failure of entrpreneurship

8/6/2019 Failure of Entrpreneurship

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CASE STUDY OF A TECHNOCRAT


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Who is an Entrepreneur?One who creates a new business in theface ofrisk and uncertaintyfor thepurpose of achieving profit and growthby identifying opportunities andassembling the necessary resourcesto capitalize on them.


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Gist of the Case

y Mr Shah, a technocratwithMech Engg degreeand PG in Ind Mgt & Ind

Engg.y Extensive experience

having worked bothabroad and in India.

y Assisted by a Bank under ascheme for financing aproject to manufacture ofsty item, ie staple removerand job work on othersmaller machinery parts.

y Cost as projected Rs 20.2lakhs, however sanctionedRs 19.2 Lakhs by the bank.

yHe anticipated an annualturnover of Rs 47.2 lakhsand a pre-tax profit of Rs8.3 lakhs.

y With orders in hand, startand progress of thebusiness delayed due tonon-availability of suitableshed. Staple removerproject called off.


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Gist of the Case

Timeline

y 1 month Started withmachinery installed in a

friends shed. However, mostof the products rejected,

y 2nd month No improvementand Rs 1.5 lakhs of rawmaterial wasted,

y

Bank put on hold subsequentdisbursement of the loan dueto non performance and onlyreleased with H.O. sanction,

y 6th month Entire workingcapital utilised, assetsnominal, bank disbursed Rs

2 lakhs by way of book debtsandMr Shah moved to itsnew rented shed with theexpectations of rejection notto go beyond 5%,

y Rejection continued at thesame rate, blamed theemployees,

y Appointed a senior managerand quality control inspector,


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Gist of the Casey Problems surmounting with

customers and borrowersdelaying payments. Bank raisedthe book debt to Rs 8 Lakhs.

y Despite losing all customers andbusiness absolute downturn, he

refused to downsize hisextravagant lifestyle.

y 6th month onwards Due to astroke of luck, he managed anew customer who managed togive his failing business venture

a new lease of life.y Mr Shah preferred not to keepBank informed of this positivedevelopment but Bank did cometo know on one of its routineinspection and kept quiet about

with renewed optimism.

y 11th month. However,thecontract was revoked. Again notinformed, bank found out andrefused any further assistance.

y Mr Shah transferred his a/c toanother bank but faced evenstiffer opposition about hisrepayment aspect.

y Legal proceeding initiatedagainstMr Shah by his creditors.

y Bank also contemplating legalsuit, invoking RBI guarantee andrecalling the advance againsthim


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Ten Deadly Mistakes of

Entrepreneurship1. Failure to develop a strategic plan

2. Management mistakes

3. Lack of experience4. Poor financial control

5. Weak marketing efforts

6. Uncontrolled growth

7. Poor location8. Improper inventory control

9. Incorrect pricing

10. Inability to make the entrepreneurial transition


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CAUSES OF FAILURE- INSTANT CASE

y Lack of acumen/research on the part ofMr Shah.

y Poor Planning.

i) preparing a plan to please the bank not to run his

business,ii) Not thinking outside the box,

iii) He should have had a solid business plan that requireda great amount of study of the market he thought hedjump into,

iv) It should have been a product or service which hadsome potential,

v) Proper planning is also essential at reducing risk.


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CAUSES OF FAILURE- INSTANT CASEy Poor financial control.

i) Taking TOO much money out TOO early,

ii) In the first two years YOU pay the business after thatthe business pays YOU. You have to make sure you cansustain a business ( have the financial backing) for twoyears before you can expect a good return,

iii) Since the business has to sustain itself for a initialperiod as stated above, drawings should have been kept to

the barest minimum.y Marketing was important because people need to know

about the company and its offerings.

y Pricing strategy should have been worked out for customer

retention.


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CAUSES OF FAILURE- INSTANT CASEy Lack of experience. It led to

i) Mistakes They are the best way to gain

experience.Think of it as a learning curve and not theend of the world,

y ii) Failure to plan for "failure"... ,i.e. noBackupplan,

y iii) Also, failure to anticipate how much actual work

will be required ofMr Shah, the Entrepreneur.


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y Poor timing of the business and changes in

location lead to increase in fixed costs.

y poor selection of employee and bad industrial

relations.

yMr Shah, being a technocrat all his life had not

been able to make the entrepreneurial transition.

y The last would be a business that just probably

wasnt required at that time.


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Other reasons can be :

1) Due to competition from bigger players,pushing out of smaller firms,

2) Increase in costs / expenses,3) Trends changing ,

4) Technology changing,5) Bad ideas.



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WEAKNESSES AS A BORROWERyLack of financial planning at the outset.

yPoor financial control due to lack of experthelp and own background.

yNo prior knowledge of financial statements.

yPrioritisation of funds.

yBusiness out of sync with the capital andcash flow.


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Lessons to be learnt as an

Entrpreneur

yKnow your business in depth.

yDevelop a solid business plan.yManage financial resources.

yUnderstand financial statements.

yLearn to manage people effectively.

yKeep in tune with yourself.


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Putting Failure Into Perspective

y

Entrepreneurs are not paralyzed by the prospect offailure.

y Failure a natural part of the creative process.

y Successful entrepreneurs learn to fail intelligently.


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THANK YOU

failure of entrpreneurship

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