to attain the objectives set
❖ Setting out a timescale
❖ Monitoring activities and progress
Business Plan Implementation Objectives
The objectives must be clearly and concisely set out, with the planning of key way stages.
They must at the same time be realistic, demanding but achievable.
Tasks
The tasks must be listed with the individuals responsible for completing each task. They must
be simply and clearly stated, and need not be oppressive. The results envisaged should
outweigh the time and effort devoted to the tasks.
Timescale
Each task, and its duration, must be framed within a clear timescale. The result clearly
displays all the activities necessary with their deadlines.
Monitoring Activity and Progress
During the monitoring process, delays must be highlighted. This stage identifies and rectifies
the delays. Within a business plan, several implementation plans will be needed for the
particular aspects of the business: product planning, marketing, financial problems and
human resource management (Business Plan Implementation).

✓
There are 5 Business plan to implement

✓
Marketing Planning

✓
Finance Planning

✓
People Planning

✓
Product Planning
Supply Planning
Marketing Plannng:
From the analysis carried out, you will no doubt have set some objectives about marketing.
'Marketing' is a very broad area of the business - indeed there are likely to be marketing
implications associated with almost all your objectives.
Your marketing plan will include detail about:
❖ your products and /or services
❖ the place in which you sell them and the way that you distribute them
 ❖ the price you charge for them
❖ the promotion you undertake
These are commonly described as the '4Ps' of marketing.
The plan will show your intention of how you will undertake the full range of marketing
activities. It will be based on the data you collected about your competitors, your market
places and other areas discussed earlier. It will also reflect the potential you have identified
through analysis for:
• adding or amending products and/or services to your range
• finding new customers or better satisfying the needs of existing customers.
• finding new markets
• taking advantage of changes in business environment, especially changes in existing market
places
• combating threats posed by competitors and taking advantage of their weaknesses

Finance Planning:
• A financial plan is often seen as the basis for many other parts of the business plan. This
particular plan, designed to meet the financial objectives you have set, is important in that it
pulls together the one common denominator of all other plans - and that is cash. The financial
plan for the business will have at its heart standard features:
• profit forecast
• cash flow forecast
• projected balance sheet
The financial plan you set should be tailored to meet your individual business needs. To do
so, it will refer to your particular business circumstances and may also include one or all of a
range of other financial tools, such as:
 Business funding structure
 Working capital analysis
 Sales forecast returns achieved on sales
 Break-even analysis contribution from production stock analysis
Looking into these different forms of analysis will quickly show you that they individually
serve differing business requirements. You will need to decide which are most relevant to
your business situation and from which you will gain most advantage.

People Planning:
Having the right people with the right skills is vital to every business. A successful business
will recognize that, to be competitive in the 21st Century, it must be proactive in training and
developing its employees and it must have in place a strategy for achieving this.
The plan needs to concentrate on the objectives which arise from the business vision. It could cover a wide range of
business issues including the identification and satisfaction of training and development needs to meet business and
individual requirements. People planning can be crucial in achieving longer term objectives by equipping employees
with the right skills - and it is on those skills that the business will be competitive in its market places. The plan will
also cover broad statements on recruitment, employment, induction, training and a range of other related business
functions.
The Employment Department's 'Investors in People' initiative centres on the proven fact that
concentration on 'people' issues can bring significant business benefits. Your local Training
and Enterprise Council in England or Wales, or your Local Enterprise Company in Scotland,
will be able to offer help and guidance on this matter.

Product Planning:
Throughout this guide, 'product' is taken to mean your product or - if you are a service
provider - your service. Whichever your areas of activity, today's changing business
environment and trends in customer buying patterns have to be closely monitored. The
business needs to be able to react quickly and effectively when changes occur. In addition,
you will want to influence future trends throughout your own marketing effort - but you need
to carefully plan future product and service developments to coincide with likely changes.
The life cycle of a product or of a service can be estimated and the various stages it goes
through will determine its contribution to the business.
The effect of this is that your plans for improving or extending products and/or services are
closely linked to your marketing and financial plans.
Quality of your products and services is an important area within your plan. Closely linked to
your pricing strategy, the question of product development affects the whole of the business -
and everyone in it.
You set your quality standards to satisfy the needs and desires of your customers. Many
industries have acknowledged quality levels and the concept of 'benchmarking' is an
innovative way to create partnerships from which all parties benefit through exchange of
information.
Supply Planning:
The relationships you develop with your suppliers and your customers are also important
influencing factors to be addressed when looking at your product plan. Associated with the
issue of quality, these relationships are crucial to future business success.

The Organizational Plan:

Organizational planning should include long-term and short-term planning. The plan should
predict where the organization will be in two or five years, listing specific, measurable goals
and results. It should also include a reasonable time frame for these tasks to be accomplished.
Failure to plan will damage the effectiveness of the organization and can even lead to
complete break-down.
Material Resources
Lack of planning is certain to result in shortages or delays of necessary materials. Without an
analysis of how often resources need to be replenished, these necessities will not be found
where and when needed. The necessary resource might be something as small as staples for
the stapler, or as essential as running out of the raw material needed to manufacture the
The plan should also include a specific "to-do" list that keeps everyone informed of the
necessary actions and resources, as well as listing who is responsible for the all the tasks.
product that is sold. In all cases, a business a cannot flourish if the management of its
resources is not being monitored and planned for.
Finances
Cash flow issues are bound to occur if the organization does not plan properly for where and
when the finances are needed. Late payments are likely to result in suppliers becoming
unreliable or cutting off the supply of their goods or services. Late payments can also result in
additional interest payments or other financial penalties that cut into profits. Cash flow
problems can go so far as to result in the inability to pay employees on time. This is bound to
have a negative impact on employee loyalty and retention.
Human Resources -- Productivity
Without planning, there will be no mission statement and no vision. Employees are most
productive when they understand the bigger picture behind what they are doing, so
productivity will decrease. There is also likely to be much wasted time, as some workers will
be duplicating the work of others, while some essential tasks will be overlooked. This is all
likely to result in the need for crisis management. Workers will spend a great deal of time
"putting out fires" caused by the fact that no one is able to anticipate the problems that will
regularly occur. In addition, larger projects will take longer than necessary, or may never
reach completion, because no one did the planning necessary to break them down into more
manageable segments.
Human Resources -- Morale
Employees in organizations suffering from lack of planning are likely to experience low
morale. The workers will be aware of their disorganized environment, and will suffer stress

and frustration because they will have difficulty executing their assigned tasks. There likely
will be a high staff turnover rate, which leads to lowered productivity. Some employees
might be laid off because of lowered profits and this will further diminish morale. Other
employees might feel unappreciated and over-worked as the organization will be under-
staffed. This will exacerbate the downward spiral and the business is likely to fail.
Launching formalities
Before you launch your new firm, you must deal with a few formalities and register your firm
with the following authorities:
Health insurance
The statutory health-insurance fund needs to be informed about the move to self-
employment. The fund will then examine whether this is a “full-time” activity. Here, a role is
played by the hours worked and the likely level of income.
Tax office
If you are offering a professional service (i.e. are a member of the “Freie Berufe”, such as tax
adviser, doctor, journalist), you only need to apply for a tax number from the tax office.
Trade office
Anyone else setting up a business must register their project with the trade office of the
municipality in which the firm is opened.
A valid ID or passport a residence permit depending on the sector (e.g. catering), a permit or
authorization a craft card if you are setting up in business in the craft sector a trade card for
activities similar to the craft sector and between ten and forty Euros for the registration fee
The trade office automatically informs the following authorities with which you also have to
be registered: tax office; accident insurance fund; chamber of industry and commerce or
chamber of crafts; local court (trade register); trade supervisory office (responsible for the
health and safety of your employees and customers; it checks ovens, drinks dispensers, etc.).
Play safe and check whether all of these bodies have actually received the information.
Health office
Depending on which sector you are working in, you may need a permit or a certificate of non-
objection from the health office. This applies, for example, to new businesses in catering and
the sale of foodstuffs. In the case of start-ups in catering or childcare, the health office and the
trade supervisory office (varies from region to region) will also examine the standards of
hygiene in your rooms. Also, you will need a certificate of good conduct from the police and
confirmation from the chamber of industry and commerce that you have participated in a
seminar on hygiene and the handling of food.
Construction Office
If you wish to use rooms previously used for other purposes as your future operational rooms,
you need to apply for a change in use from the relevant Construction Office. The planning of
rebuilding work and of new buildings for commercial purposes must also be co-ordinate in
good time with the construction office.
Trade supervisory office
Find out in good time before operations commence whether the rooms you plan to use meet
statutory requirements.
Commercial register
Apart from very small businesses and companies organized as a GBR (Gesellschaft burger
lichen Rechts), all companies must be entered in the electronic commercial register at the
local court The electronic commercial register is public and provides information about the
company (name of company, name of owner, personally liable shareholder, etc.)
 UNIT-II

FINANCING AND MANAGING THE NEW VENTURES

SOURCES OF FINANCE

Based upon the time, the financial resources may be classified into (1) sources of long term
(2) sources of short – term finance. Some of these sources also serve the purpose of medium
– term finance.
Sources of Long Term Finance

1. Issue of Shares: The amount of capital decided to be raised from members of the public
is divided into units of equal value. These units are known as share and the aggregate values
of shares are known as share capital of the company. Those who subscribe to the share capital
become members of the company and are called shareholders. They are the owners of the
company. Hence shares are also described as ownership securities.
 Issue of Preference Shares: Preference share have three distinct characteristics. Preference
shareholders have the right to claim dividend at a fixed rate, which is decided according to
the terms of issue of shares. Moreover, the preference dividend is to be paid first out of the
net profit. The balance, it any, can be distributed among other shareholders that is, equity
shareholders. However, payment of dividend is not legally compulsory. Only when
dividend is declared, preference shareholders have a prior claim over equity shareholders.

Depending upon the terms of conditions of issue, different types of preference shares may
be issued by a company to raises funds. Preference shares may be issued as:

1. Cumulative or Non-cumulative
2. Participating or Non-participating
3. Redeemable or Non-redeemable, or as
4. Convertible or non-convertible preference shares.

In the case of cumulative preference shares, the dividend unpaid if any in previous years
gets accumulated until that is paid. No cumulative preference shares have any such
provision.
 Participatory shareholders are entitled to a further share in the surplus profits after a
reasonable divided has been paid to equity shareholders. Non-participating preference
shares do not enjoy such right.
 Redeemable preference shares are those, which are repaid after a specified period, where
as the irredeemable preference shares are not repaid. However, the company can also
redeem these shares after a specified period by giving notice as per the terms of issue.
 Convertible preference shows are those, which are entitled to be converted into equity

 shares after a specified period.

 Merits:
1. It helps to enlarge the sources of funds.
2. Some financial institutions and individuals prefer to invest in preference shares due to the
assurance of a fixed return.
3. Dividend is payable only when there are profits.
4. If does not affect the equity shareholders’ control over management
Limitations:
1. Dividend paid cannot be charged to the company’s income as an expense; hence there is
no tax saving as in the case of interest on loans.
2. Even through payment of dividend is not legally compulsory, if it is not paid or arrears
accumulate there is an adverse effect on the company’s credit.
3. Issue of preference share does not attract many investors, as the return is generally limited
and not exceed the rates of interest on loan. On the other than, there is a risk of no dividend
being paid in the event of falling income.

 Issue of Equity Shares: The most important source of raising long-term capital for a
company is the issue of equity shares. In the case of equity shares there is no promise to
shareholders a fixed dividend. But if the company is successful and the level profits are
high, equity shareholders enjoy very high returns on their investment. This feature is very
attractive to many investors even through they run the risk of having no return if the profits
are inadequate or there is loss. They have the right of control over the management of the
company and their liability is limited to the value of shares held by them.

Merits:
1. It is a source of permanent capital without any commitment of a fixed return to the
shareholders. The return on capital depends ultimately on the profitability of business.
2. It facilities a higher rate of return to be earned with the help borrowed funds. This is
possible due to two reasons. Loans carry a relatively lower rate of interest than the average
rate of return on total capital. Secondly, there is tax saving as interest paid can be charged to
income as an expense before tax calculation.
3. Assets are not required to give as security for raising equity capital. Thus additional funds
can be raised as loan against the security of assets.

Limitations:

1. The risks of fluctuating returns due to changes in the level of earnings of the company do
not attract many people to subscribe to equity capital.
2. The value of shares in the market also fluctuate with changes in business conditions, this
is another risk, which many investors want to avoid.

2. Issue of Debentures:
When a company decides to raise loans from the public, the amount of loan is dividend into
units of equal. These units are known as debentures. A debenture is the instrument or
certificate issued by a company to acknowledge its debt. Those who invest money in
debentures are known as ‘debenture holders’. They are creditors of the company. Debentures
are therefore called ‘creditor ship’ securities. The value of each debentures is generally fixed
in multiplies of 10 like Rs. 100 or Rs. 500, or Rs. 1000.

Debentures carry a fixed rate of interest, and generally are repayable after a certain period,
which is specified at the time of issue. Depending upon the terms and conditions of issue
there are different types of debentures. There are:

a. Secured or unsecured Debentures and

b. Convertible of Non convertible Debentures.

It debentures are issued on the security of all or some specific assets of the company, they are
known as secured debentures. The assets are mortgaged in favor of the debenture holders.
Debentures, which are not secured by a charge or mortgage of any assets, are called
unsecured debentures. The holders of these debentures are treated as ordinary creditors.

Sometimes under the terms of issue debenture holders are given an option to convert their
debentures into equity shares after a specified period. Or the terms of issue may lay down that
the whole or part of the debentures will be automatically converted into equity shares of a
specified price after a certain period. Such debentures are known as convertible debentures. If
there is no mention of conversion at the time of issue, the debentures are regarded as non-
convertible debentures.

Merits:
1. Interest payable on Debentures can be fixed at low rates than rate of return on equity
shares. Thus Debentures issue is a cheaper source of finance.
2. Interest paid can be deducted from income tax purpose; there by the amount of tax
payable is reduced.
3. Funds raised for the issue of debentures may be used in business to earn a much higher
rate of return then the rate of interest. As a result the equity shareholders earn more.
4. Another advantage of debenture issue is that funds are available from investors who are
not entitled to have any control over the management of the company.
5. Companies often find it convenient to raise debenture capital from financial institutions,
which prefer to invest in debentures rather than in shares. This is due to the assurance of a
fixed return and repayment after a specified period.
Limitations:
1. It involves a fixed commitment to pay interest regularly even when the
company has low earnings or incurring losses.
2. Debentures issue may not be possible beyond a certain limit due to the inadequacy of
assets to be offered as security.

3. Loans from financial Institutions:

Government with the main object of promoting industrial development has set up a number
of financial institutions. These institutions play an important role as sources of company
finance. Besides they also assist companies to raise funds from other sources.

These institutions provide medium and long-term finance to industrial enterprises at a reason
able rate of interest. Thus companies may obtain direct loan from the financial institutions for
expansion or modernization of existing manufacturing units or for starting a new unit.

Often, the financial institutions subscribe to the industrial debenture issue of companies some
of the institutions (ICICI) and (IDBI) also subscribe to the share issued by companies.

All such institutions also underwrite the public issue of shares and debentures by companies.
Underwriting is an agreement to take over the securities to the extent there is no public
response to the issue. They may guarantee loans, which may be raised by companies from
other sources.

4. Retained Profits:

Successful companies do not distribute the whole of their profits as dividend to shareholders
but reinvest a part of the profits. The amount of profit reinvested in the business of a
company is known as retained profit. It is shown as reserve in the accounts. The surplus
profits retained and reinvested may be regarded as an internal source of finance. Hence, this
method of financing is known as self-financing. It is also called sloughing back of profits.

Since profits belong to the shareholders, the amount of retained profit is treated as ownership
fund. It serves the purpose of medium and long-term finance. The total amount of ownership
capital of a company can be determined by adding the share capital and accumulated
reserves.
Merits:
1. As an internal source, it is more dependable than external sources. It is not necessary to
consider investor’s preference.
2. Use of retained profit does not involve any cost to be incurred for raising the funds.
Expenses on prospectus, advertising, etc, can be avoided.
3. There is no fixed commitment to pay dividend on the profits reinvested. It is a part of risk
capital like equity share capital.
4. Control over the management of the company remains unaffected, as there is no addition
to the number of shareholder.
5. It does not require the security of assets, which can be used for raising additional funds in
the form of loan.

Limitations:
1. Only well established companies can be avail of this sources of finance. Even for such
companies retained profits cannot be used to an unlimited extent.
2. Accumulation of reserves often attract competition in the market,
3. With the increased earnings, shareholders expect a high rate of dividend to be paid.
4. Growth of companies through internal financing may attract government restrictions as it
leads to concentration of economic power.

5. Public Deposits:

An important source of medium – term finance which companies make use of is public
deposits. This requires advertisement to be issued inviting the general public of deposits. This
requires advertisement to be issued inviting the general public to deposit their savings with
the company. The period of deposit may extend up to three years. The rate of interest offered
is generally higher than the interest on bank deposits. Against the deposit, the company
mentioning the amount, rate of interest, time of repayment and such other information issues
a receipt.
Since the public deposits are unsecured loans, profitable companies enjoying public
confidence only can be able to attract public deposits. Even for such companies there are
rules prescribed by government limited its use.

Sources of Short Term Finance

1. Trade credit: Trade credit is a common source of short-term finance available to all
companies. It refers to the amount payable to the suppliers of raw materials, goods etc. after
an agreed period, which is generally less than a year. It is customary for all business firms to
allow credit facility to their customers in trade business. Thus, it is an automatic source of
finance. With the increase in production and corresponding purchases, the amount due to the
creditors also increases. Thereby part of the funds required for increased production is
financed by the creditors.

2. Bank loans and advances: Money advanced or granted as loan by

commercial banks is known as bank credit. Companies generally secure bank
credit to meet their current operating expenses. The most common forms are
cash credit and overdraft facilities. Under the cash credit arrangement the
maximum limit of credit is fixed in advance on the security of goods and
materials in stock or against the personal security of directors. The total
amount drawn is not to exceed the limit fixed. Interest is charged on the
amount actually drawn and outstanding. During the period of credit, the
company can draw, repay and again draw amounts within the maximum limit.
In the case of overdraft, the company is allowed to overdraw its current account up to the
sanctioned limit. This facility is also allowed either against personal security or the security
of assets. Interest is charged on the amount actually overdrawn, not on the sanctioned limit.

3. Short term loans from finance companies: Short-term funds may be available from
finance companies on the security of assets. Some finance companies also provide funds
according to the value of bills receivable or amount due from the customers of the borrowing
company, which they take over.

Recordkeeping

Recordkeeping is a primary stage in accounting which tells us how to keep a record of

monetary business transactions with the objective keep permanent track of all the transaction,
know the correct picture of assets-liabilities, profits and loss etc, keep control of the expenses
with a view to minimizing the expenditure and to have important information for legal and
tax purposes.

Steps to Recordkeeping Method

 Identifying the transactions

 Recording in the journal

 Classifying the nature of the transaction

 Posting to ledger

 Balancing of accounts

 Preparing a financial statement

 Interpreting the financial statements

 Communicating it to stakeholders

Advantages of Recordkeeping

 Permanent and Reliable Record – It helps in maintaining the permanent record of

all the transactions, which will help in ensuring the reliability of data.
  Arithmetical Accuracy of the Accounts – Continuous recording of transactions
will help in identifying any arithmetical inaccuracy that might have taken place.
E.g., excess payment to suppliers or double payment of any transactions.

 Net Result of Business Operations – It will give the profit earned during the given
period based on ongoing business operations.

 Ascertainment of Financial Positions – It helps in identifying the financial

position of the business.

 Calculation of Dues – All the outstanding liabilities and dues on a given point of
time can be calculated based on the proper financial statements prepared.

 Control Over Assets and Borrowings – Better control over assets and borrowings
can be undertaken; this will help in managing the funds and various positions of
business.

 Identifying Dos and Don’ts – Financial statements help in finding things that went
out bad and need to be rectified in the future to ensure better operations in the
future.

 Taxation – It is highly recommended and needed by tax authorities. To complete

their assessments, business persons have to appropriately maintain the records
which will help in determining the tax liability over them

 Management Decision Making – Management is highly dependent on the

financial records to undertake the planning of the business operations

 . Legal Requirements – There is a massive requirement of statutes, Local GAAPs,

IFRSs, etc., to maintain the proper books of account, to ensure the transparency of
the business.

Disadvantages of Recordkeeping

 Clerical – For large organizations, recordkeeping is a highly tedious and ongoing

job. It becomes tough for them to maintain the same

 Manual and Monotonous – It is a highly manual job. The same work is needed to
be carried out as many times the transaction is undertaken. This makes it a highly
monotonous job.
  Subjective needs to Check before Analysed – Various accounting aspects like
depreciation, stock valuation, etc. requires assumptions that make the accounting
highly subjective. The viability of such assumptions needs to be verified before
analyzing the financial statements

Example #1

ABC Limited is a sole proprietor firm, carrying out small shops in a market in Atlanta. He is
trading in clothes and having main inflow and Outflow as follows:
Inflows: Sale proceeds from Customer
Outflows: Material Purchase from vendors and payment of related expenses
For recordkeeping purposes, ABC limited will have to maintain daily cashbooks for
maintaining the petty cash. Cash Petty cash means the small amount that is allocated for the
year. It is one of the simplest ways of maintaining the records of the business transaction.

Recruitment

Definition:

According to Edwin B. Flippo, “It is a process of searching for prospective employees and
stimulating and encouraging them to apply for jobs in an organisation.” He further elaborates
it, terming it both negative and positive.

Process of Recruitment:

(i) Searching out the sources from where required persons will be available for recruitment. If
young managers are to be recruited then institutions imparting instructions in business
administration will be the best source.

(ii) Developing the techniques to attract the suitable candidates. The goodwill and reputation
of an organisation in the market may be one method. The publicity about the company being
a professional employer may also assist in stimulating candidates to apply.

(iii) Using of good techniques to attract prospective candidates. There may be offers of
attractive salaries, proper facilities for development, etc.
(iv) The next stage in this process is to stimulate as many candidates as possible to apply for
jobs. In order to select a best person, there is a need to attract more candidates.

Factors Influencing Recruitment:

1. Size of the Enterprise:

The number of persons to be recruited will depend upon the size of an enterprise. A big
enterprise requires more persons at regular intervals while a small undertaking employs only
a few employees. A big business house will always be in touch with sources of supply and
shall try to attract more and more persons for making a proper selection. It can afford to
spend more amounts in locating prospective candidates. So the size of an enterprise will
affect the process of recruitment.

2. Employment Conditions:

The employment conditions in an economy greatly affect recruitment process. In under-

developed economies, employment opportunities are limited and there is no dearth of
prospective candidates. At the same time suitable candidates may not be available because of
lack of educational and technical facilities. If the availability of persons is more, then
selection from large number becomes easy. On the other hand, if there is a shortage of
qualified technical persons, then it will be difficult to locate suitable persons.

3. Salary Structure and Working Conditions:

The wages offered and working conditions prevailing in an enterprise greatly influence the
availability of personnel. If higher wages are paid as compared to similar concerns, the
enterprise will not face any difficulty in making recruitments. An organisation offering low
wages can face the problem of labour turnover.

The working conditions in an enterprise will determine job satisfaction of employees. An

enterprise offering good working conditions like proper sanitation, lighting, ventilation, etc.
would give more job satisfaction to employees and they may not leave their present job. On
the other hand, if employees leave the jobs due to unsatisfactory working conditions, it will
lead to fresh recruitment of new persons.

4. Rate of Growth:

The growth rate of an enterprise also affects recruitment process. An expanding concern will
require regular employment of new employees. There will also be promotions of existing
employees necessitating the filling up of those vacancies. A stagnant enterprise can recruit
persons only when present incumbent vacates his position on retirement, etc.

Sources of Recruitment

(A) Internal Sources:

Best employees can be found within the organisation… When a vacancy arises in the
organisation, it may be given to an employee who is already on the pay-roll. Internal sources
include promotion, transfer and in certain cases demotion. When a higher post is given to a
deserving employee, it motivates all other employees of the organisation to work hard. The
employees can be informed of such a vacancy by internal advertisement.

Methods of Internal Sources:

1. Transfers:

Transfer involves shifting of persons from present jobs to other similar jobs. These do not
involve any change in rank, responsibility or prestige. The numbers of persons do not
increase with transfers.

2. Promotions:

Promotions refer to shifting of persons to positions carrying better prestige, higher

responsibilities and more pay. The higher positions falling vacant may be filled up from
within the organization. A promotion does not increase the number of persons in the
organization. A person going to get a higher position will vacate his present position.

Promotion will motivate employees to improve their performance so that they can also get
promotion.

3. Present Employees: The present employees of a concern are informed about likely vacant
positions. The employees recommend their relations or persons intimately known to them.
Management is relieved of looking out prospective candidates.

The persons recommended by the employees may be generally suitable for the jobs because
they know the requirements of various positions. The existing employees take full
responsibility of those recommended by them and also ensure of their proper behaviour and
performance.

(B) External Sources:

All organizations have to use external sources for recruitment to higher positions when
existing employees are not suitable. More persons are needed when expansions are
undertaken.

Methods of External Sources:

1. Advertisement:

It is a method of recruitment frequently used for skilled workers, clerical and higher staff.
Advertisement can be given in newspapers and professional journals. These advertisements
attract applicants in large number of highly variable quality.

Preparing good advertisement is a specialised task. If a company wants to conceal its name, a
‘blind advertisement’ may be given asking the applicants to apply to Post Bag or Box
Number or to some advertising agency.

2. Employment Exchanges:

Employment exchanges in India are run by the Government. For unskilled, semi-skilled,
skilled, clerical posts etc., it is often used as a source of recruitment. In certain cases it has
been made obligatory for the business concerns to notify their vacancies to the employment
exchange. In the past, employers used to turn to these agencies only as a last resort. The job-
seekers and job-givers are brought into contact by the employment exchanges.

3. Schools, Colleges and Universities:

Direct recruitment from educational institutions for certain jobs (i.e. placement) which
require technical or professional qualification has become a common practice. A close liaison
between the company and educational institutions helps in getting suitable candidates. The

students are spotted during the course of their studies. Junior level executives or managerial
trainees may be recruited in this way.

4. Recommendation of Existing Employees:

The present employees know both the company and the candidate being recommended.
Hence some companies encourage their existing employees to assist them in getting
applications from persons who are known to them.
In certain cases rewards may also be given if candidates recommended by them are actually
selected by the company. If recommendation leads to favoritism, it will impair the morale of
employees.

5. Factory Gates:

Certain workers present themselves at the factory gate every day for employment. This
method of recruitment is very popular in India for unskilled or semi-skilled labour. The
desirable candidates are selected by the first line supervisors. The major disadvantage of this
system is that the person selected may not be suitable for the vacancy.

6. Casual Callers:

Those personnel who casually come to the company for employment may also be considered
for the vacant post. It is most economical method of recruitment. In the advanced countries,
this method of recruitment is very popular.

7. Central Application File:

A file of past applicants who were not selected earlier may be maintained. In order to keep
the file alive, applications in the files must be checked at periodical intervals.

8. Labour Unions:

In certain occupations like construction, hotels, maritime industry etc., (i.e., industries where
there is instability of employment) all recruits usually come from unions. It is advantageous
from the management point of view because it saves expenses of recruitment. However, in
other industries, unions may be asked to recommend candidates either as a goodwill gesture
or as a courtesy towards the union.

9. Labour Contractors:

This method of recruitment is still prevalent in India for hiring unskilled and semi-skilled
workers in brick klin industry. The contractors keep themselves in touch with the labour and
bring the workers at the places where they are required. They get commission for the number

of persons supplied by them.

10. Former Employees:

In case employees have been laid off or have left the factory at their own, they may be taken
back if they are interested in joining the concern (provided their record is good).

11. Other Sources:

Apart from these major sources of external recruitment, there are certain other sources which
are exploited by companies from time to time. These include special lectures delivered by
recruiter in different institutions, though apparently these lectures do not pertain to
recruitment directly.

Then there are video films which are sent to various concerns and institutions so as to show
the history and development of the company. These films present the story of company to
various audiences, thus creating interest in them.

Various firms organize trade shows which attract many prospective employees. Many a time
advertisements may be made for a special class of work force (say married ladies) who
worked prior to their marriage.

These ladies can also prove to be very good source of work force. Similarly there is the
labour market consisting of physically handicapped. Visits to other companies also help in
finding new sources of recruitment.

Motivating and leading teams

Being the leader of a team is a huge responsibility, regardless of whether you’re the CEO, department
manager, or supervisor.
As a leader, it’s your job to inspire and motivate the others on your team to work to the very best of their
abilities. Being an effective leader demands a number of qualities and characteristics that encourage those
around them to succeed. This article will examine eight leadership qualities that can help to inspire and
motivate your team.
1. Provide a vision and purpose
Create an inspiring vision of the future that also gives your team a purpose – something to look forward to,
and something to work towards. Make this vision achievable and realistic and work with your team towards
achieving this goal. Think of practices or services that could help make both yours and their job easier. Use
personal stories and anecdotes to explain your vision and inspire your team members, it will make you more
relatable and less of a separate entity.
2. Set clear goals
Set clear goals for completing a project so that your team knows what is expected of them. Ensure that your
team agrees with goals and deadlines you have set, and can identify with them on a personal level. This way
they can be motivated to work harder and achieve those goals, boosting productivity levels in turn. Making
sure that your team are in agreement and happy with goals and deadlines you have set will help them feel
more involved in their work.
3. Lead by example
One of the most powerful motivational tactics you can use is to lead by example. Working hard, showing
professional integrity, and having a can-do attitude are all qualities that will have a positive effect on your
team members.
If your team recognises that you value the time and effort they put into their work, and you demonstrate the
same actions and values you expect from them, it will inspire them to do the same.
4. Encourage teamwork
Encourage members to work together as a team by stressing the importance of and the connection between
teamwork and achieving group goals. Note the fact that when people work together, work is much easier and
quicker to do. You can further motivate your team by linking performance with team goals.

Encouraging teamwork will help individual team members feel less isolated and separate from the
workplace. Employees will feel more engaged and a part of a larger community, inspiring them to work
harder and enjoy what they do.
5. Be optimistic and positive
Having a positive attitude and an optimist outlook, even when times are tough, can inspire your team
members to adopt the same attitude and outlook and continue to work hard. Remaining positive will show
your team that it’s not the end of the world if things are going wrong, and keep them focused on the greater
picture.
You can also help motivate your team by reacting positively to goal or project completion, and to the skills
and abilities that each member brings to the team. Make them feel valued and appreciated, and your team will
work harder.
6. Give praise and rewards
This is one of the best ways to inspire and motivate your team to work harder. When you praise one person in
front of others, it encourages them to work harder or perform better, simultaneously motivating the others to
work hard in order to be praised. When a reward is linked to performance, people will work even harder and
be more committed to their task in order to win the reward.
7. Communicate with the team
You should be contactable at all times so that your team members can ask you questions about a project, get
your opinion, offer ideas, and give feedback. Being available for your team plays a key role in motivating
them, as it shows that you value the project and their feedback. Making yourself more available also avoids
making your team members feel isolated and separate from management. Ensuring you’re always available
for your team can boost productivity and improve the quality of your work.
8. Empower team members
When you give team members the power or authority to do something with complete control, this helps to
motivate them to complete the work. You can also keep motivating your team members to work hard and
bring out the best in them by offering constructive feedback. This will result in an empowered, happier, and
more productive team.
9. Don’t lead with fear
Your team will not be inspired if you use fear as a motivator. Great leaders coach and teach their team -- they
are right there with them -- not on the sidelines screaming and instilling fear.
10. Develop future leaders from within
As your brand grows you will need additional leaders to step up. Give every member of your team the
ability to move into those roles by empowering them to make decisions, both right and wrong.
This decision-making training prepares them to set up to the plate when they are needed.
11. Encourage personal growth
Successful leaders encourage personal growth and mentor their team. Give your team members books
about success and business to read and encourage them to attend business networking events. Make
suggestions that will enrich their own personal development outside of your organization.
12. Help employees reach their potential
If you never push your team, they will remain stagnant. Sure, the work will get done, but don't expect to
experience excitement and growth without encouraging them to operate out of their traditional comfort
zone. You want to achieve excellence and not mediocrity, right?
13. Stop micromanaging
A true leader will step back and let his team do their jobs without standing over their shoulders. If you
made the correct hiring decision, then you need to trust your team members to perform. There is no need
for micromanagement -- if you made the wrong choice you need to take responsibility and correct it.
14. Be respectful
Awards and recognition are great, and some employees feed off that. But your team will perform much
better when they know that they have your respect. Show respect for their hard work and dedication -- it
will create a much more productive team.

Financial controls
Financial controls are the procedures, policies, and means by which an organization. monitors and controls
the direction, allocation, and usage of its financial resources. Financial controls are at the very core of
resource management and operational efficiency in any organization.

Financial control refers to facts that show whether or not the business has the right to control the economic
aspects of the worker's job. The financial control factors fall into the categories of: Significant investment.
Unreimbursed expenses. opportunity for profit or loss.
Purpose of financial controls
Financial controls play an important role in ensuring the accuracy of reporting, eliminating fraud
and protecting the organization's resources, both physical and intangible. These internal control
procedures reduce process variation, leading to more predictable outcomes.
The three most important financial controls are: (1) the balance sheet, (2) the income statement
(sometimes called a profit and loss statement), and (3) the cash flow statement. Each gives the manager a
different perspective on and insight into how well the business is operating toward its goals. These three
reports are often referred to collectively as “the financials.” Banks often require a projection of these
statements to obtain financing.

The Balance Sheet

The balance sheet is a snapshot of the business’s financial position at a certain point in time. This can be any
day of the year, but balance sheets are usually done at the end of each month. With a budget in hand, you
project forward and develop pro forma statements to monitor actual progress against expectations.

Financial statement is a listing of total assets (what the business owns—items of value) and total liabilities
(what the business owes). The total assets are broken down into subcategories of current assets, fixed assets,
and other assets. The total liabilities are broken down into subcategories of current liabilities, long-term
liabilities/debt, and owner’s equity.

Assets
Current assets are those assets that are cash or can be readily converted to cash in the short term, such as
accounts receivable or inventory Some business people define current assets as those the business expects to
use or consume within the coming fiscal year. Thus, a business’s noncurrent assets would be those that have
a useful life of more than 1 year. These include fixed assets and intangible assets.

Fixed assets are those assets that are not easily converted to cash in the short term; that is, they are assets that
only change over the long term. Land, buildings, equipment, vehicles, furniture, and fixtures are some
examples of fixed assets. Intangible assets (net) may also be shown on a balance sheet. These may be
goodwill, trademarks, patents, licenses, copyrights, formulas, and franchises. In this instance, net means the
value of intangible assets minus amortization.

Liabilities

Current liabilities are those coming due in the short term, usually the coming year.

These are accounts payable; employment, income and sales taxes; salaries payable; federal and state
unemployment insurance; and the current year’s portion of multiyear debt. A comparison of the company’s
current assets and its current liabilities reveals its working capital. Many managers use an accounts receivable
aging report and a current inventory listing as tools to help them in management of the current asset structure.

Long-term debt, or liabilities, may be bank notes or loans made to purchase the business’s fixed asset
structure. Long-term debt/liabilities come due in a period of more than 1 year. The portion of a bank note that
is not payable in the coming year is long-term debt/liability.

For example, Success-R-Us’s owner may take out a bank note to buy land and a building. If the land is
valued at $50,000 and the building is valued at $50,000, the business’s total fixed assets are $100,000. If
$20,000 is made as a down payment and $80,000 is financed with a bank note for 15 years, the $80,000 is the
long-term debt.

Owner’s Equity

Owner’s equity refers to the amount of money the owner has invested in the firm. This amount is determined
by subtracting current liabilities and long-term debt from total assets. The remaining capital/owner’s equity is
what the owner would have left in the event of liquidation, or the dollar amount of the total assets that the
owner can claim after all creditors are paid.”

The Income Profit and Loss Statement (P&L)

The profit and loss statement (P&L) shows the relation of income and expenses for a specific time interval.
The income/P&L statement is expressed in a 1-month format, January 1 through January 31, or a quarterly
year-to-date format, January 1 through March 31. This financial statement is cumulative for a 12-month
fiscal period, at which time it is closed out. A new cumulative record is started at the beginning of the new
12-month fiscal period.

The P&L statement is divided into five major categories: (1) sales or revenue, (2) cost of goods sold/cost of
sales, (3) gross profit, (4) operating expenses, and (5) net income. Let’s look at each category in turn.
Sales or Revenue

The sales or revenue portion of the income statement is where the retail price of the product is expressed in
terms of dollars times the number of units sold. This can be product units or service units. Sales can be
expressed in one category as total sales or can be broken out into more than one type of sales category: car
sales, part sales, and service sales, for instance.

Cost of Goods Sold/Cost of Sales

The cost of goods sold/sales portion of the income statement shows the cost of products purchased for resale,
or the direct labor cost (service person wages) for service businesses. Cost of goods sold/sales also may
include additional categories, such as freight charges cost or subcontract labor costs. These costs also may be
expressed in one category as total cost of goods sold/sales or can be broken out to match the sales categories:
car purchases, parts, purchases, and service salaries, for example.

Breaking out sales and cost of goods sold/sales into separate categories can have an advantage over
combining all sales and costs into one category. When you break out sales, you can see how much each
product you have sold costs and the gross profit for each product. This type of analysis enables you to make
inventory and sales decisions about each product individually.

Gross Profit

The gross profit portion of the income/P&L statement tells the difference between what you sold the product
or service for and what the product or service cost you. The goal of any business is to sell enough units of
product or service to be able to subtract the cost and have a high enough gross profit to cover operating
expenses, plus yield a net income that is a reasonable return on investment. The key to operating a profitable
business is to maximize gross profit.

If you increase the retail price of your product too much above the competition, you might lose units of sales
to the competition and not yield a high enough gross profit to cover your expenses. However, if you decrease
the retail price of your product too much below the competition, you might gain additional units of sales but
not make enough gross profit per unit sold to cover your expenses.

While this may sound obvious, a carefully thought out pricing strategy maximizes gross profit to cover
expenses and yield a positive net income. At a very basic level, this means that prices are set at a level where
marginal and operating costs are covered. Beyond this, pricing should carefully be set to reflect the image
you want portrayed and, if desired, promote repeat business.

Operating Expenses

The operating expense section of the income/P&L statement is a measurement of all the operating expenses
of the business. There are two types of expenses, fixed and variable. Fixed expenses are those expenses that
do not vary with the level of sales; thus, you will have to cover these expenses even if your sales are less than
the expenses. The entrepreneur has little control over these expenses once they are set. Some examples of
fixed expenses are rent (contractual agreement), interest expense (note agreement), an accounting or law firm
retainer for legal services of X amount per month for 12 months, and monthly charges for electricity, phone,
and Internet connections.
Variable expenses are those expenses that vary with the level of sales. Examples of variable expenses include
bonuses, employee wages (hours per week worked), travel and entertainment expenses, and purchases of
supplies. (Note: categorization of these may differ from business to business.) Expense control is an area
where the entrepreneur can maximize net income by holding expenses to a minimum.

Net Income

The net income portion of the income/P&L statement is the bottom line. This is the measure of a firm’s
ability to operate at a profit. Many factors affect the outcome of the bottom line. Level of sales, pricing
strategy, inventory control, accounts receivable control, ordering procedures, marketing of the business and
product, expense control, customer service, and productivity of employees are just a few of these factors. The
net income should be enough to allow growth in the business through reinvestment of profits and to give the
owner a reasonable return on investment.

The Cash Flow Statement

The cash flow statement is the detail of cash received and cash expended for each month of the year. A
projected cash flow statement helps managers determine whether the company has positive cash flow. Cash
flow is probably the most immediate indicator of an impending problem, since negative cash flow will
bankrupt the company if it continues for a long enough period. If company’s projections show a negative
cash flow, managers might need to revisit the business plan and solve this problem.

You may have heard the joke: “How can I be broke if I still have checks in my check book (or if I still have a
debit/credit card, etc.)?” While perhaps poor humor, many new managers similarly think that the only
financial statement they need to manage their business effectively is an income/P&L statement; that a cash
flow statement is excess detail. They mistakenly believe that the bottom-line profit is all they need to know
and that if the company is showing a profit, it is going to be successful. In the long run, profitability and cash
flow have a direct relationship, but profit and cash flow do not mean the same thing in the short run. A
business can be operating at a loss and have a strong cash flow position. Conversely, a business can be
showing an excellent profit but not have enough cash flow to sustain its sales growth.

The process of reconciling cash flow is similar to the process you follow in reconciling your bank checking
account. The cash flow statement is composed of: (1) beginning cash on hand, (2) cash receipts/deposits for
the month, (3) cash paid out for the month, and (4) ending cash position.

Marketing Control
Definition: Marketing control refers to the measurement of the company’s marketing performance in terms of
the sales revenue generated, market share captured, and profit earned. Here, the actual result is compared
with the standard set, to find out the deviation and make rectifications accordingly.

Marketing is one of the crucial functions of any organization. Therefore, the management must exercise
proper control over the marketing operations to ensure error-free results, optimum utilization of the resources
and achievement of the planned objectives.

Types of Marketing Control

When we say control, it is not about overpowering the personnel, but it means enhancement of efficiency, by
reducing the chances of errors and meeting the standards set by the management.

As the name suggests, the plans which are determined for one year for the control of operational activities
through the successful implementation of management by objectives is termed as annual plan control.

Such programs are usually framed and controlled by the top management of the organization.

Annual plan control mechanism:

Sales Analysis:

The first one is the sales analysis, where the manager determines whether the sales target of the organization
has been achieved or not. For this purpose, the actual sales are compared with the desired sales and deviation
is computed.

This method is also used for finding out the efficiency of sales personnel by comparing the individual sales
with the target set for each salesperson.

Market Share Analysis:

To evaluate the competitiveness, the management needs to find out the market share acquired by the
organization.

However, it is quite challenging to determine the market share of other organizations which constitute of
unorganized firms, due to lack of sufficient data.
Marketing Expense to Sales Analysis:

Sometimes the firms spend much on the marketing of products, which diminishes their profit margin or
increases the product price.

Therefore, a marketing expense to sales ratio is calculated to know the percentage of sales value paid off as a
marketing expense.

Let us now go through the other ratios computed to determine the share of each marketing expense in sales
value:

 SalesForce Cost to Sales Ratio estimates the percentage of sales value used to pay the salespeople.
 Sales Administration to Sales Ratio determines the share of sales amount utilized for meeting the
selling and administration expenses.
 Sales Promotion to Sales Ratio is the value of sales invested in the sales promotion activities.
 Advertising to Sales Ratio is the percentage of sales value, which is contributed to the advertising
expenses of the products.
 Distribution Expenses to Sales Ratio is the value of sales, which is utilized for paying off distribution
expenses.

Financial Analysis:

The management needs to handle its finances well. It should examine the reasons and factors which influence
the rate of return and financial leverage and return on assets in the organization through financial analysis
tools.It also helps to enhance the financial leverage position of the company.

Customer Attitude Tracking:

Consumer satisfaction has been considered as an essential parameter to analyze the organization’s
performance. It is a qualitative analysis tool which can be of the following three types:

1. Customer Surveys: The companies get the questionnaires filled or make calls to the past customers for
finding out the level of consumer satisfaction. It provides a direction to the sales team and the
management.
2. Customer Panels: The organizations form consumer panels where the customers are hired to review
the products, advertisements and other marketing activities. It helps the management to know about
the consumer’s perception and attitude.
3. Feedback and Suggestion Systems: Market performance of the products can be analyzed with the help
of genuine feedback from the customers, and the same can be improved through their suggestions and
input.

Profitability Control

Maximizing the profit margin has become a difficult task in today’s highly competitive market. This has
enforced pressure on the marketing team of the organizations too.They now need to frame strategies for
profit assessment and control in the different product line, trade channels and territories.Profitability control
in an organization:
The first step is to understand the functional expenses, i.e., selling, distribution, administrative and
advertising expenses incurred while carrying out the marketing function of a territory or marketing channel.

The second step is to segregate the non-marketing expenses from the marketing overheads and then to
associate these pure marketing expenses to the marketing entities (like apportioning the building rent into
marketing function).

Lastly, to compile everything systematically and to ascertain the profit or loss incurred on carrying out the
particular marketing activity, an individual profit and loss account is prepared for each operation.

Efficiency Control

The management and the marketers are regularly involved in finding out ways to improve the task
performance in the organization. These improvements bring in efficiency and perfection in marketing
operations.

Sales Force Efficiency Indicators:

The competence of the sales team can be determined by evaluating the various factors. It includes acquisition
of new customers, customer turnover, average cost incurred on each sales call, return on time invested on the
prospective customers, market share lost to the competitors, average sales made by each person per day, etc.
Advertising Efficiency Indicators:

To know the effectiveness of the advertising activities, the marketers analyze the various advertising
functions on different grounds. For this purpose, it finds out the brand awareness, cost incurred on each
enquiry, media cost to reach per thousand customers, advertising campaign reach, etc.

Distribution Efficiency:

The performance of the distribution channels in comparison to the cost incurred on channel partners and
distribution of products can be analyzed through the distribution efficiency control.

It includes the measurement of the channel member’s market reach, cost incurred on operating a particular
channel and the contribution of each channel member in selling the brand’s products.

Strategic Control

The external environment creates a significant impact on the organization’s marketing strategies. To
understand and align the plans with the prevailing external environment, the organization can adopt any of
the following control functions:

Customer Relationship Barometer:

To determine the customer’s loyalty towards the brand and its products, the organization uses the relationship
barometer.

Here, the company studies the customer’s perception based on the criteria like organization’s core values,
system, policies, structure, customer orientation strategy, technology, personnel attitude, knowledge, skills
and behaviour.

Marketing Audit:

Like accounting audits, marketers carry out marketing audit to get a clear picture of the company’s
performance while executing the various marketing operations.
It is a systematic record which periodically examines the problem areas and provides for the means of
rectification, to overcome the weakness by utilizing the organizational strength and grab the current
opportunities.
Marketing Control Process

Marketing control is a systematic and integrated process. A marketer follows the following steps while
exercising control over the marketing operation in an organization:

1. Determining Marketing Objectives: The initial step in marketing control is the setting up of the
marketing goals, which are in alignment with the organizational objectives.
2. Establishing Performance Standards: To streamline the marketing process, benchmarking is essential.
Therefore, performance standards are set for carrying out marketing operations.
3. Comparing Results with Standard Performance: The actual marketing performance is compared and
matched with the set standards and variation is measured.
4. Analyzing the Deviations: This difference is then examined to find out the areas which require
correction, and if the deviation exceeds the decided range, it should be informed to the top
management.
5. Rectification and Improvement: After studying the problem area responsible for low performance,
necessary steps should be taken to fill in the gap between the actual and expected returns.

Thus, marketing can be seen as a complete function, which needs to be performed successfully through
proper control over the related activities, to ascertain the achievement of the set goals and objectives.

Sales Control
Sales control ensures the productivity of the sales force and its mechanism varies from companies to
companies. Control on sales force keep them alert, creative, active and make consistent them in their actions.
An effective and suitable sales control system is essential for both companies as well as salespeople.

However, a sales control system should be devised with care because the too liberal or too strict system can
be damaging for your sales team’s performance. you should design an appropriate controlling system only
after analyzing the nature of your salespeople, the degree of cooperation, type of work, and other all relevant
variables.

Keep one thing in mind that control is not for finding the faults of others or keeping them down by punishing
them. On the other hand, control is necessary to keep your sales team on the right track and help them to
uplift themselves. You keep an eye on the actions of the team members of your
sales team and prevent them from making unnecessary mistakes and teach them to take corrective actions
whenever required.

Therefore, we can say that the right definition of sales control is to analyzing and measuring the performance
of sales force and comparing it with the standard performance, noticing and pointing deviation and
determineits causes, and taking suitable corrective steps to tackle with different situations. Mostly time, sales
volume, discipline, expenses, and activities, etc. are considered bases for analyzing and comparing
performances of team members.

Sales control is important

The control over the activities of salespersons is exercised by the manager through supervision. The
annual target can only be achieved only when all activities are carried out as per plan. Following are the
reasons that show why sales control is important.

i) No matter the salesman works independently or works at longer distances from the manager. In such
scenarios, problems of coordination might arise with a manager or with other salesmen. Therefore, in such
scenarios, control is necessary.

ii) it is important to keep the transparency of all the actions of a salesman with the manager so that negative
deviations can be analyzed and corrected.

iii) it is important to direct the efforts of a salesman to maximize the profitability and ensuring maximum
utilization of men and material.

iv) Customers are most valuable for every business. therefore, it is important to address the problems and
complains made by customers. in this way, the positive image of the organization can be made in the market.
the sales manager should direct salesmen to keep customers on top of their priority and keep them happy and
satisfied.

Sales controlling process is consist of four steps. In this section, you will learn about all of them in detail.

Steps in Sales Control

1) Setting sales Force Standards

A standard is a target against which the performance of a salesperson can be measured. It can be used for
comparison and usually, supervisors insist to follow the standards. It is important that the standard should be
realistic and achievable. A very high standard is of no use as it will be unattainable and will only
demotivate people.

Standards should be designed by keeping in mind the resources of an organization and it is important that
standards must be set in numerical or measurable value. for example, 1 crore standard sales per annum, 5
lakhs standard profit per annum, or minimum 4% reduction in cost. Most of the times, it becomes difficult to
put the standards in numerical terms.

For example, the quality standard for work or quality standards for managerial works, etc. it is important to
specify a time limit within which standards must be achieved and standards must be kept for a short period of
time.

For example, if a company has set a standard of sales of $12,00,000 per annum then sales of $1,00,000
should be set as a standard for sales every month. The advantage of having short term targets is that the
issues or problems can be detected in the early phase and dealt fast.

In addition to this, standards can be revised from time to time and can be changed according to the situation.
For example, in festival season such as Christmas, there are some companies which make more business than
the others.

2) Measuring Actual sales Performance

once the standards are set for salespeople to follow their performance is measured on the basis of work done
by them. A performance which can be measured in numbers is usually easy to measure than the other
performances. However, measuring qualitative as well as quantitative performance is equally important. It
should be considered ethical to achieve quantitative standards by ignoring qualitative standards.

Therefore, it is important to fix certain quality standards so that performance can be measured easily when
the number of rejections sales returns increase. The performance of a manager is measured on the basis of the
overall performance level of the department. It is important to measure the performance in a short period of
times to get an accurate estimation.

3) Comparing actual Performance with Standards

to measure and analyze the performance of a salesperson, it is important to compare the actual performance
with the standard performance. if both performances match the controlling functions cease there.

However, in the case of mismatch manager puts efforts to find out the reason behind the deviation in
performance. a minor deviation in performance can be ignored, however, strict actions should be taken when
there is a major deviation between both actual and standard performances.

4) Correcting Deviations and taking Follow-up actions

it is important to take all major deviations in the eyes of top management. The deviation can be divided into
two categories such as critical point control and management by exception.

Methods of Controlling Sales Force

There are different types of sales force controlling methods to control the efforts of the sales force. However,
these methods are not ideal for all organizations and scenarios. Applicability of a controlling method depends
on criteria, areas, and different aspects used for measuring and comparing.

Followings are the widely used sales force controlling methods

1) Establishing sales Territories

Establish sales territories for the members of your sales force. In this way, they will not be competing with
one another and focus entirely on their getting leads and making more and more sale. In addition to this,
when the territory is well-defined to the members of the sales the chances of missing out on potential
customers reduce and it also becomes easy for a salesperson to establish a relationship with customers to the
future business.

2) Allocation of sales Quota

most sales driven businesses define sales quota to each of its employees before one financial year. Sales
quota gives a goal to the salesperson to work on and also help the company to keep the estimation of revenue
generation by the end of a financial year.

The performance of a salesperson can be measured on the basis of sales made by them. However, sales quota
varies from one sales person to another salesperson as depending on the area allotted to them
and products sold by them.

3) Maintaining contact with a salesperson

it is important to keep constant contact with the members of the sales of your sales team. In this way, you can
keep them motivated and also can help them to solve issues that they face in cracking sales deals.The sales
person can be contacted through phone calls or by face-to-face meetings.

4) Determining authorities and rights of salespersons

it is very important to make your sales team members aware of the rights and duties they have. By being
aware they can perform their job better and efficiently.

5) Salesman’s Reporting

Reporting is one of the most famous and used methods to keep track of the performances of salespeople. You
should make clear how and when they should report to their subordinators.
6) Complaints and Objection Notes

it is important to keep track of complaints and objection made by both salespersons as well as customers.
reacting to complaints and objections will eventually help you to improve your work and services provided
by your sales team.

7) Analyzing Sales Expenses

Salespeople are usually allocated limited expenses every day so that they can reach customers without many
difficulties.However, some salespersons are known to take advantage of this facility. Therefore, expenses
submitted by them should be analyzed properly before approving them.

8) Observation and visits and field trips

Managers usually stay in touch with their team members over phone and emails. However, it is important
that you should go out on field trips with your team members at least once in six months.

This can help you to analyze how your team members are performing and what is their relationship with your
customers. on the other hand, you will come to know about the hardships that your team members face while
working in the field. This can make you more empathetic towards them.

9) Providing sufficient sales tools:

Sales tools are important for salespeople to make sales efficiently. Sales tools include material and literature
like sales manual, sales literature, order forms, visiting cards, and small video clips to teach them to make
sales effectively.

E commerce and entrepreneurship

E-commerce sales are projected to grow 85 percent from their 2019 totals by 2022, according to a report
from Statista. With financial odds like that, an online entrepreneur who is armed with a lot of knowledge, a
good work ethic, and a powerful passion absolutely can be successful in today's marketplace.

Today, questions about e-commerce usually center around which channels are best to execute business
online, but one of the most burning questions is the appropriate spelling of e-commerce. The truth is, there
isn’t any one that’s right or wrong, and it usually comes down to preference.

Types of e-commerce

1. Business to Consumer (B2C): B2C e-commerce is the most popular e-commerce model. Business to
consumer means that the sale is taking place between a business and a consumer, like when you buy a rug
from an online retailer.
2. Business to Business (B2B): B2B e-commerce refers to a business selling a good or service to another
business, like a manufacturer and wholesaler, or a wholesaler and a retailer. Business to business e-
commerce isn’t consumer-facing, and usually involves products like raw materials, software, or products
that are combined. Manufacturers also sell directly to retailers via B2B ecommerce.

3. Direct to Consumer (D2C): Direct to consumer e-commerce is the newest model of ecommerce,
and trends within this category are continually changing. D2C means that a brand is selling directly to
their end customer without going through a retailer, distributor, or wholesaler. Subscriptions are a popular
D2C item, and social selling via platforms like InstaGram, Pinterest, Facebook, SnapChat, etc. are popular
platforms for direct to consumer sales.

4. Consumer to Consumer (C2C): C2C e-commerce refers to the sale of a good or service to another
consumer. Consumer to consumer sales take place on platforms like eBay, Etsy, Fivver, etc.

5. Consumer to Business (C2B): Consumer to business is when an individual sells their services or
products to a business organization. C2B encompasses influencers offering exposure, photographers,
consultants, freelance writers, etc..

Examples of types of e-commerce:

1. Retail: The sale of products directly to a consumer without an intermediary.

2. Dropshipping: The sale of products that are manufactured and shipped to consumers via a third party.

3. Digital products: Downloadable items like templates, courses, e-books, software, or media that must be
purchased for use. Whether it’s the purchase of software, tools, cloud-based products or digital assets,
these represent a large percentage of ecommerce transactions.

4. Wholesale: Products sold in bulk. Wholesale products are usually sold to a retailer, who then sells the
products to consumers.

5. Services: These are skills like coaching, writing, influencer marketing, etc., that are purchased and paid
for online.

6. Subscription: A popular D2C model, subscription services are the recurring purchases of products or
services on a regular basis.

7. Crowdfunding: Crowdfunding allows sellers to raise startup capital in order to bring their product to the
market. Once enough consumers have purchased the item, it’s then created and shipped.

Top e-commerce companies:

 Alibaba: Launching in 1999, The Chinese company Alibaba is by far the world’s most successful e-
commerce company and retailer, hosting the largest B2B (Alibaba.com), C2C (Taobao.com), and B2C
  (Tmall) marketplaces across the globe. Their online profits have surpassed all US retailers – including
Walmart and Amazon – combined since 2015.
 Amazon: Amazon is the largest e-commerce retailer in the United States, and has changed the face of
retail so much that a burning question for most retailers is how to beat Amazon.
 Walmart: Once the top retailer in the US, Walmart has focused mightily upon their online business, with
great results, offering traditional retail sales, as well as grocery delivery and subscription services.
 eBay: One of the first e-commerce sites, eBay still dominates the digital market space, allowing for
businesses and individuals to sell their products online.

Benefits of e-commerce:

1. Convenience: Online commerce makes purchases simpler, faster, and less time-consuming, allowing for
24-hour sales, quick delivery, and easy returns.

2. Personalization and customer experience: E-commerce marketplaces can create rich user profiles that
allow them to personalize the products offered and make suggestions for other products that they might find
interesting. This improves the customer experience by making shoppers feel understood on a personal level,
increasing the odds of brand loyalty.

3. Global marketplace: Customers from around the world can easily shop e-commerce sites – companies are
no longer restricted by geography or physical barriers.

4. Minimized expenses: Since brick and mortar is no longer required, digital sellers can launch online stores
with minimal startup and operating costs.

Internet advertising
Internet advertising is a set of tools for delivering promotional messages to people worldwide, using the
Internet as a global marketing platform.

The Internet offers

vast opportunities to connect with potential customers, so let’s review some of the most influential types of
internet advertising on the market.

Search Engine Marketing

A search bar is the starting point of the users’ buyer journey. Entering a keyword, people focus mainly on the
first page results. Search engine marketing is all about getting your webpages to the top of the SERP (search
engine results page), whether in an organic or paid way.
Google Ads displays paid results based on the ad rank auction. Companies name their price for a particular
keyword, while Google analyzes the quality and relevancy of the content. Here is the formula of the ad rank:
Ad rank = cost-per-click bid × quality score.
 Below are the search engine ads for the query “Chelsea fan shop.” For the more popular keywords, there
might be up to four ads in the top section. But you already know this if you’ve ever searched on Google.

Email Marketing

This is a marketing approach based on communication via email. This type of internet advertising is one of
the oldest players on the field and the most adaptive one since email marketers are always searching for
innovations such as recently launched interactive amp emails.
You may personalize, segment, and A/B test your email campaigns to better target your audience.
Email marketing is the least obtrusive platform for advertising because subscribers willingly opt-in to receive
email newsletters and promotions; plus, they can opt-out anytime. The main idea of email marketing is to drive
warm marketing leads to the website, mixing promotions with valuable non-sales content.

Social Media Ads

This means advertising on socials like Facebook, Instagram, Twitter, Pinterest for B2C, and LinkedIn for
B2B. Companies tailor their news and promotions to the target audience via social media in two ways:

 Organically. If you produce kitchenware, you can post valuable content like hacks, exciting ways of
using your products, or some recipes to encourage shares and build an attractive brand image.
 Paid. In this case, you can use social media functionality for business by showing promotional posts
targeted to your audience based on age, gender, favorite activities, and other things they have in common.

Display Ads

40% of Americans avoid banner ads, wallpapers, pop-ups, flash, and video ads with ad-blocking software
due to the unsolicited nature of display advertising. Furthermore, many non-blockers unconsciously ignore the
information in the ads because of a psychological phenomenon called “banner blindness.” Since the mid-
1990s, display advertising has gained a negative reputation for being annoying media. Unless ads are highly
relevant to the user, they are largely ignored or worse, totally invisible via ad-blockers.

Website owners with massive traffic to their site want to monetize it, so they sell some of their space with
Google AdSense, while the advertisers buy it with Google Ads. Google shows relevant ads based on two
pricing approaches: CPC (cost per click) and CPM (cost per thousand views), and allows companies to retarget
their promotions.

Native Advertising

In a way, this is a non-irritative alternative to the display ads. Companies pay popular sites like Buzz Feed,
Bored Panda, and the New York Times for placing promotion materials in their publications. As long as it
happens in an entertaining and casual manner, the readers don’t realize they’ve actually been advertised to —
that’s why this phenomenon is called “native.”

It’s like putting a replica of the stone in the Japanese stone garden: no one knows it’s plastic because it looks
natural. The example below is nominal, since any of these articles may contain plastic stones.
 Video Advertising

As the name suggests, these ads are in a video format and placed on services like YouTube, Vimeo,
DailyMotion, and Vine. This is an expensive type of advertising but also an effective one, since high-quality
videos may go viral. A video advertising campaign called “Save The Ocean” encourages people to join the
company that aims to reduce water pollution.

Web Push

This technology allows you to grab users’ attention whenever they are online. These messages appear in the
corner of your screen, and a click on it redirects a user to a particular webpage. For example, a coffee shop can
send you a morning notification about the 20% discount for making an order before 10 am. Users subscribe
to push notifications to stay in touch with the brand and be the first to know the news and updates.

If you own a news resource, you can also take advantage of web push monetization. It means that your
subscribers will receive relevant materials from other companies from you in the form of web push
notifications together with your promotions.

Mobile Advertising

This type of advertising appears on smartphones and tablets. Companies can advertise with SMS after the
user opts-in or with display ads in the browser optimized for mobile devices. If you run a shoe shop, mobile
ads are especially good for advertising to the local audiences with the time-sensitive offers. You can
create SMS campaigns in no time with SendPulse, and their open rate is extremely high: up to 98%.

Advantages of internet advertising

 Easy global coverage. Nowadays, people have a habit of searching for information about products
and services via search engines like Google, Bing, and others. Internet advertising is a way to demonstrate
your offers in front of over 4.3 billion web users around the globe. You can easily target the entire world via
the Internet.
 Affordable for any budget. According to Seriously Simple Marketing, the minimum cost to reach an
audience of 2,000 is three times cheaper than traditional advertising methods, so any company from a small
family business to a huge enterprise can utilize online ads and get the most out of their financial resources.
 Drives traffic to a website. The more visitors you get to the site, the more potential customers you
have, which will result in increased sales. Internet advertising aims to attract users’ attention and send them to
your website. The offers displayed in the digital ads should arouse curiosity and give people a good reason for
clicking through your site.
 Allows targeting. Unlike traditional marketing media that advertises to everyone without filtering,
internet advertising tailors the message to a specifically targeted audience — people who are most likely
to convert into customers. For instance, a travel equipment company may use social media ads for advertising
to users who are keen on travel, encouraging likes and shares.
 Enables retargeting. Internet advertisements are a way to say, “hey, looks like a couple of days ago
you checked out this toaster. I’ve got a marvelous one for you here!” If many prospects visit your household
 

 appliances online store without buying anything, remind them about your brand with banner ads
displayed on websites they browse.
 It allows you to create various touchpoints with your audience. Internet advertising helps you to
appear in the right place at the right time to communicate with your audience. If you own a small bakery, use
socials like Instagram and Pinterest to demonstrate the products. To share news, and build long-lasting
relationships with your audience, reinforce them with email marketing. By mixing different types of digital
advertising wisely, you can show that your company is always present and ready to be of service.
 It is measurable. Unlike offline marketing, where the cost and effectiveness are somewhat
approximate, you can precisely track the return on your efforts and internet marketing efficiency with web
analytics platforms like Google Analytics.

Disadvantages of internet advertising

The main challenges associated with advertising online include fierce competition, the cost of mistakes,
complicated analytics, and ad blindness. Let’s have a closer look.

 High competition. Of course, this depends on your niche, but if you haven't invented something new,
you'll have to compete for clients' attention. This market is oversaturated, especially for eCommerce
businesses, so you need to put your customers' needs upfront and regularly improve your product to make it
competitive.
 Mistakes are expensive. Targeting wrong people, selecting highly competitive keywords, and
leaving your ad campaign running after turning it off are the most common mistakes that can cost you a
fortune. To eliminate these mistakes, you need either a top specialist or a lot of experience. Both variants
require investments.
 Complicated analytics. To analyze the performance of your ads, you need a third-party platform like
Google Analytics and some experience to interpret the results correctly. Medium-sized enterprises and big
brands have analysts to make the ads more targeted and effective.
 Ad blindness. This term is related to banner blindness. Users see advertising almost every time they
open a web page. For this reason, they simply ignore banners without even noticing them. To fight this, make
sure that your banners target the right people who need your offer.
 New venture expansion strategies and issues

Definition: The Expansion Strategy is adopted by an organization when it attempts to achieve high growth as
compared to its past achievements. In other words, when a firm aims to grow considerably by broadening the
scope of one of its business operations from the perspective of customer groups, customer functions, and
technology alternatives, either individually or jointly, then it follows the Expansion Strategy.

The reasons for the expansion could be survival, higher profits, increased prestige, economies of scale, larger
market share, social benefits, etc. The expansion strategy is adopted by those firms that have managers with a
high degree of achievement and recognition. They aim to grow, irrespective of the risk, and the hurdles
coming in the way.

The firm can follow either of the five expansion strategies to accomplish its objectives:

Expansion through Concentration

Expansion through Diversification

Expansion through Integration

Expansion through Cooperation

Expansion through Internationalization

Expansion through Concentration-

The Expansion through Concentration is the first level form of the Expansion Grand strategy that involves
the investment of resources in the product line, catering to the needs of the identified market with the help of
proven and tested technology.

Simply, the strategy followed when an organization coincides its resources into one or more of its businesses
in the context of customer needs, functions, and technology alternatives, either individually or collectively, is
called expansion through concentration.
 Market penetration strategy: The firm focusing intensely on the existing market with its present product.
 Market Development type of concentration: Attracting new customers for the existing product.
 Product Development type of Concentration: Introducing new products in the existing market.
The firms prefer expansion through concentration because they are required to do things what they are
already doing. Due to the familiarity with the industry the firm likes to invest in the known businesses rather
than a new one. Also, through concentration strategy, no major changes are made in the organizational
structure, and expertise is gained due to an in-depth knowledge about one or more businesses.

However, the expansion through concentration is risky since these strategies are highly dependent on the
industry, so any adverse conditions in the industry can affect the business drastically. Also, the huge
investments made in a particular business may suffer losses due the invention of new technology, market
fickleness, and product obsolescence

Expansion through Diversification –

Expansion through Diversification is followed when an organization aims at changing the business definition,
i.e. either developing a new product or expanding into a new market, either individually or jointly. A firm
adopts the expansion through diversification strategy, to prepare itself to overcome the economic downturns.

Generally, the diversification is made to set off the losses of one business with the profits of the other; that
may have got affected due to the adverse market conditions.

Expansion through Integration means combining one or more present operations of the business with no
change in the customer groups. This combination can be done through a value chain.

The value chain comprises of interlinked activities performed by an organization right from the procurement
of raw materials to the marketing of finished goods. Thus, a firm may move up or down the value chain to
focus more comprehensively on the needs of the existing customers.

1. Concentric Diversification: When an organization acquires or develops a new product or service that are
closely related to the organization’s existing range of products and services is called as a concentric
diversification. For example, the shoe manufacturing company may acquire the leather manufacturing
company with a view to entering into the new consumer markets and escalate sales.
2. Conglomerate Diversification: When an organization expands itself into different areas, whether related or
unrelated to its core business is called as a conglomerate diversification. Simply, conglomerate
diversification is when the firm acquires or develops the product and services that may or may not be related
to the existing range of product and services.
Expansion through Integration

Definition: The Expansion through Integration means combining one or more present operation of the
business with no change in the customer groups. This combination can be done through a value chain.

The value chain comprises of interlinked activities performed by an organization right from the procurement
of raw materials to the marketing of finished goods. Thus, a firm may move up or down the value chain to
focus more comprehensively on the needs of the existing customers.

The expansion through integration widens the scope of the business and thus considered as the grand
expansion strategy. There are two ways of integration:

Vertical integration: The vertical integration is of two types: forward and backward. When an organization
moves close to the ultimate customers, i.e. facilitate the sale of the finished goods is said to have made a
forward integration. Example, the manufacturing firm open up its retail outlet.

Whereas, if the organization retreats to the source of raw materials, is said to have made a backward
integration. Example, the shoe company manufactures its own raw material such as leather through its
subsidiary firm.

Horizontal Integration: A firm is said to have made a horizontal integration when it takes over the same
kind of product with similar marketing and production levels. Example, the pharmaceutical company takes
over its rival pharmaceutical company.
Expansion through Cooperation-

The Expansion through Cooperation is a strategy followed when an organization enters into a mutual
agreement with the competitor to carry out the business operations and compete with one another at the same
time, to expand the market potential.

The expansion through cooperation can be done by following any of the strategies as explained below:

Expansion through Cooperation

Merger: The merger is the combination of two or more firms wherein one acquires the assets and liabilities
of the other in the exchange of cash or shares, or both the organizations get dissolved, and a new organization

came into the existence. The firm that acquires another is said to have made an acquisition, whereas, for the
other firm that gets acquired, it is a merger.

Takeover: Takeover strategy is the other method of expansion through cooperation. In this, one firm
acquires the other in such a way, that it becomes responsible for all the acquired firm’s operations.The
takeovers can either be friendly or hostile. In the former, both the companies agree for a takeover and feel it
is beneficial for both. However, in the case of a hostile takeover, a firm tries to take on the operations of the
other firm forcefully either known or unknown to the target firm.

Joint Venture: Under the joint venture, both the firms agree to combine and carry out the business
operations jointly. The joint venture is generally done, to capitalize on the strengths of both the firms. The
joint ventures are usually temporary; that lasts till the particular task is accomplished.

Strategic Alliance: Under this strategy of expansion through cooperation, the firms unite or combine to
perform a set of business operations, but function independently and pursue the individualized goals.
Generally, the strategic alliance is formed to capitalize on the expertise in technology or manpower of either
of the firm.

Expansion through Internationalization –

The Expansion through Internationalization is the strategy followed by an organization when it aims to
expand beyond the national market. The need for the Expansion through Internationalization arises when an
organization has explored all the potential to expand domestically and look for the expansion opportunities
beyond the national boundaries.

However, going global is not an easy task, the organization has to comply with the stringent benchmarks of
price, quality, and timely delivery of goods and services, that may vary from country to country.
1. International Strategy: The firms adopt an international strategy to create value by offering those products
and services to the foreign markets where these are not available. This can be done, by practicing a tight
control over the operations in the overseas and providing the standardized products with little or no
differentiation.
2. Multidomestic Strategy: Under this strategy, the multi-domestic firms offer the customized products and
services that match the local conditions operating in the foreign markets. Obviously, this could be a costly
affair because the research and development, production and marketing are to be done keeping in mind the
local conditions prevailing in different countries.
3. Global Strategy: The global firms rely on low-cost structure and offer those products and services to the
selected foreign markets in which they have the expertise. Thus, a standardized product or service is offered
to the selected countries around the world.
4. Transnational Strategy: Under this strategy, the firms adopt the combined approach of multi-domestic and
global strategy. The firms rely on both the low-cost structure and the local responsiveness i.e. according to
the local conditions. Thus, a firm offers its standardized products and services and at the same time makes
sure that it is in line with the local conditions prevailing in the country, where it is operating .