THE START UP PROCESS OF A SMALL ENTERPRISE:Steps in Innovative Process

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SME Management (MGT-601)

Lesson 15

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

THE START UP PROCESS OF A SMALL ENTERPRISE

The challenges of starting a new enterprise from the stage of its conception till functioning are indeed

stupendous or multidimensional as indeed its contribution to the society in various forms such as

employment, economic growth, balanced development, equitable distribution of wealth etc. Success is a

slave to those who only correctly perceive the nature and intensity of problems that they are likely to

encounter but also plan appropriate remedial actions. This lecture is devoted to studying the following

(1) The Identification of New Venture Opportunities and

(2) The Field Problems of Starting a new Enterprise.

1. Identification of New Venture Opportunities

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

external resources include:-

I. Newspapers, trade journals, professional journals etc. which tell about trends in fashions, customs

and other social areas.

II. Professional magazines catering to particular interests such as electronics, computers, oils and

vanaspati etc.

III. Trade fairs and exhibitions displaying new products and services.

IV. Government agencies.

V. Ideas put forth by others.

Internal resources basically consist of storehouse of knowledge build up by an individual over the years.

An entrepreneur draws upon it and undertakes the following exercise:-

a) Analysis of concepts in the light of existing problems and their capacity to solve them.

b) Search of memories to find similarities and elements related to the concept and its problems.

c) Recombining the elements found in new and useful ways.

Steps in Innovative Process

1. comprehension of a need

Innovation follows from clear perception of a need that should be fulfilled. A number of products or

services have been developed from such a perception. These range from xerographic copying machine,

credit card, instant photography etc.

2. Collection of data and definition of concept.

3. Outlining the problem.

4. Searching memory for similarities that seem related to the concept and its problem.

5. Evaluating the possibility to combine similarities and related ideas.

6. Reaching tentative solution.

7. Critical scrutiny of solution.

8. Practical implementation.

Sources of Ideas for New Products

1. Necessity

It involves the identification of potential customer needs and then tailoring the product and services to

meet them.

2. Hobbies/ Personal Interest

For example, an aircraft designer working for a large company developed a catamaran for his own

pleasure. Later he was asked to build a similar catamaran for a friend. Gradually, it took the shape of a

successful business.

3. Watching Trends in Fashions and Customs

Alert observers of the fashion scene can capitalize the opportunity thrown by the change of fashion. Demand

for handcrafted jewelry, fast foods etc. have made many professionals in these fields.

Observing Other's Deficiencies

SME Management (MGT-601)

It helps improve performance or add desirable features, for instance, development of a key that would

identify the person and open the door only to him. It would sound an alarm if the door is forced open or in

case an improperly coded key is used.

5. Gap Filling

Business opportunities may be found to exist in reply to the question, why is not there a gadget for doing

this? Several products have been developed to fill up a felt gap. For instance, the difficulty of cleaning an

old paint brush has led to the discovery of a disposable paint brush with plastic handle into which a

polyurethane tapered brush can be inserted and later an discarded after finishing painting.

6. Novel Use of Known Products

With ingenuity, it is possible to think of new uses of existing products e.g. Use of flyash- a common effluent

in thermal plants, to make bricks and light-weight concrete etc. Similarly, rice husk (a common product in

rice sheller) could be used for making hardboards.

7. Ancillarisation

An entrepreneurially oriented brain can conceive new ideas or think of improvements in products with

which they are familiar: As a consequence, a unit ancillary of an existing industry could be started.

Pitfalls in Selecting New Venture Opportunities

(1)

Lack of objectivity

Some entrepreneurs get so obsessed with their idea that they overlook the need to scrutinize its feasibility.

No wonder such projects end up as failures.

(2)

Market Myopia

A shortsighted approach of concentrating on production rather than on marketability could lead to

avoidable disaster. An entrepreneur may fail to properly assess the market acceptability of his product. He

may not appreciate that no product can become instantaneously profitable or could have an endurable

success. Selection of the right time for introducing the product is important for its success. Action taken too

soon or too late results in failure.

(3) Inadequate Understanding of Technical Aspects

Technical difficulties involved in the production of a product are a time consuming and thorough job.

Inexperience in this area can prove quite costly and swamp a budding enterprise.

Improper Estimation of Financial Requirements

Sometimes in their enthusiasm to initiate an enterprise or due to pre occupation with other details,

entrepreneurs overlook the financial details. Later it could be the cause of either over capitalization or under

capitalization.

(4)Lack of Product Differentiation

To capture the market, the product should have distinctive characteristics in terms of design, utility and

other features. Assured superior performance over the products is essential to provide it a competitive edge.

Pricing is no problem in the case of such products. Product differentiation is essential so that the potential

customer could recognize the product merely by looking at it.

(5)Overlooking Legal Issues

A shrewd entrepreneur should be alive to meeting the various legal requirements. For instance, workers

should be provided with legitimate legal dues, consumers are provided with reliable and safe products,

Evaluation of New Venture Opportunities

A crucial task in starting a new business enterprise is the systematic analysis and evaluation of its feasibility

and long term profitability. Since a number of variables enter the calculations, the exercise is quite a

cumbersome one, a US study relating to the reasons for failure of new ventures has found that most of the

factors underlying the failure lie within the control of entrepreneur.

Following have been listed as the reasons for failure of new ventures:

I. Inadequate market knowledge regarding demand potential, the present and future size of market, the

market share, appropriate methods of distribution.

II.Faulty product performance due to hastily taken shortcuts in production, development, quality control

etc.

III.Ineffective marketing and sales efforts.

SME Management (MGT-601)

IV.Inadequate awareness of competitor's reactions e.g. price cuts, special discounts.

V.Rapid product obsolescence due to rapid technological advances in case of certain industries.

VI.Poor timing of starting a new venture e.g. introducing the product before the market has successfully

matured.

VII.Undercapitalization, unforeseen operating expenses, excessive investments and related financial

difficulties. Hence there is the need to undertake a comprehensive feasibility study in the following five

areas.

Key Terms

Myopia : Short sightedness of vision

Books References

Entrepreneurship and small business By C L Bansal

How to approach Banks By ITC (UNO) & SMEDA

Book Recommended

How to approach Banks By ITC (UNO) & SMEDA

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