How to be an entrepreneur

INTRODUCTION

"In general, entrepreneurs are risk-bearers, coordinators and organizers, gap-fillers, leaders, and innovators or creative imitators. Although this list of characteristics is by no means fully comprehensive, it can help explain why some people become entrepreneurs while others do not. Thus, by encouraging these qualities and abilities, governments can theoretically alter their country's supply of domestic entrepreneurship" - David C Burnett, technopreneurial.com

Do a search for 'entrepreneurial' on amazon.com and you'll be confronted by an impressive 81 choices when it comes to reference material, 48 choices when it comes to professional and technical books and 176 books on business and investing.

Yet, if becoming an entrepreneur is down to a mysterious 'X' factor, surely these volumes and tomes with case studies and lessons from business leaders serve no real purpose? Or, is it the case that an entrepreneurial tendency, like genius, is a case of one percent inspiration, 99 percent perspiration?

How to be an entrepreneur?

Will formal educational components or running classes help spawn a new generation of entrepreneurs? Formal education isn't really that important, opines Chang, who thinks that 'spoon feeding' may actually end up killing an individual's entrepreneurial spirit rather than encouraging it. While not disagreeing with the value of formal courses, Chang reckons lessons aren't that important since there's no rocket science behind becoming an entrepreneur: "All you need is a basic business sense of Revenue - cost = Profit!" he points out.

Net Value’s Karamjit Singh on the other hand is all for making entrepreneurial studies a part of the educational curriculum but suggests it only be offered to those who show a keen interest in it.

Lesson or no lessons, the business world is replete with examples of successful businessmen and heads of world-class companies that made it with sheepskins on the wall and without - look no further than the Ambani’s, Tata’s, Bajaj and so on. Perhaps what truly makes an entrepreneur is not in education, in socio-economic status or a mysterious 'x' factor, but in a willingness to make the attempt, to take the first step. As Thomas Alva Edison, founder of General Electric and inventor of the light bulb put it: " I have far more respect for the person with a single idea who gets there than for the person with a thousand ideas who does nothing."

Let us now have a look at the quick start routes available to an entrepreneur.

INCUBATION OF ENTREPRENEUR

A researcher has a breakthrough in the lab but doesn't quite know how to commercialize the discovery as a lifesaving product. A welfare mother has an idea for a business, but the bank offers no encouragement and certainly no money. A town loses a major company, and no amount of effort can attract another firm to take its place. What now?

In hundreds of communities in the United States and thousands around the world, the answer to that question has been a business incubation program. Business incubation helps:

• Create new businesses

• Accelerate their growth

• Create more jobs

• Diversify the job base

• Make local economies more robust

• Build a business environment that supports new companies

Business incubators, which provide comprehensive support to companies in their startup stages, help entrepreneurs achieve their dreams, and help communities develop more vibrant economies. The incubation process begins with an analysis of what a company needs and ends with that company "graduating" to become solid and independent. In between, the company receives tailor-made services that point it toward success.

The aim of the incubator is to give these new entrepreneurs the help they need. Client companies obtain such services as hands-on help forming a business team, access to financing, flexible space in which to grow, legal, marketing, and fiscal advice, and seminars on special topics.

Creating Businesses, Therefore Jobs A business incubator provides business assistance to early-stage companies, has staff who deliver and coordinate business assistance services, and leads companies to become self-sufficient. No two incubators accomplish the goals in the same way. In fact, it is flexibility and ingenuity that have made incubators work in rural, urban, and suburban communities. Adaptability is why business incubation has been effective for technology, service, manufacturing, and "mom-and-pop" companies.

Increasing Company Success

Incubators provide a whole menu of services to companies accepted into the program. These might include marketing assistance, help in getting ready for financing (or perhaps an in-house loan program), innovation assessment, legal direction, help with intellectual property issues, one-on-one mentoring, use of lab space, help with building a management team, venture capital forums, and much more.

What types of business assistance make a fledgling company strong? There is no one answer, which is why incubation programs first assess incoming companies to determine their strengths and weaknesses. Incubators also set policies about what a company must already have in place, such as a business plan. Or they might look for tangible signs of a client's personal and financial readiness: Does someone in the client's household have a "day job." Is the client willing to invest some of his or her own assets in the venture? Does the client have a concrete understanding of the time and strain involved in launching a brand-new company?

Working for all Types of Entrepreneurs

Incubator companies come in all sizes and represent every industry imaginable. The entrepreneurial spirit cuts across every line: regional, gender, religions, ethnic, economic, ability----you name it. When you look at the success stories of incubator graduates, it's evident that they're in no danger of becoming stereotyped. Nor do incubator clients' origins predict how far they'll go. As one incubator director puts it, every program should seek to turn out major leaguers. Incubators that have brought every resource to bear have done just that.

Moving Ideas from the Lab to the Marketplace

Technology incubators are the fastest growing segment of the industry and a diverse force covering every type of business from software to heart surgery. Like all incubators, they foster growth of new companies--but with particular challenges. Technology entrepreneurs may need access to specialized facilities, for instance, or a beta test site for their technology. Intellectual property protection is the key, as is the ability to finance very-early-stage product or process development---not something that conventional financiers care to do.

Revitalization

Nothing rattles a community more than the loss of jobs due to Government cutbacks and corporate downsizing. Business incubation programs can be a viable part of strategies in those communities to rebuild the business substructure, and they sometimes take the lead. Communities in transition that have developed strong incubation programs report gratifying returns on their investments.

One of the most valuable assets business incubation gives to the community is a more diverse base of companies. A successful incubation program can help ensure a town will not be left hanging if one company moves out.

Bringing Special Focus

The most common incubators are known as mixed-use or general incubators. These accept many types of companies. As the industry matures, however, it's spawning more targeted programs. These may appear for practical purposes. For example, to accept biotechnology companies, an incubation facility must be appropriately specialized.

Industry-specific incubators also make concrete business sense. Some communities garner a competitive advantage by clustering related businesses. Thus is born the arts, multimedia, environmental, software, wood products, retail, garment, or high technology incubator.

STARTING WITH A SHOESTRING BUDGET

Does starting a business with a small amount of money sound too good to be true? No! There are many entrepreneurs who have successfully started their own businesses with little money. Some as low as Rs. 5000, yet they are now raking in money from their businesses.

The lesson is about doing things right! Of course, the ideal scenario is to start a business with enough money to enable you to move more aggressively and expand your business faster. But even if you do not have money, that should not prevent you from starting your own business. If you have great idea and a viable business plan, you can use Other People’s Money (OPM) to start your business. Or if you do not have access to OPM, you better learn how to tighten your belt and bootstrap your fledging business. Remember, while you may not be spending money, you still have to pay with something your time and energy.

Below are some of the rules that you need to follow to successfully launch a business with very little cash:

• Think twice before borrowing. It would be ideal if you will not have to borrow money to start your business. After all, you want your own business to give you an additional source of income, if not the main paycheck. You do not need another bill to pay.

But sometimes, you really have to borrow money to keep going. A major reason why many small businesses fail is inadequate capital. If you really have to, you must be prepared to take on the right kind of debt. Not all debt is bad debt. You have to ensure that before taking on a debt, you must see a way to pay it back through your business.

• Be lean and mean. If you have limited capital, set aside any thoughts of a fancy store or great office. Start home-based and explore the advantages of working at home. Or if you must be “out there” selling your products, rent a small section at a flea market or fair. You may consider renting at the mall only when you see money coming in.

In terms of legal structure, you can save tons of money by starting as a proprietorship. A Corporation is expensive to set-up, requires vast amounts of record-keeping, and will tax you twice as an individual working for the business and as a corporation.

• Choose your business carefully. Your choice of business will spell the difference between making your business a success on a shoestring budget or not. Some businesses, such as a file storage facility, require enormous capitalization. Other businesses, like a wedding coordination business or a computer consulting business can be started on a thin budget. Choose a business that can be started even with little capital. If your dream business requires a significant investment to start, you may want to downsize your dreams first and start a business that you could afford to start. It may be a smaller version of your original vision, or another business interest altogether. This will allow you to acquire the needed entrepreneurial skills, learn how to start and run a business, and save enough capital for your dream business. Even if you are not able to save enough, your track record as a businessperson can make it easier to borrow loans from banks.

• Make sure that there is demand for your business. If you do not have enough resources, you have little room for trial and error. “Invest only in your best ideas.” Your business can only survive if it generates enough demand to sustain it. Be sure that the business you are about to start can give the results that you desire. Otherwise, you may even lose the very few resources that you have.

• Look Big. Many home business entrepreneurs are faced with the dilemma: “Should I tell my customers that I work solo from my kitchen"; or “Should I pretend that I am running a well-oiled machine?” In most businesses, your success hinges on how customers perceive your venture. Letting customers know that you a one-person home business may be the kiss of death for your fledging enterprise. Customers prefer dealing with a business that shows professionalism and ability to deliver what it promises, qualities often associated with large businesses.

Looking big does not necessarily mean spending tons of money. You can start with sharp looking business cards and stationery. If you have a web site, you can create one that looks just like one of the big boys. Your phones must be answered professionally as possible, making sure that no dogs can be heard on the background. As Steven Krauss further advises: “Until you do get big and have some money I have two words of advice for you: fake it!”

• Be creative. You will only survive as a boots trapper if you are able to use your wit and creativity to extend the meager resources that you have. As you start your business, you need to think ways to get things done, as cheaply and efficiently as possible. The less cash outlay, the better. After all, splurging on one aspect of your business say, buying a top of the line laptop computer may leave you with nothing to market your business. You need to be creative and resourceful in finding ways of stretching your thin budget. Need a business card? Vista Print offers 250 cards for free. If you need a web site, go to the public library, borrow books on Web design, and begin learning how to create Web sites.

One reality of having little cash is that you have little recourse in doing things. You do not have the luxury of a 30-man Web design team, or a battalion of sales people to sell your products. You have to force yourself to learn new things, and find ways to bring in the buck. If you want to survive, you need to rise above being a cash-dependent entrepreneur to a wit-dependent businessperson.

• Run your business with a passion. Starting a business is hard, doubly so if you have a limited capital. It is like going to a battle full of heart but with little ammunition. It doesn’t mean that you can’t win, but you have to act smartly, maximize your resources, and go after your goal with a burning passion. If you are passionate in what you do, you tend to work harder and go that extra mile. After all, you need to put in more time and effort to compensate for the lack of capital.

In your clothing business, for example, you will have to do the designing, sewing, finding and selling to buyers, and writing the press release to market the business. If you lack passion, you will not have the strength or the patience to do all these, and more. Passion will help you sustain your enthusiasm and energy to do what is required to get the business off and running. It is what sets successful boots trappers apart from other start-up entrepreneurs.

• Your customers are your gold mine. You may not have the resources to aggressively seek out new customers. Nor do you have the deep wallet to offer grandiose customer loyalty programs. But if you take care of your customers really, really well, then your customers will take care of you. Customers go back to businesses that offer them quality and timely service, help them make informed choices and make their lives easier.

Every business owner knows that the customer is king. If you do not have the money to easily acquire new business, you will make sure that you always roll out the red carpet for those that you already have.

FRANCHISING

Franchising may be defined as “an arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures.”

Person offering franchise is known as the Franchisor. The Franchisee is the person who purchases the franchise and is given the opportunity to enter a new business with a better chance to succeed than if he/she were to start a new business from scratch.

Franchising represents an opportunity for an entrepreneur to enter into business. In Franchising, the entrepreneur is trained and supported in marketing by the franchisor and will be using a name that has an established image. It is also an alternative means by which an entrepreneur may expand his/her business by having others pays for the use of the name, process, product, services and so on.

Advantages of franchising: (to the franchisee) one of the most important advantages of buying a franchise is that the entrepreneur does not have to incur all the risks associated with creating a new business. The other advantages are as follows:

Product Acceptance: The franchisee usually enters into a business that has accepted name, product or service. Here the franchisee does not have to spend resources trying to establish the credibility of the business. That credibility already exists based on the years the mother franchise has existed. e.g.: An entrepreneur who tries to start a sandwich shop would be unknown to the potential customers and would require significant effort and resources to build credibility and a reputation in the market. Whereas if he becomes the franchisee of Subway, the customers know him right from the start as credibility of Subway already exists.

Management Expertise: Another important advantage to the franchisee is the managerial assistance provided by the franchisor. Each franchisee is given training on all aspects of operating the franchisee like training in accounting, personnel management, marketing and production. e.g.: MacDonald’s, for example, requires all of its franchisees to spend time at its school, where everyone takes classes in these areas.

Capital Requirements: Starting a new venture can be costly in terms of both time and money. The franchise offers an opportunity to start a new venture with upfront support that could save the entrepreneur significant time and possibly capital. The only initial capital required to purchase a franchise generally reflects a fee for the franchise, construction costs and the purchase of equipments.

Knowledge of Market: The established franchise business offers the entrepreneur years of experience in the business and knowledge of the market. The knowledge is usually reflected in a plan offered to the franchisee that details the profile of the target customer and the strategies that should be implemented once the operation has begun.

Operating and Structural controls: the franchisor, particularly in food business identifies purveyor and suppliers that meet the quality standards established. In some instances, the suppliers are actually provided by the franchisor.

Administrative controls usually involves financial decisions relating to costs, inventory, cash flow and personnel issues such as criteria of hiring/firing, scheduling and training to ensure consistent service to the customers. These controls are usually outlined in a manual supplied to the franchisee upon completion of the franchise deal.

Advantages of franchising: (to the franchisor) Expansion Risk: The most obvious advantage of franchising for an entrepreneur is that it allows the venture to expand quickly using little capital. He can do so by authorizing and selling franchises in selected locations. The capital required for this expansion is much less than it would be without franchising.

Also operating a franchised business requires fewer employees than a non-franchised business. This allows the franchisor to maintain low payrolls and minimizes personnel issues and problems.

Cost Advantages: The mere size of the franchised company offers many advantages to the franchisees. The franchisor can purchase supplies in large quantities, thus achieving economies of scale that would not have been possible otherwise. The franchisee is usually required to purchase these items as a part of the franchise agreement and they usually benefit from lower prices. The other big cost advantage of franchising a business is the ability to commit larger sums of money to advertising. Each franchisee usually contributes a percentage of sales (1 – 2 %) to an advertising pool. This pooling of resources allows the franchisor to conduct advertising in major media across a wide geographic area. Otherwise if not franchised, the company would have had to provide for the entire advertising budget.

Disadvantages of franchising:

Franchising is not always the best option for an entrepreneur. Anyone investing in a franchise should investigate the opportunity thoroughly. Problems between the franchisor and franchisee are common and have recently begun to receive more attention from govt. and trade associations.

The disadvantages to the franchisee usually center on the inability of the franchisor to provide services, advertising and location. When promises made in the franchise agreement are not kept, the franchisee may be left without any support in important areas.

The franchisee may also face the problem of a franchisor failing or being bought out by another company. This causes many franchises to fail and eventually go in losses and finally closedowns.

On the other hand franchisor also incurs certain risks in choosing this expansion alternative. At time the franchisor may find it very difficult to find quality franchisees. Poor management, in spite of all the training and controls, can cause individual franchise failure and therefore can reflect negatively on the entire franchise system. Also as the number of franchises increases, the ability to maintain tight controls becomes more difficult.

Types of franchises:

There are 3 available types of franchises.

1. The first type is the dealership, a form commonly found in the automobile industry. Here, manufacturers use franchises to distribute their product lines.

These dealerships act as the retail stores for the manufacturers. The franchisee is benefited by the advertising and management support given by the franchisor.

2. The most common type of franchise is the type that offers a name, image and method of doing business like MacDonald’s, Subway, KFC and Holiday Inn.

3. The third type of franchise offers services. These include personnel agencies, income tax preparation companies, and real estate agencies. These franchises have established names and reputations and methods of doing business. In some instances, such as real estates, the franchisee has actually been operating a business and then applies to become a member of the franchise.

Investing in a franchise- Franchising involves many risks to an entrepreneur. Franchising, like any other venture, is not for the passive person. It requires efforts and long hours, as any business does, since duties such as hiring, scheduling, buying, accounting and so on are still the franchisee’s responsibility.

The entrepreneur should conduct a self-evaluation to be sure that using a franchise venture is right. Answering the following questions can help one determine if it’s the correct decision:

• Are you a self-starter?

• Do you enjoy working with other people?

• Do you have the ability to provide leadership to those who will work for you?

• Are you able to organize your time?

• Can you take risks and make good business decisions?

• Do you have the initiative to continue the business during it ups and downs?

• Are you in good health?

If you answered “yes” or “maybe” to most of the above questions, chances are you are making the right decision to enter a new franchise venture.

ANCILLARISATION

Ancillary Industries are units, which produce parts, components, sub – assemblies, and tooling and supply to one or more large units assembling complete products.

In legal framework Ancillary Industries are defined as: - “Undertakings having investments in fixed assets in plants and machinery not exceeding Rs. 15 lakhs and engaged in –

(a) The manufacture of parts, components, sub – assemblies, tooling or intermediates; or

(b) The rendering of services, and supplying or rendering or proposing to supply or render 50% of their production or the total service as the case may be, to other units for the production of other articles.

The programme of ancillarisation includes motivation of public and private sector units to offload production of components, parts, sub – assemblies, tools, intermediates, services etc. to ancillary units.

The programme of ancillary development has specific advantages both for large as well as small industries and also for the total economy of the country.

Advantages to large scale are in the form of: -

(a) Savings in investments,

(b) Inventories,

(c) Employment of labor,

(d) Getting items of desired specifications.

While, Advantages to ancillary units (Small Scale Units) are: -

(a) Getting assured market for their products,

(b) Availability of technical assistance,

(c) Improved technology from the parent units.

There are special facilities extended to ancillary industries: -

(a) Technical assistance through the ISI,

(b) Supply of machinery under the Hire – Purchase Scheme of NSIC; and

 (c) Allotment of factories in Industrial Estates.

A great difficulty was being experienced by most of the ancillary units in getting timely payments from their parent units. In order to provide help, in this regard, an Act has been passed under which interest is payable on the delayed payments by large undertakings. For providing advisory assistance, State Level Ancillary Advisory committees have been set up in almost all the States to provide infrastructure facilities and to recommend measures for the promotion of ancillary industry in the State.

Small Industry Development Organization (SIDO) is a nodal agency of the Central Government and Ancillary Division at Headquarters continued its function for the promotion of ancillarisation programme in the country. Constant liaison has been maintained with Administrative Ministries both at Central & State Levels, Department of Public enterprises, public/private sector undertakings and other industrial developmental agencies through various programmed such as Vendor Development Programmes, Buyer- Sellers Meet, Ancillary Exhibition, Seminars, Workshops, State Level Ancillary Advisory Meetings, Plant Level Committee Meetings and PSUs and visit to public/private sector undertakings for the promotion of small ancillary & sub-contracting units.

Sub-contracting exchanges are functioning as a part of major SISIs in the country at important cities for the promotion of fruitful and lasting contracts between large & medium undertakings and small scale ancillary units. The spare capacity for different facilities as available with the competent small scale units are registered with these SCXs. These SCXs also obtain such items from large units which are required by them and can be manufactured in the small scale sector. These SCXs organize contacts between Buyers & Sellers by way of organizing Vendor Development Programmes, Buyers & Sellers Meet and Exhibition, etc. Thus, the programme helps in the overall improvement of the economy of the country.

The lists of some ancillary industries are as follows: -

(1) Industrial Machinery

(2) Agricultural and Earth Moving machinery

(3) Machine tools and small tools

(4) Electrical and mechanical instruments

LEVERAGED BUYOUTS

A leveraged Buyout {LBO} occurs when an entrepreneur uses borrowed funds to purchase an existing business venture for cash. Most LBOs occur because the existing the entrepreneur purchasing the venture believes he or she could run the company more efficiently than the current owners. The current owner is frequently an entrepreneur or the other owner who wants to retire. The owner may also be a large corporation desiring to divest itself of a subsidiary that is too small or that does not fit its long – term strategic plans.

The purchaser needs a great amount of external funding since the personal financing resources needed to acquire the firm are limited. Since the issuance of additional equity as a means of funding is usually not possible, capital is acquired in the form of long term debt financing and the assets of the firm being acquired serve as collateral. Banks, venture capitalists & insurance companies are the most active providers of debt needed by LBOs.

In most LBOs, the debt capital exceeds the equity by 5:1, at times, 10:1. Hence, LBOs usually involve a financially stable and sound company. Most LBOs involve companies with a long track record of solid earnings, a strong management team and a strong market share position. This helps in reducing the failure of an LBO.

How does an entrepreneur determine whether a specific company is a good candidate for LBO???

1. Determine whether the present owners’ asking price is reasonable. Many subjective and quantitative techniques can be used, viz, competitiveness of the firm, stage in product life cycle, management abilities, price to earnings {P/E} ratio, etc.

2. After a reasonable purchase price is determined, he must assess the firm’s debt capacity. This is important as he wants to raise as much of the capital needed as possible in the form of long – term debt.

Once that is determined, development of appropriate financial packages takes place. It must meet the need & objectives of the providers of the funds and the company & entrepreneur’s situation.

LESSONS LEARNED THAT ARE THE RECIPE FOR START-UP SUCCESS

Large companies are downsizing. Reengineering is a common event. In response, people are seriously considering their own small or home business to avoid the dependence on an uncertain corporate world. In fact, a new small business is started every 11 seconds throughout the U.S. Many fail, but you can improve your odds by learning from the experiences of others. Here are "nine steps to success" that are based on many "real-life" lessons of successes and failures.

• Get Smart! Get Advice! You cannot be an expert on everything. Get assistance from as many sources as possible. Talk to your attorney, accountant, banker, friends, family and the competition.

• Plan: A major reason for business failure is lack of planning. Failing to plan is a plan for failing. Prepare a strategic plan for your business that clearly defines your mission, your present situation, your strategies, and where you want to be in the next three to five years.

• Protect Yourself: Before you start operations, make certain you are insured and protected legally. Select a business legal structure (talk to your attorney) and develop an insurance program (talk with an independent insurance agent).

• Hire Later: Delay hiring employees as long a possible. The legal complexities of hiring and maintaining employees (even one!) can be daunting and take up a lot of time. A better option is to "outsource."

• Use Technology: Operating without a computer will put you at an immediate disadvantage. It is simply too valuable as a time-saving tool. Don't be overwhelmed at the apparent complexity of a computer. Once you begin, it is quite easy to use. You will want a computer to take advantage of the Internet to send e-mail messages and search the World Wide Web for information.

• Persist: There will be good times and bad times. Be persistent and stubborn — view any failure as a learning experience and an opportunity for additional success.

• Visualize Success: Keep your goals in mind and expect that you will achieve them. Don't lose sight of your goal— keep pushing.

• Act on a Good Idea: Even a great idea is worthless if you don't do something with it.