Entrepreneurship is the practice of embarking on a new business or reviving an existing

business by pooling together a bunch of resources, in order to exploit new found

opportunities.
What is Intrapreneurship?: Intrapreneurship is the practice of entrepreneurship by
employees within an organization.
Difference between an entrepreneur and an intrapreneur:
An entrepreneur takes substantial risk in being the owner and operator of a business with
expectations of financial profit and other rewards that the business may generate. On the
contrary, an intrapreneur is an individual employed by an organization for remuneration,
which is based on the financial success of the unit he is responsible for. Intrapreneurs share
the same traits as entrepreneurs such as conviction, zeal and insight. As the intrapreneur
continues to expresses his ideas vigorously, it will reveal the gap between the philosophy of
the organization and the employee. If the organization supports him in pursuing his ideas,
he succeeds. If not, he is likely to leave the organization and set up his own business.
Example of intrapreneurship: A classic case of intrapreneurs is that of the founders of Adobe,
John Warnock and Charles Geschke. They both were employees of Xerox. As employees of
Xerox, they were frustrated because their new product ideas were not encouraged. They quit
Xerox in the early 1980s to begin their own business. Currently, Adobe has an annual turnover of
over $3 billion.
Features of Intrapreneurship: Entrepreneurship involves innovation, the ability to take
risk and creativity. An entrepreneur will be able to look at things in novel ways. He will
have the capacity to take calculated risk and to accept failure as a learning point. An
intrapreneur thinks like an entrepreneur looking out for opportunities, which profit the
organization. Intrapreneurship is a novel way of making organizations more profitable
where imaginative employees entertain entrepreneurial thoughts. It is in the interest of an
organization to encourage intrapreneurs. Intrapreneurship is a significant method for
companies to reinvent themselves and improve performance.
intraptreneurial startups were inclined to concentrate more on business-to-business
products while entrepreneurial startups were inclined towards consumer sales.
Another important factor that led to the choice between entrepreneurship and intrapreneurship
was age. The study found that people who launched their own companies were in their 30s and
40s. People from older and younger age groups were risk averse or felt they have no
opportunities, which makes them the ideal candidates if an organization is on the look out for
employees with new ideas that can be pursued.
Entrepreneurship appeals to people who possess natural traits that find start ups arousing
their interest. Intrapreneurs appear to be those who generally would not like to get
entangled in start ups but are tempted to do so for a number of reasons.
Examples of Intrapreneurs:
A lot of companies are known for their efforts towards nurturing their in-house talents to
promote innovation. The prominent among them is “Skunk Works” group at Lockheed Martin.
This group formed in 1943 to build P-80 fighter jets. Kelly Johnson was the director of the
project, a person who gave “14 rules of intrapreneurship”.
At “3M” employees could spend their 15% time working on the projects they like for the
betterment of the company. On the initial success of the project, 3M even funds it for further
development.
Genesis Grant is another 3M intrapreneurial program which finances projects that might not
end up getting funds through normal channels. Genesis Grant offers $85,000 to these innovators
to carry forward their projects.
Robbie Bach, J Allard and team’s XBOX might not have been feasible without the Microsoft’s
money and infrastructure. The project required 100s of millions and quality talent to make the
product.

Entrepreneurship Development and Business Ethics Full Marks 50

1. Answer any five questions. (5x2=10)
i. ‘Entrepreneurship is a process’ - Explain and exemplify the statement.
ii. How is entrepreneurship a “gap filling function”?
iii. Compare ‘Innovation’ with ‘Creativity’.
iv. State briefly the economic role of small business in society.
v. Identify TWO characteristics of the service sector.
vi. Why is creativity creativity considered to be a pre-requisite to innovation?
vii. Differentiate between innovation and invention.
viii. Can entrepreneurs be managers? Justify your answer.
2. Answer any four questions. (4x5=20)
i. Who are ‘Intrapreneurs’? How are they different from traditional entrepreneur?
ii. “Entrepreneurship is a process of creative destruction” - Analyse the statement.
iii. Ascribe reasons for the recent growth of the service sector in India.
iv. Outline the points of distinction between a manager and an entrepreneur.
v. Articulate the qualities that an entrepreneur needs to possess.
vi. Mention the advantages and disadvantages of the company form of entrepreneurship.
3. Answer any two questions. (2x10=20)
a) With the aid of a diagram elucidate the process of creativity as prescribed
by David Holt.
b) ‘SSIs in India enjoyed protection since Independence but now, the
governmental policy is towards promotion in place of protection.’ In the
light of the above statement.
i. Outline the major problems of SSIs in India.
ii. State the initiatives taken by the government to make SSIs more
competitive in a globalised world.
c) Give an account of the evolution of family ventures in India as the oldest
form of entrepreneurship, and also in this context examine the role played
by family business in India.
10
4+6
5+5
Student's Roll No……. Subject Code: EDBE
(To be written before writing any answer)
SEMESTER III - B. COM. EXAMINATION 2008
ENTREPRENEURSHIP DEVELOPMENT & BUSINESS ETHICS (HONOURS)
Full Marks: 50
Time: 2 hrs
Students should answer in their awn words as far as practicable.
GROUP A:
Answer any five questions: (5x2=10)
1.
a) Define the term ‘entrepreneurship’,
b) What is the implication of ethics in business?
c) Mention two qualities of a successful entrepreneur.
d) What is the need for the legal protection of innovation?
e) What is ‘seed capital’?
f) Mention two problems currently being faced by small scale industries in India.
g) What are the characteristics of a family venture?
h) Differentiate between invention and innovation.
GROUP B:
Answer any four Questions: (4x5=20)
2. ‘Corporate governance is not just corporate management’. Comment
3. Explain with examples the role of social factors in the analysis of the external environment of
a
business.
4. Can managers be entrepreneurs? Discuss.
5. Make a comparative analysis of the company form of organization with the partnership form.
6. Explain the concept of under-capitalisation. What are the risks involved in it? (2+3)
7. What are the significant changes made in the Patents Act in India under WTO norms?
GROUP C:
Answer any two questions: (2x10 = 20)
8.
a) The corporation is responsible to a wide range of interest groups. Elaborate the statement.
b) Should priority be given to any one of these interest groups? Give your opinion. (5+5)
9. Explain with a diagram the different stages in the process of creativity as prescribed by David
Holt.
10.
a) Explain in detail the different methods of financing a new venture.
b) How far have venture capital funds become popular in financing new ventures in India?
Discuss. (6+4)
Student's Roll No………….. Subject Code: EDBE
(To be written before writing any answer)
SEMESTER III - B. COM. EXAMINATION 2007
ENTREPRENEURSHIP DEVELOPMENT AND BUSINESS ETHICS (HONOURS)
Full Marks: 50
Time: 2 hours
Students should answer in their own words as far as practicable
GROUP A
Answer ANY FIVE questions. (5x2=10)
1.
a) Distinguish between ‘Intrapreneur’ and ‘Entrepreneur’.
b) What do you mean by ‘intellectual property rights’?
c) Enumerate the features of ‘venture capital’.
d) Compare 'Innovation' with 'Creativity'.
e) What is ‘Debt Financing’?
f) What do you understand by ‘SWOT Analysis’?
g) Mention two basic ethical principles in Business.
h) Is there any difference between ‘Invention’ and ‘Innovation’? Comment.
GROUP B
Answer ANY FOUR questions. (4x5=20)
2. Discuss in brief the role of family business in India.
3. Discuss briefly the economic role of small business in society.
4. Explain the concept of ‘External Environment Analysis’.
5. ‘Entrepreneurship is a process’. Explain.
6. Analyse the concept of ‘Corporate Governance’.
7. State the reasons behind the recent growth of the Service Sector in India.
GROUP C
Answer ANY TWO questions. (2x10=20)
8. Explain the concept of Ethics. How important is ethics in Business? Give your opinion.
9. Discuss the advantages and disadvantages of the company form of entrepreneurship.
10. Discuss the problems of small scale industries (SSI) in India. Suggest five remedial measures
to
overcome such problems.
Students Roll No…………………….. Subject Code: EDBE
(To be written before writing any answer)
SEMESTER III - B. COM. EXAMINATION 2007
ENTREPRENEURSHIP DEVELOPMENT AND BUSINESS ETHICS (GENERAL)
Full Marks: 50
Time; 2 hours
Students should answer in their own words as far as practicable.
GROUP – A
Answer ANY FIVE questions. (5x2=10)
1. What do you mean by ‘creativity’?
2. State two characteristics of ‘corporate entrepreneurship’.
3. What is meant by ‘debt financing’?
4. Write a short note on ‘corporate social responsibility’.
5. What do you understand by the ‘promotion of a venture’?
6. Mention any two basic ethical principles in Business.
7. What is ‘innovation’?
8. Define ‘entrepreneurship’.
GROUP-B
Answer ANY FOUR questions. (4 x 5 =20)
9. State the characteristics of an entrepreneur.
10. Write a note on ‘external environment analysis’.
11. State the importance of the Service Sector in India.
12. What is the responsibility of a Business towards the consumers?
13. Describe the qualities of a successful entrepreneur.
14. Discuss the characteristics of family venture.
GROUP –C
Answer ANY TWO questions. (2x 10=20)
15. What is Ethics? State the importance of ethics in Business.
16. Make a comparison between the Sole Proprietorship and the Partnership form of Business
from
the point of view of an entrepreneur.
17. Discuss the different means of raising capital to start a new venture.

Entrepreneurship is the terminal stage of the

entrepreneurial process wherein after setting up a venture one looks for
diversification and growth. An entrepreneur is always in search of new
challenges. An entrepreneur is not a routine businessman he might not have
resources but he will have ideas. He is innovative and creative. He can convert
a threat into an opportunity. Small businessmen might shut- down or change
his business if he anticipates losses but an entrepreneur will try again after
analyzing the situation. On the other hand an entrepreneur can leave a
perfectly running business to start another venture if he so desires.
Functionally all entrepreneurs are self-employed and income generating
persons but the reverse is not true- all self- employed and income generating
persons are not
entrepreneurs. If seen on a continuum, income generation, self-employment and entrepreneurship
can be considered as the initial, middle and final stages of the entrepreneurial growth process.
Income generating experience encourages self-employment, which in turn
facilitates graduating into entrepreneurship.
ENTREPRENEUR
An entrepreneur is a person who starts an enterprise. He searches for change
and responds to it. A number of definitions have been given of an
entrepreneur-
The economists view him as a fourth factor of production
along with land labour and capital.
The sociologists feel that certain communities and cultures
promote
entrepreneurship like for example in India we say that
Gujaratis and Sindhis are very enterprising.
Still others feel that entrepreneurs are innovators who come
up with new ideas for products, markets or techniques.
To put it very simply an entrepreneur is someone who perceives opportunity,
organizes resources needed for exploiting that opportunity and exploits it.
Computers, mobile phones, washing machines, ATMs, Credit Cards, Courier
Service, and Ready to eat Foods are all examples of entrepreneurial ideas that
got converted into products or services.
Peter Drucker: An entrepreneur searches for change,
responds to it and exploits opportunities. Innovation is a specific tool of an
entrepreneur hence an effective entrepreneur converts a source into a
resource.

ANS 2.

ENTREPRENEURSHIP
Entrepreneurship can be described as a process of action an entrepreneur undertakes to establish
his enterprise. Entrepreneurship is a creative activity. It is the ability to create and build
something from practically nothing. It is a knack of sensing opportunity where others see chaos,
contradiction and confusion. Entrepreneurship is the attitude of mind to seek opportunities, take
calculated risks and derive benefits by setting up a venture. It comprises of numerous activities
involved in conception, creation and running an enterprise.
According to Peter Drucker Entrepreneurship is defined as ‘a systematic innovation, which
consists in the purposeful and organized search for changes, and it is the systematic analysis of
the opportunities such changes might offer for economic and social innovation.’
Entrepreneurship is a discipline with a knowledge base theory. It is an outcome of complex
socio-economic, psychological, technological, legal and other factors. It is a dynamic and risky
process. It involves a fusion of capital, technology and human talent. Entrepreneurship is equally
applicable to big and small businesses, to economic and non- economic activities. Different
entrepreneurs might have some common traits but all of them will have some different and
unique features. If we just concentrate on the entrepreneurs then there will be as many models as
there are ventures and we will not be able to predict or plan, how
and where, and when these entrepreneurs will start their
ventures.

Entrepreneurship is a process. It is not a combination of some stray

incidents. It is the purposeful and organized search for change, conducted after systematic
analysis of opportunities in the environment. Entrepreneurship is a philosophy- it is the
way one thinks, one acts and therefore it can exist in any situation be it business or
government or in the field of education, science and technology or poverty alleviation or
any others.
ROLE OF ENTREPRENEUR IN ECONOMIC DEVELOPMENT
The industrial health of a society depends on the level of entrepreneurship existing in it. A
country might remain backward not because of lack of natural resources or dearth of
capital [as it is many times believed] but because of lack of entrepreneurial talents or it
inability to tap the latent entrepreneurial talents existing in that society.
Entrepreneurs historically have altered the direction of national economies, industry or
markets- Japan, Singapore, Korea, Taiwan to name a few.
Economic Development - Entrepreneurship is basically concerned with creating wealth
through production of goods and services. This results in a process of upward change
whereby the real per capita income of a country rises overtime or in other words economic
development takes place. Thus entrepreneurial development is the key to economic
development. In fact it is one of the most critical inputs in the economic development of a
region. It speeds up the process of activating factors of production leading to a higher rate
of economic growth, dispersal of economic activities and development of backward regions.
If a region is unable to throw up a sufficient number of entrepreneurs then alien
entrepreneurs usually step in to provide goods and services needed by the people. However
the profits earned by these entrepreneurs are usually not ploughed back but repatriated to
their place of origin. As a result development in that region cannot take place. Dr. M.M.
Akhori refers to this practice as ‘The Leech Effect’. The above reiterates the importance of
entrepreneurship development for fuelling economic growth of a region.
Entrepreneurship begets and also injects entrepreneurship by starting a chain reaction
when the entrepreneur continuously tries to improve the quality of existing goods and
services and add new ones. E.g. when computers came into the market there was
continuous improvement in the models, their functions etc. like first generation computers,
personal computers, laptops, palmtops etc. Not only had this fostered the development of
the software industry, computer education institutes, computer maintenance and stationery
units etc. but also other industries like banking, railways, education, travel, films, medical
and legal transcriptions, business process outsourcing [BPOs] etc. In this manner by
harnessing the entrepreneurial talent a society comes out of traditional lethargy to modern
industrial culture. India needs entrepreneurs to capitalize on new opportunities and to
create wealth and new jobs.
Education - Towards the end of the sixties, two significant
contributions were made in the field of entrepreneurship .One was that there is a positive linkage
between entrepreneurship and economic development and the other was regarding the emergence
of a strong hypothesis that entrepreneurship can be developed through planned efforts1.
Consequently planners realized that absence of a strong entrepreneurial base acts as a serious
handicap in the industrial development of a region. The identification and development of first
generation entrepreneurs through Entrepreneurial Development Programmes is an important
strategy.
There is a growing realization that presence of resources and
favourable government policies cannot automatically
manufacture
economic
development.
It
is
the entrepreneurial spirit of the people, which can transform the economy of that region. Both the
quantity and quality of entrepreneurs are of utmost significance for achieving the goal of
economic development. The myth that entrepreneurs are born with some innate traits is
fortunately no longer held. You will learn more about this in the lesson on motivation. Many
research studies have brought out that entrepreneurship
can
be
taught
and
learned. Entrepreneurship is a discipline and like all disciplines it has models, processes and case
studies, which can help an individual to study this subject. The necessary competencies required
of a successful entrepreneur can be acquired through training and development. Numerous
courses in entrepreneurship are being taught all over the world in schools and colleges, seminars
and conferences are being organized and EDPs are being conducted. The thinking today is why
just create managers why not create people who can absorb managers. One can acquire the traits
and learn the skills for becoming an entrepreneur e.g. a person can learn to be achievement
oriented, self- confident, perseverant etc. which are all part of the characteristics of a successful
entrepreneur.

FUNCTIONS OF ENTREPRENEUR
An entrepreneur frequently has to wear many hats. He has to perceive opportunity, plan,
organize resources, and oversee production, marketing, and liaison with officials. Most
importantly he has to innovate and bear risk. The main functions of an entrepreneur are as
follows:
1. Innovation: Innovation is one of the most important
functions of an entrepreneur according to Schumpeter. An entrepreneur uses information,
knowledge and intuition to come up with new products, new methods of reducing costs of a
product, improvement in design or function of a product, discovering new markets or new
ways of organization of
industry. Through innovation, an entrepreneur converts a material into a resource or
combines existing resources into new and more productive configurations. It is the
creativity of an entrepreneur that results in invention [creation of new knowledge] and
innovation [application of knowledge to create new products, services or processes.]
Systematic innovation means monitoring the following for innovative opportunity:
•
The unexpected success or failure or any unexpected outside event, (e.g. when the IT
bubble burst the ITES sector started growing.)
•
Innovation based on process need [e.g. plate based
cameras, film based cameras, digital cameras]
•
2. Risk and uncertainty bearing: According to Hozelist an
entrepreneur performs the function of risk and uncertainty bearing. Every decision
pertaining to development of new products, adapting new technologies, opening up new
markets involves risk. Decision-making in an environment of uncertainty requires
anticipation of risk. Profit is said to be the reward for anticipating and taking such risks.
However it is pertinent to mention that the entrepreneur is not a gambler, he only takes
calculated risks. An entrepreneur develops the art of decision-making under conditions of
uncertainty as a matter of survival.
3. Organization building: An entrepreneur has to organize
men, material and other resources. He has to perform the functions of planning, co-
ordination and control. He has to use his leadership qualities to build a team, generate
resources and solve problems. With his organizational skills an entrepreneur builds an
enterprise from scratch, nurtures
it and makes it grow. His vision sows the seeds for a sound and vibrant organization and
synergies are built in he enterprise. According to Kilby in a developing country even the
imitator entrepreneurs are very important and the entrepreneurial role encompasses the
following:
•Perception of market opportunities
•Gaining command over scarce resources
•Purchasing inputs
•Marketing the products
•Dealing with bureaucrats
•Managing human relations within the firm
•Managing customer and supplier relations
•Managing finance
•Managing production
•Acquiring and overseeing assembly of the factory
•Industrial engineering
•Upgrading process and product
•Introducing new production techniques and products
.
Intrapreneurs, by definition, embody the same characteristics as the Entrepreneur,
conviction, passion, and drive. If the company is supportive, the Intrapreneur succeeds.
When the organization is not, the Intrapreneur usually fails or leaves to start a new
company.

An Intrapreneur thinks like an entrepreneur seeking out opportunities, which

benefit the corporation. It was a new way of thinking, in making companies
more productive and profitable. Visionary employees who thought like
entrepreneurs. IBM is one of the leading companies, which encourages
INTRAPRENEUR.
AnIntrapreneur is the person who focuses on innovation and creativity and
who transforms a dream or an idea into a profitable venture, by operating
within
the
organizational
environment. Thus, Intrapreneurs areInside
entrepreneurs who follow their founder’s
example.
The need for Intrapreneurship
Intrapreneurship is important for organisational
survival, growth, profitability and renewal
especially in larger organisations. Developing
intrapreneurs
philosophy
in
organization results in rapid growth in the number of new and sophisticated
competition a sense of distruct of traditional management and exodus of
money of the best employees who are leaving the organization in order to start
their own companies. It also assists in the creation of a workforce that can
help maintain its competitiveness and promote a climate conducive to high
achievement.
Final credo for companies implementing
intrapreneurship concepts are:
• Creating a climate where everyone has the
potential to create new things.
• Going outside for talent and resources.
• Developing internal markets for ideas.
That is easier to accomplish in small companies
than in large ones, in part, because large
companies
have
greater
geographic
differences and bureaucracies.

Why is Intrapreneurship more important now than ever before?

Organisations are finding it harder and harder to survive by merely competing. They are,
therefore, increasingly looking towards their Intrapreneurs to take them beyond
competition to create new businesses in new markets.
“As competition intensifies, the need for creative thinking increases. It is no longer enough
to do the same thing better... no longer enough to be efficient and solve problems. Far more
is needed. Now business has to keep up with changes... And that requires creativity. That
means creativity both at a strategic level and also on the front line, to accompany the shift
that competitive business demands... from administration to true entrepreneurship”
-Edward Bono
What causes or retards Intrapreneurship?
The primary factors retarding Intrapreneurship
are:
•
The costs of failure too high, and the
rewards of success are too low.
Intrapreneurs need to be given the space in which to fail, since failure is an unavoidable
aspect of the Intrapreneurial process.
Intrapreneurs are met with "this is the way we've always done it around here", "if it ain't
broke, don't fix it", and "changing it now would just take too much effort..." Many
organisations use their existing systems to prove they already have the "right answer" (see
above), effectively dousing creativity.
•

ANS 3.
In business and engineering, new product development (NPD) is the
term used to describe the complete process of bringing a new product
or service to market. There are two parallel paths involved in the NPD
process: one involves the idea generation, product design and detail
engineering; the other involves market research and marketing
analysis. Companies typically see new product development as the
first stage in generating and commercializing new products within the
overall strategic process of product life cycle management used to
maintain or grow their market share.

Contents
[hide]

• 1 The process

• 2 Fuzzy Front End

• 3 NPD organizations

• 4 NPD strategies

• 5 Related fields

• 6 See also

• 7 References

[edit] The process

Idea Generation is often called the "fuzzy front end" of the NPD
process

• Ideas for new products can be obtained from basic research

using a SWOT analysis (Strengths, Weaknesses,
Opportunities & Threats), Market and consumer trends,
 company's R&D department, competitors, focus groups,
employees, salespeople, corporate spies, trade shows, or
Ethnographic discovery methods (searching for user
patterns and habits) may also be used to get an insight into
new product lines or product features.

• Idea Generation or Brainstorming of new product, service,

or store concepts - idea generation techniques can begin
when you have done your OPPORTUNITY ANALYSIS to
support your ideas in the Idea Screening Phase (shown
in the next development step).

Idea Screening

• The object is to eliminate unsound concepts prior to

devoting resources to them.

• The screeners should ask several questions:

• Will the customer in the target market benefit from

the product?

• What is the size and growth forecasts of the market

segment/target market?

• What is the current or expected competitive pressure

for the product idea?

• What are the industry sales and market trends the

product idea is based on?

• Is it technically feasible to manufacture the product?

• Will the product be profitable when manufactured and

delivered to the customer at the target price?

Concept Development and Testing

• Develop the marketing and engineering details

• Investigate intellectual property issues and search

patent data bases
 • Who is the target market and who is the decision
maker in the purchasing process?

• What product features must the product incorporate?

• What benefits will the product provide?

• How will consumers react to the product?

• How will the product be produced most cost

effectively?

• Prove feasibility through virtual computer aided

rendering, and rapid prototyping

• What will it cost to produce it?

• Testing the Concept by asking a sample of prospective

customers what they think of the idea. Usually via Choice
Modelling.

Business Analysis

• Estimate likely selling price based upon competition and

customer feedback

• Estimate sales volume based upon size of market and such

tools as the Fourt-Woodlock equation

• Estimate profitability and breakeven point

Beta Testing and Market Testing

• Produce a physical prototype or mock-up

• Test the product (and its packaging) in typical usage

situations

• Conduct focus group customer interviews or introduce at

trade show

• Make adjustments where necessary

• Produce an initial run of the product and sell it in a test

market area to determine customer acceptance
Technical Implementation

• New program initiation

• Finalize Quality management system

• Resource estimation

• Requirement publication

• Publish technical communications such as data sheets

• Engineering operations planning

• Department scheduling

• Supplier collaboration

• Logistics plan

• Resource plan publication

• Program review and monitoring

• Contingencies - what-if planning

Commercialization (often considered post-NPD)

• Launch the product

• Produce and place advertisements and other promotions

• Fill the distribution pipeline with product

• Critical path analysis is most useful at this stage

New Product Pricing

• Impact of new product on the entire product portfolio

• Value Analysis (internal & external)

• Competition and alternative competitive technologies

• Differing value segments (price, value, and need)

• Product Costs (fixed & variable)

 • Forecast of unit volumes, revenue, and profit

These steps may be iterated as needed. Some steps may be

eliminated. To reduce the time that the NPD process takes, many
companies are completing several steps at the same time (referred to
as concurrent engineering or time to market). Most industry
leaders see new product development as a proactive process where
resources are allocated to identify market changes and seize upon
new product opportunities before they occur (in contrast to a reactive
strategy in which nothing is done until problems occur or the
competitor introduces an innovation). Many industry leaders see new
product development as an ongoing process (referred to as continuous
development) in which the entire organization is always looking for
opportunities.

For the more innovative products indicated on the diagram above,

great amounts of uncertainty and change may exist, which makes it
difficult or impossible to plan the complete project before starting it.
In this case, a more flexible approach may be advisable.

Because the NPD process typically requires both engineering and

marketing expertise, cross-functional teams are a common way of
organizing projects. The team is responsible for all aspects of the
project, from initial idea generation to final commercialization, and
they usually report to senior management (often to a vice president or
Program Manager). In those industries where products are technically
complex, development research is typically expensive, and product life
cycles are relatively short, strategic alliances among several
organizations helps to spread the costs, provide access to a wider skill
set, and speeds the overall process.

Also, notice that because engineering and marketing expertise are

usually both critical to the process, choosing an appropriate blend of
the two is important. Observe (for example, by looking at the See also
or References sections below) that this article is slanted more
toward the marketing side. For more of an engineering slant, see the
Ulrich and Eppinger, Ullman references below.[1][2]

People respond to new products in different ways. The adoption of a

new technology can be analyzed using a variety of diffusion theories
such as the Diffusion of innovations theory.

A new product pricing process is important to reduce risk and increase

confidence in the pricing and marketing decisions to be made.
Bernstein and Macias describe an integrated process that breaks
down the complex task of new product pricing into manageable
elements.[3]

ANS.4

sources of finance for small and growing

businesses
Introduction
In this revision note , we concentrate on how small and medium-sized businesses (“SME’s”)
obtain finance.
SME’s can be defined as having three main characteristics:
• Companies are not quoted on a stock exchange – they are “unquoted”
• Ownership of the business is typically restricted to a few individuals. Often this is a family
connection between the shareholders
• Many SME’s are the means by which individuals (or small groups) effectively achieve self-
employment
The SME sector is a vital one in the UK economy. In 1999, the Department for Trade and
Industry (DTI) estimated that there are 3.7 SME businesses in the UK. Sole traders account for
the majority of the businesses in the UK (63 per cent) but a smaller proportion of the number of
employees (23 per cent) and an even smaller proportion of turnover (9 per cent). As a proportion
of all businesses in the UK, SME's account for some 55 per cent of employment and 45 per cent
of turnover.
Why do SME’s find financing a problem?
The main problem faced by SME’s when trying to obtain funding is that of uncertainty:
• SME’s rarely have a long history or successful track record that potential investors can rely on
in making an investment;
• Larger companies (particularly those quoted on a stock exchange) are required to prepare and
publish much more detailed financial information – which can actually assist the finance-raising
process;
• Banks are particularly nervous of smaller businesses due to a perception that they represent a
greater credit risk.
Because the information is not available in other ways, SME’s will have to provide it when they
seek finance. They will need to give a business plan, list of the company assets, details of the
experience of directors and managers and demonstrate how they can give providers of finance
some security for amounts provided.
Prospective lenders – usually banks – will then make a decision based on the information
provided. The terms of the loan (interest rate, term, security, repayment details) will depend on
the risk involved and the lender will also want to monitor their investment.
A common problem is often that the banks will be unwilling to increase loan funding without an
increase in the security given (which the SME owners may be unable or unwilling to provide).
A particular problem of uncertainty relates to businesses with a low asset base. These are
companies without substantial tangible assets which can be use to provide security for lenders.
When an SME is not growing significantly, financing may not be a major problem. However, the
financing problem becomes very important when a company is growing rapidly, for example
when contemplating investment in capital equipment or an acquisition.
Few growing companies are able to finance their expansion plans from cash flow alone. They
will therefore need to consider raising finance from other external sources. In addition, managers
who are looking to buy-in to a business ("management buy-in" or "MBI") or buy-out
(management buy-out" or "MBO") a business from its owners, may not have the resources to
acquire the company. They will need to raise finance to achieve their objectives.
Sources of finance for SME’s
There are a number of potential sources of finance to meet the needs of small and growing
businesses:
• Existing shareholders and directors funds (“owner financing”)
• Overdraft financing
• Trade credit
• Equity finance
• Business angel financing
• Venture capital
• Factoring and invoice discounting
• Hire purchase and leasing
• Merchant banks (medium to longer term loans
A key consideration in choosing the source of new business finance is to strike a balance
between equity and debt to ensure the funding structure suits the business.
The main differences between borrowed money (debt) and equity are that bankers request
interest payments and capital repayments, and the borrowed money is usually secured on
business assets or the personal assets of shareholders and/or directors. A bank also has the power
to place a business into administration or bankruptcy if it defaults on debt interest or repayments
or its prospects decline.
In contrast, equity investors take the risk of failure like other shareholders, whilst they will
benefit through participation in increasing levels of profits and on the eventual sale of their stake.
However, in most circumstances venture capitalists will also require more complex investments
(such as preference shares or loan stock) in additional to their equity stake.
The overall objective in raising finance for a company is to avoid exposing the business to
excessive high borrowings, but without unnecessarily diluting the share capital. This will ensure
that the financial risk of the company is kept at an optimal level.

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Venture Capital
Venture Capital has become a vital aspect of the source of finance market over the last 10 to 15
years. Venture Capital can be defined as capital contributed at an early stage in the development
of a new enterprise, which may have a significant chance of failure but also a significant chance
of providing above average returns and especially where the provider of the capital expects to
have some influence over the direction of the enterprise. Venture Capital can be a high risk
strategy.

The British Venture Capital Association (BVCA)

With 165 members, the British Venture Capital Association represents the majority of UK based
private equity and Venture Capital firms. Since 1983 additional private equity invested in UK
industry has amounted to £40 billion with a further £14 billion invested in the rest of Europe.
Those funds have gone to assist 25,000 UK companies. In 2002 alone £5.4 billion was invested
in 1,500 companies Europe wide.
See the BVCA web site for more information (http://www.bvca.co.uk).
Business Angels are informal investors who are wealthy and entrepreneurial individuals looking
to invest in new and growing businesses in return for a share of the equity. They usually have
considerable experience of running businesses that they can place at the disposal of the
companies in which they invest. Business angels invest at all stages of business development, but
predominantly in start up and early stage businesses. The majority of them tend to invest in
businesses located within a reasonable distance of where they live.
The general profile of a business angel style of relationship is that:

• you are looking to raise between £10,000 and as much as £600,000

• you are prepared to give up some of the equity in your business and allow an investor to
take a 'hands-on' role

• your business has the potential to grow sufficiently over the next few years to provide the
business angel with a return on investment

• you can offer the business angel an 'exit' (e.g. through a trade sale or the repurchase of
their equity stake) at some future date
Business angels, then, are small business related investors who can have a major impact on the
success of a start up company.

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