ED/U3 Topic 2 Steps involved in starting enterprise
Who do establish small business enterprises? Broadly, there are two types of people who establish small enterprises. One people who want to take the advantages of opportunities available. Two, people who have no option for making a livelihood.
These two types of entrepreneurs are also termed as ‘entrepreneurs by choice’ and ‘entrepreneurs by compulsions’ respectively. Starting an enterprise is not so simple and cannot be set up just. In fact, there are several steps involved in setting up a small business enterprise.
Following are the major ones:
(i) Information Collection
(ii) Information Organization
(iii) Acquiring Required/Vocational Skills
(iv) Financial Requirements
(v) Market Assessment
(vi) Provision for Crisis
(i) Information Collection:
The first step involved is to decide which enterprise one wants to set up. This begins with collecting information about the units already working in that field of concern. This can be done by various ways such as going through the telephone directories or by visiting the registrar’s office of the small-scale units.
This will enable the prospective entrepreneur to make an assessment of the present market situation in that business activity. Based on this information, they can weigh the pros and cons involved in entering into that business activity.
For example, they can come to know that the medical transcription and call centers have been doing very well in the service sector enterprises in the country. This is because of high labour cost in high income countries; the multinational companies have gradually started shifting their labour-intensive manufacturing activities to the developing countries.
In view of this, there is a great opportunity to tap those products which would be outsourced by the Multi-National Companies (MNCs) through quality vendors. Similarly, the rapid increase in the tourist influx in Jammu & Kashmir due to improvement and restoration of peaceful law and order situation indicates very good prospects for service providing enterprises like travel, tour, and hospitality industry in the region.
(ii) Information Organization:
Having collected information about enterprise concern, the prospective entrepreneur needs to organize the same in an orderly and systematic manner to derive the meanings from them. This will help to make assessment about the minimum requirements to start an enterprise in a particular business line.
Here, one generally undertaken exercise is to prepare a checklist for ready reference of all required and available resources in terms of space, fund, training and development, and manpower requirements. Once this exercise is over, the step involved will be to prepare a summary of how the checklist will be transformed into the desired products and services. Here we are presenting you one exercise based on your above understanding.
Carefully go through the following example as a case, and then respond to the questions that follow:
Tarun Sony is the youngest son in a family of farmers near to Udhampur. They had so far earned enough money to sustain themselves respectfully in their society. But Tarun Sony, who has completed his Masters in Business Administration (MBA) from the Mata Vaishno Devi University, was not interested in joining the family age-old farming.
During his MBA, he has studied the rags to riches stories of some businessmen like Dhirubhai Ambani. Inspired from their life stories, Tarun also wanted to be a rich businessman. But he did not dare to speak of it with his family.
So he wrote all about his dream to his friend Ranjit Tiwari who stays in the nearby city of Jalandhar. Ranjit Tiwari based on his observations about his uncle’s very successful poultry farm suggested Tarun about opening a poultry farm in his village itself. Tiwari painted a “quick reward” picture of the poultry farm to his friend Tarun mentioning as eggs and hen will multiply so the money will also multiply from selling them.
Though Tarun had no idea at all about taking care of the hen and its eggs but he was so thrilled and fascinated by the idea given by Ranjit that he immediately bought 25 hens and kept them in a cage. Thus, this was the beginning of his enterprise.
Activity for you:
- Do you agree with Tarun Sony’s decision to start his poultry farm in this manner? Give reasons for your answer.
- What would you recommend other people like Tarun Sony interested in starting a poultry farm?
Here are some inputs that will help you answer the above questions:
- To open a poultry farm, one should have enough space to keep the well- ventilated cage racks.
- One should obtain adequate training in the field of poultry farming to be able to identify and select healthy chicks from the sick ones. He or she should also make provisions for hiring or purchasing an incubator.
- There should be easy availability of a Veterinary Doctor near the poultry farm. Sufficient funds should be available to buy checks and hens. Else it should be possible to seek financial assistance from external sources including family members, relatives, friends, and financial institutions.
- The marketing facilities should be conducive for the products.
(iii) Acquiring Required/Vocational Skills:
The third step is to understand the need for upgrading one’s vocational skills if it is a pre-requisite for your Small Enterprise Unit (SEU). The importance of acquisition of required skills is justified by the statement that “it is better to teach a man to fish than to provide him with fish everyday”.
There is a need to build on one’s strengths in order to gain and feel confident of implementing your project of setting an SEU. Awareness and training in required subject can remove structural barriers. You will feel sure of yourself in taking loans and as also taking risk. Risk is a part of setting up an SEU.
Once your clients have set up their SEU, updating themselves on the latest developments in the field should be a continuous process. They can also hire skilled workers and staff to carry out the major tasks at their SEU.
The following anecdote will exemplify how acquiring required skills on continuous basis is necessary for survival and growth of business.
Akshita Arora was a good tailor. She stitched clothes for her family and friends. She decided to open a boutique, as a SEU. She took a room on rent near her apartment in Patpaprganj (Delhi) and shifted all her tailoring material and her machine to it. She started receiving orders.
In the beginning she was satisfied with her work slowly her clients stopped coming to her as she had been cutting out clothes in the same design. Because she lacked creativity and never felt, the need to upgrade herself of the new trends in fashion. Added to these is her simple sewing machine. Her business has come almost to closure.
Give you views about the following issues:
- Where did Akshita go wrong? Discuss.
- As Akshita did not try to upgrade her skills in dress designing in order to keep with the latest trends. What should she do now? Suggest three ways for reviving her SEU.
As a hint for you, following are some of the ways that can help Akshita at her SEU:
- She should go in for a short-term course in Dress Designing.
- She should seek financial assistance for buying a latest model of sewing machine with lots of attachments.
- She should do some publicity for her boutique in order to get more clients.
Suggest Akshita some ways of publicity to gain popularity for her boutique.
(iv) Financial Requirements:
The fourth step involved is ascertaining the financial requirements for setting up a small business enterprise. This is particularly important because generally small entrepreneurs do not have their own funds. Hence, they depend upon borrowed funds from family members or relatives or friends or financial institutions.
While planning for finance, the prospective entrepreneur needs to consider issues like sources, availability, estimation and management of working capital. One should have the basic knowledge of preparing income and expenditure statements.
One should also go for insurance cover provided by the concerned financial institutions. Providing financial services in a commercial way is gaining a lot of credence these days. There are well-planned credit schemes for small enterprises available offered by the banks and co-operatives.
(v) Market Assessment:
No business enterprise can be thought of without market. Enterprise exists, survives and thrives because of market. Production has no value or meaning if it is not sold /marketed. Therefore, while planning for establishing a small business enterprise, the prospective entrepreneur needs to know who will buy his/her product.
Here, the trite saying about the importance of market seems worth citing: “A manufacturer of iron mails must know before manufacturing who will buy his/her iron nails.” In sum and substance, a prospective entrepreneur needs to identify market for his/her product before it is actually produced. Market survey or market research helps the entrepreneur assess market for his/ her product. How much significance market assumes in success and failure of a product is exemplified with the story of a young entrepreneur Pradeepta Sethi.
The story runs like:
It was two years ago that I (Prdeepta Sethi), along with two similar minded guys Rajat Setia and Padmini Jindal started the computer software company in Bengaluru. Our primary aim was to go beyond being just a service company that sub-contracts work from the United States (US) on the basis of cheap labour available in India.
We finally decided on creating software for automating the unorganized sector of cyber cafes. Funding for the same came from two sources: personal and through the loans from private investors in the ratio 30:70. As all three of us have sufficient technical knowledge and skills, the biggest stumbling block we faced was the marketing of our product.
We suffered from marketing problem to the extent that we incurred loss for the three consecutive years. There were moments when we were thinking to shut down the business. However, we have by now gained some market knowledge and we have also engaged some market survey agencies to find out market for our product.
The results have started coming in. Last year, we have earned sizeable profit and we are hoping to double our profit this year. This was mainly due to new markets we identified both within and outside India. We have just started our second business unit in Hyderabad. We hope we may expand in all metro cities of our country by year 2020.
(vi) Provision for Crisis:
The last but not the least step involved in setting up a business enterprise is the preparedness to manage crisis situations, if any. Yes, some may not consider it as a necessary step because foreseeing any crisis and its handling is simply an additional step.
Even many may view why to think in a negative way for the worst which may not happen at all. Admitting that optimism helps, there is no harm in being prepared for any eventuality, if it arises. It is always useful to remain prepared for something unexpected in terms of resources, policies, finances and natural calamities takes place. Seeking insurance cover is the best way to deal with these situations.