How the would-be entrepreneur can become a successful entrepreneur

How the would-be entrepreneur can become a successful entrepreneur – a series

          The success pentagon

            There are five dimensions which act as driving force to become a successful Entrepreneur. They are Attitude, Skills, Knowledge, Habit & Strategy; first three dimensions are familiar to us, it is also known to us as ASK model or the three H model i.e. Heart, Hand & Head.

Attitude: Attitude is related to the state of mind. It is internal and associated with once thinking pattern, the way of interpretations, and the use of language, In short it comprises of self concept i.e. Belief, Feelings & Behavior, Beliefs are thought about self, Feelings are self worth, dare & Behavior is tendency to act towards one’s self in a self-enhancing manner etc. Therefore it is related to mind & heart.

Skills: Skills are of two kinds, one management skills & two technical skills, it’s a combination of head & hand.

Knowledge: Entrepreneurs requires general knowledge of product opportunities, how to set up MSM Enterprises, sales & marketing etc. This is a domain of Head.

Two more dimensions in addition to earlier modules are also equally important.

Habit: One may have a unhealthy habits or healthy habits. Un entrepreneurial habits or entrepreneurial habits, It is very difficult to remove habit. If you remove h-abit remains, if you remove a-bit remains, if you remove b-it remains. So a transformation from an ordinary person to an extraordinary person is a very interesting process.

Strategy: It is specific path of action chosen by the person to achieve his objective.

Considering the path of becoming a successful entrepreneur we would address the issues as follows.

General knowledge –

·        Self Employment & Entrepreneurship

Nowadays the terminologies like livelihood, self employment has become very popular. Dr. Mohmad Unus’s contribution to the innovative idea of Self Help Group (SHG) and the problems in India of educated Unemployed Youth has given rise to livelihood activities for below poverty line people & self employment activities for educated unemployed youth. These are very micro, cottage or that way small activity. But to begin with these initiatives are good as stepping stone towards becoming an entrepreneur.

Entrepreneurship is a broad term. It is being used for those who have potential to become an entrepreneur. And starts sizable activities as small scale industries; they can generate employment for others.

·        The terms micro, small or medium enterprises.

Nowadays the term ‘Industries’ has been changed to ‘Enterprises’

Broadly the Enterprises have been classified in to two areas.

1)     Enterprises engaged in providing or rendering of services. Service enterprises have been defined in terms of their investment in equipment (excluding land & building) and further classified into:

·        Micro Enterprises – investment upto Rs. 10 lakh.

·        Small Enterprises – investment above Rs. 10 lakh upto Rs. 2 crore.

·        Medium Enterprises – investment above Rs. 2 crore upto Rs. 5 crore.

2)     Enterprises engaged in the manufacture or production of goods. Manufacturing enterprises have been defined in terms of investment in plant and machinery (excluding land and building) and further classified into:

·        Micro Enterprise - investment upto Rs. 25 lakh.

·        Small Enterprises – investment above Rs. 25 lakh upto Rs. 5 crore.

·        Medium Enterprises – investment above Rs. 5 crore upto Rs. 10 crore.

One has to compare service enterprises with manufacturing enterprises.

Service Enterprises requires no or less investment, No land or building can be operated from home or rental place, good communication, networking, innovative ideas will do to start it, it involved less risk, easy to start, etc these may be the plus point of service enterprise.

Comparatively one has to take moderate or calculative risk to start manufacturing Enterprises. For livelihood or self employment activities one may use service enterprise as a stepping stone. Whether it is service or manufacturing Enterprise one has to create a structure or set up which will give a sustainable growth to the enterprises.

·        Business opportunities search and scanning (BOSS)

How to select an activity for MSM Enterprise? How to identify the MSM Enterprise activity? These are very fundamental and important issues. Entrepreneurs are opportunity seekers; for them it becomes easy to select or identify the business opportunities. But for general public like educated unemployed youth it may be a tedious, difficult, confusing issue. Many such people drop their idea of becoming an entrepreneur by exploring many good ideas for others.

            In fact this environment is full with business opportunities provided you see it;

            Environment scanning, creativity, project profile scanning etc are the tools for divergent thinking. This divergent thinking is useful to generate as many ideas. During this phase you have to think out of the box, do not consider whether this idea is practical or impractical. Just go on generating ideas.

            Conducting market survey, preparation of preliminary project profile are the tools for convergent thinking. Where practically you have to consider location, place, available resources, customer needs, your network & market, infrastructural advantages, own investment, availability of required manpower, raw material, technology and think convergent & narrow down your choice for selection of enterprise or activity.

            Preliminary market survey would give you the gap between demand and supply. But this terminology has become out dated nowadays. You must have to come up with creative service or product ideas; customer or consumer is always behind what is new. So this new creates a need or demand for the product.

·        Support mechanism for enterprise identification

Development Commissioner, MSM Enterprises has published many books on project profiles they are as follows:

·        Mechanical products

·        Metallurgical products

·        Hosiery products

·        Electrical products

·        Plastic products

·        Chemical products

·        Food/agriculture products

·        Glass & Ceramics products

·        Leather & Sports products

All these books are available on their website, libraries of Centre for Entrepreneurship Development (CEDs) in the State, Technical Consultancy Organization (TCOs) in the State, specific Main/Lead Bank in the State, Chamber of Commerce & Industries in the State, Offices of the Industries Associations, are some of the sources for getting the right kind of data.

District Industrial Centers (DIC) have their offices almost in the every district of all the States. This is also one of the good sources.

·        Market potential for MSM Enterprises   

Again all above mentioned institutions may be supportive in this regard.

Basically entrepreneur has to design a specific questionnaire for conducting a market survey. S/he should identify their market area and carry out the market survey; this would give them an insight of the product/services to be set up. He himself should visit to wholesale and retail markets, bulk consumers etc.

There are few marketing schemes by MSME, MSSIDC, NSIC etc. in case of specific products. Entrepreneurs may take advantage by visiting these organizations.

There is nothing like readymade in this area. Finally it is the efforts of an entrepreneur which will make them survive in the market.

·        Where to set up the enterprise     

Rental premises or place own land & building, co-operative industrial estates, different theme based industrial parks, State Industries Development Corporations etc. These are some of the options where one can start his/her enterprise.

·        Different target who are coming and joining the industrial fields

Following are the different sections of the society who are joining industrial fields nowadays.

-         Below poverty line men & women

-         Uneducated or little educated but experienced workers/skilled class

-         Educated unemployed youth

-         Schedule Class/schedule Tribes

-         Ex-service men

-         Women

-         VRS/CRS/NRI people

-         Science & Technology class

-         Physically challenged class etc

It does not matter whether you have technical background or experience or not. It just requires the fire in belly or the will to start something on own or the spirit of entrepreneurship. Rest of the things can be managed through other sources which are available with others or in the market.

·        Facing the competition

Creative & innovative services or products, latest technology & production process, mass production, reduction in production costs, good-better-best quality of the products, niche marketing-it is the subset of the market on which a specific product is focusing; therefore the market niche defines the specific product/service features aimed at satisfying specific market needs, as well as the price range, production quality and the demographics that is intended to impact; service of product costing, are some of the tools to face the competition and win the game.

 

     

Approvals and clearances

Approvals and clearances – a series

            Every SSI/MSM Enterprises has to comply with various regulations which are in force. These include i) regulatory, ii) taxation, iii) environmental, iv) certain product specific clearances. This section looks into the methodology of obtaining these approvals & clearances.

Exemption from compulsory license/industrial license

Licensing in the industries sector is governed by the Government of India, under licensing exemption notification issued in 1991, under the industries Act 1951. In SSI, there are virtually no licensing restrictions. No industrial license is required except in case of 6 product groups include in compulsory licensing (these mainly cover product that can only be made in large scale sector).

But if a SSI unit employs less than 50/100 workers with/without power then it would not require a license from the Government of India even for the 6 product groups covered in licensing under schedule II of the notification.

Subject to this, an entrepreneur can set up a SSI unit anywhere in the country without restriction. The units are of course, subject to the location/land use & zoning restrictions in force under the local laws.

One has to obtain several clearances or permissions depending upon the nature of his/her unit & products manufactured.

Product specific clearances

Regulatory or Taxation Clearances

1.      Registration under Sales Tax Act - Commercial Tax officer.

2.      Registration under Central Excise Act - Collector of Central Excise.

3.      Payment of Income Tax – ITO.

4.      Registration of Partnership deed - Inspector General.

5.      Calibration of weights & measures - Weights and Measures Inspector of State

6.      Power Connection - State Electricity Board

7.      Employee strength exceeding 10 with power connection or 20 without power - Chief Inspector of Factories

Environment & Pollution Related Clearances

The method of granting consent under water and air pollution to MSM Enterprises has been simplified. Except for 17 critically polluting sectors given below, in all other cases MSM Enterprises will merely have to file an application and obtain an acknowledgement which will serve the purpose of consent:-

1.      Fertilizer

2.      Sugar

3.      Cement

4.      Fermentation & Distillery

5.      Aluminum

6.      Petrochemicals

7.      Thermal Power

8.      Oil refinery

9.      Sulphuric Acid

10. Tanneries

11. Copper smelter

12. Zinc smelter

13. Iron & Steel

14. Pulp & Paper

15. Dye and Dye intermediates

16. Pesticides manufacturing and formulation

17. Basic Drugs and Pharmaceuticals

Product Specific Clearances

1.      Establishing a Printing Press - District Magistrate

2.      License for Cold Storage Construction - Designated Official in State

3.      Pesticides - Central/State Agricultural Department - Ministry of Agriculture

4.      Drugs and Pharmaceuticals - Drug license from State Drug Controller

5.      Safety Matches/ Fireworks - License under Explosives Act from Directorate of Explosives, Nagpur

6.      Household Electrical Appliances - License from Bureau of Indian Standards

7.      Wood Working Industry within 8 km from forest - District Forest Officer

8.      Milk Processing & Milk products manufacturing units - Approval under Milk and Milk Products Order from State Agricultural/ Food Processing Industries Department above a designated capacity.

Quality certification has become extremely important in competitive markets & especially in gaining foothold in exports. To avail the certification of ISO 9001-2008, a unit has to undertake significant costs, the small scale industries have been found wanting mainly on account of resource crunch to implement quality systems to obtain this certification.

i)       A scheme has been launched to give financial incentive to these MSM Enterprises who acquire ISO 9001-2008 certification. By reimbursing 75% of their costs of obtaining certification, subject to a maximum of Rs. 0.75 lacs per unit.

ii)    In order to promote modernization & technology up gradation in MSM Enterprises are assisted in improving the quality of their products.

Entrepreneurs’ memorandum for msme

Micro, Small and Medium Enterprises Development (MSMED, Act 2006) is about filing of memorandum by MSME.

The memorandum (or the registration) is to be filed with the District Industries Centre (DIC) in the Jurisdiction of which the enterprise is located (or is proposed to be located). In case of Maharashtra every district has got DIC office at district place.

Procedure for filing Memorandum.

(It has been outlined in schedule II of the Notification for the format of Entrepreneurs Memorandum)

1)     Form of the Entrepreneurs Memorandum can be downloaded from the internet, or the hard copies of the same can be obtained from DIC website i.e. www.laghuudyog.com or www.dcmsme.gov.in.

2)     The Entrepreneurs Memorandum may be filed by all three i.e. Micro, Small or Medium Enterprise with DIC of its area.

3)     DIC shall fill all the codes in the form of the Entrepreneurs Memorandum and issue an acknowledgement after allotting an Entrepreneurs Memorandum number, date of issue and category of the unit within five days of the receipt of the form of Memorandum by post or same day, if the form of Entrepreneurs Memorandum is submitted in person as well as online.

4)     Before issuing the acknowledgement, the DIC shall make sure that the Entrepreneurs Memorandum form is complete in all respect and particularly the form is signed and is accompanied with an undertaking which is a part of the form of Entrepreneurs Memorandum.

5)     DIC shall maintain record of all Entrepreneurs Memorandum filed, and shall forward a copy of the Entrepreneurs Memorandum so filed with Entrepreneurs Memorandum number allotted to the SISI/MSME of their State/Jurisdiction.

6)     DIC shall maintain record of all the Entrepreneurs Memorandum so filed in respect of Medium Enterprise engaged in production/manufacturing of products & forward one copy each of the Entrepreneurs Memorandum with its number allotted to SISI/MSME of their State/Jurisdiction and Joint Development Commissioner MSME in the office of the Development Commissioner (Industries).

7)     The form of memorandum is in two parts. One who intends to establish a MSMEnterprise engaged in providing or rending of service may file or those who want to establish medium enterprise engaged in the production or manufacture of products shall file part I of the Entrepreneurs Memorandum to DIC.

8)     Once the above enterprises start production or start providing or rendering services, they should file part II of the Entrepreneurs Memorandum to DIC.

9)     In case of non – filing of part II of the Entrepreneurs Memorandum within two years of the filing of part I, the memorandum (part I) filed by the entrepreneur will become invalid.

10)In case of change in the investment in plant & machinery or in equipment, the enterprises who have already filed Entrepreneurs Memorandum should inform the DIC of the same in writing within one month of the change in investment.

11)In case of change of products & that of service or addition in production or services, the enterprises who have already filed Entrepreneurs Memorandum should inform the DIC of the same in writing one month of the change.

12)The DIC shall maintain hard as well as soft copy of the record.

Entrepreneurs Memorandum form basis of evaluation.

a)     Whether the unit has obtained all necessary clearances of statutory or administrative i.e. drug license under drug control order, NOC from pollution Control Board, if required etc.

b)     Whether the unit is not violating any location restrictions in force, at the time of evaluation.

c)     Value of plant & machinery is within prescribed limits.

Unit is not owned, controlled or subsidiary of any other industrial under taking as per notification.            

PROCESS OF AN UNIT DEVELOPMENT

After deciding the project, technology and machinery, arrangement of finance, the next important step is to where the unit is to be set up. The location of the unit;

            In case of service industry and the micro enterprises, the home or may be a rental place is perhaps the best starting point. Private land with NOC & NA industry purpose, co-operative industrial estates, State Industrial Development Corporations, Cluster, Parks, SEZ are the alternatives for industrial location. Setting up a small, medium scale establishment requires a plot or shed, proper constructed building owned or on lease, interiors design, plant lay out, machinery  and equipments, power & water, water effluent treatment plant (if required), etc.

Construction of building:

            One has to find a suitable architect. Design of factory building has to be in consonance with the type of industry and have an appropriate plant layout.

            An architect’s estimate of building construction is essential for loan application. Further, architect’s certificate for money spent on building is needed for disbursement of loan.

Getting the utility connections:-

            That is power & water. To avoid delay in setting up the plant, it is important to work simultaneously & rigorously on these issues. It requires follow up. The power connection is either Low Tension (LT) or High Tension (HT), one has to apply to it as per his/her unit power requirement. One has to apply to State Electricity Board. An electrical inspector is deputed for evaluation of application to factory site, after which the load is sanctioned. As an alternative arrangement one also has to consider a captive generation set.

            In case of State Industrial Development Corporation; the water connectivity is also obtained likewise by applying in advance in the formal form. Tube well or a well are other alternatives. 

Arranging Finance for MSME

Every entrepreneur thinks differently. One may think to start business with his own funds or collecting the funds from friends and relatives; naturally the scale of such business remains miniature in nature. One may think to go for financial support schemes. Once they start dealing with the support mechanism the experience the roller costar which gives them the feelings of up & downs. It requires persistence to get loan sanctioned & disbursement from the financial institutions.

The financial needs of MSME can be classified into the following types.

-         Long term or medium term loans.

-         Short term or working capital requirements.

-         Risk capital.

-         Seed capital/marginal money.

-         Bridge loans.

There are varieties of institutions that provide financial assistance to MSME. The important ones are as follows:

1)     Credit Co-op societies / Co-operative Banks /Regional Rural Bank / Commercial or Nationalized Banks.

2)     Private or non-govt. financial institutions and venture capital schemes.

3)     Small Industries Development Bank of India. (SIDBI)

4)     State Financial Corporations / State Industrial Development Corporations, etc.

All these Financial Bank/Corporations provide finance for Long / Medium term loans. Such loans are needed for purchase of land, construction of factory building / Shed and purchase of machinery & equipments. This loan is also known as fixed capital.

 Then there is requirement of working capital for running the business. It is needed for purchase of raw material and consumables payment of wages and other immediate manufacturing and administrative expenses. Such working capital is generally available from Commercial / Nationalized Banks.

The loan known as composite loan is also available. The commercial banks sanctions composite loan which comprises of fixed capital and working capital together.

One may go for composite loan scheme or the separate schemes as mentioned above.

The documentation needed with the loan application forms are as under:

-         Formal application form.

-         Balance sheet & profit loss statement for last three consecutive years of firms owned by promoters.

-         Income Tax Assessment Certificates of Partners/Directors.

-         Proof of possession of Land/Building.

-         Architect’s estimate for construction cost.

-         Partnership deed/memorandum & Articles of Association of company.

-         Project Report/Loan application.

-         Budgetary quotations of plant & machinery.

-         Statement & regulatory NOCs.

-         Provision of power/water, etc.

Loan is disbursed according to the phased implementation of the project.