“THE STUDY OF ENTREPRENEURS IN BIKANER CITY”

An Overview of Enterpreneurship With Respect to Bikaner.

Entrepreneurism, entrepreneurship are the lifeblood of any economy, more so in developing economy. In india entrepreneurism is in its cultural ethos.
The word ‘entrepreneur’ is derived from the French verb ‘entreprendre’ which means ‘to undertake’. Entrepreneur is an important input of economic growth. Basically he is the person responsible for setting up a business or an enterprise and more over we can say; with him we prosper without him we are poor.
Entrepreneur is not mere a word or neither it is confined to its literal meaning only; rather it has its symbolical significance also. Symbolically entrepreneurship is a journey of a person who is hand working, self motivating, self indulgent, inspired by his surroundings, with full of the sprit of doing some thing different and last but not least full of risk bearing ability, by assimilating in himself over the growth of become an entrepreneur.
Many scholars have defined the word ‘entrepreneur’ in their own language here we are taking some of those definitions to understand that who is an entrepreneur :
Francis A. Walter says that ‘The true entrepreneur is one who is endowed with more than average capacities in the risk of organizing and coordinating the various other factors of production.”1

{1} Source : “Dynamics Of Entrepreneurial Development And Management” A Book By Vasant Desai Chapter 2 page 21.
Peter F. Drucker defines an “Entrepreneur as one who always search for change, respond to it and exploit it as an opportunity. Innovation is the specific tool of entrepreneur, the means by which they exploit change as an opportunity for a different business or service.”2

King Martin Luther said, “I have a dream, and thousands followed in spite of overwhelming obstacles. In order to establish a new successful business venture the intrapreneurial leader must have a dream and work against all obstacles to achieve it.”3

So an entrepreneur is the person who deliberates his success story by elaborating it with his efforts and formed it with a kind of inspirational source, full of enthusiasm to the up coming generation.













{2,3} source: “Dynamics Of Entrepreneurial Development And Management” A Book By Vasant Desai Chapter 2 page 21.
Infrastructure :

· Electricity : The capacity of existing Grid sub-stations in Bikaner district is 62.0 MVA.

· Water : Ground water occurs in the rocks of the trans-Aravalli, Vindhyan and territory formations at depth of 60 meters which increases towards the west and north. Around Kolayat, the depth ranges from 100 m to 135 m. The Indira Gandhi Nahar Project will benefit 188 villages of the district and 2.60 million acres of land.

· Road Transport : The district is well connected with metallic roads with all nearby district namely Jodhpur, Nagaur, Churu and Sri Ganganagar. The National Highway No. 11 connecting Bikaner with Agra also ends in Bikaner itself. The total length of different category of roads in the district is about 3,624 kms as on 31 March 2000.

· Rail Transport : The total rail network found in the district has the rail length of 234.96 kms. The district is connected with Howrah by broad guage and with Delhi, Jodhpur, Jaipur, Sri Ganganagar, Agra and Bhatinda by metre guage railway line.

· Air Transport : The nearest airport is at Jaipur (320 Kms)

Industrial Scenario :

· No. of Large and Medium Scale Running : 6
· No. of Small Scale Units : 5,310
· No. of Industrial Areas : 5

1. Bichhwal
2. Bikaner
3. Khajuwala
4. Loonkaransar
5. Napasar

Source : http://www.investrajasthan.com

· Main Existing Industries :

Bathroom fittings, Bikaneri Bhujia, Carpet and shoddy yarn, cattle feed, cement, ceramic tiles, cotton (in bales) textiles, dairy products, groundnut oil, gypsum grinding, handicraft items, leather footwear, machine tools and parts, mosaic tiles, mustard oil, oil extraction and refinery, papad and mangori, plaster of paris, polythene film and bags, PVC cables, rasagollas, textiles, woollen blankets and shawls, woollen carpets, wood and wooden products.

· Export Items :

1. Bikaneri Bhujia
2. Leather Items
3. Woollen Carpets


Major Investment Projects In Bikaner
(as of Apr 2004)
Company/Ownership Project
Location
Industry/ Type of Project
Progress of Implementation



Cost (Rs. Crore)
Uttara Rajasthan Milk Union Ltd.


Announcement
Private (Indian)
Bikaner
Dairy Products
14.98
Dairy Project

New units

Neyveli Lignite Corpn. Ltd.


Proposed
Central Govt. Commercial
Barsingsar
Lignite
551.15
Entreprises

New Unit

Barsingsar Lignite Mine Project



Neyveli Lignite Corpn. Ltd.


Proposed
Central Govt. – Commercial
Barsingsar
Thermal Electricity
1138.34
Entreprises

New Unit

Barsingsar Thermal Power Project



Thermal – Lignite Based



Rajasthan Rajya Vidyut Utpadan Nigam Ltd.


Announcement
State Govt. – Commercial
Raneri
Thermal Electricity

Enterprises

New Unit

Raneri Lignite Based Power Project



Thermal – Lignite Based



Marudhar Power Pvt. Ltd.


Announcement
Private (Indian)
Raneri
Thermal Electricity

Raneri Power Project

New Unit

Thermal – Lignite Based



Total for the district


1704.47





CHAPTER – 2





PROJECT
PROFILE



2.1 Title of the study
2.2 Objectives of the study
2.3 Significance of the study
2.4 Scope of the study
2.5 Research design
2.6 .


2.1 Title of the study :-

The title of the study undertaken by the researcher is “THE STUDY OF ENTREPRENEURS IN BIKANER CITY”.

2.2 Objective of the study :-

v To gain familiarity with the subject.
v Analysis of the various aspects related to the settlement of an entrepreneurial firm of organization.

2.3 Significance of the study :-

Every research is conducted to fulfill certain objectives and these objectives in term fulfill some purpose. This research is significance of :

v To the researcher :-

MBA curriculum is designed to give more potential exposure to the student, so that she can make use of the theoritical knowledge in the real life situations, with this thrust, this project study has been included which provides opportunity to researcher to give practical in sight of the market. This rich experience will be of great help in fulfillment of MBA curriculum.

2.4 Scope of the study :-

The study was conducted in Bikaner City Only.

2.5 Research design :-

1. Type of research : Research is descriptive in nature.
2. Universe : Entrepreneurs of Bikaner & Bhilwara
3. Sampling Technique : Convenience Sampling through ….
4. Sample Size : 40 Entrepreneurs
5. Tools or data collection : Schedule

2.6

CHAPTER – 3



FACTS
AND
FINDINGS

Facts and findings

Demographics

v Respondent’s Profile of Age :- Table - 1

Age Group
No. of Respondents
Percentage
No. of Respondents
Below 30
15
37.5
15
30-40
8
20
8
40-50
6
15
6
50-60
5
12.5
5
Above 60
6
15
6

v Respondent’s Profile of Experience :- Table - 2

Experience
No. of Respondents
Percentage
Below 10
13
32.5
10-20
8
20
20-30
8
20
Above 30
11
27.5

v Respondent’s Profile of Educational Qualification :- Table - 3

Educational Qualification
No. of Respondents
Percentage
Matric
12
30
Under Graduate
14
35
Graduate
14
35
Post Graduate
0
0
Professional
0
0

v Respondent’s Profile of Family :- Table - 4

Type
No. of Respondents
Percentage
Nuclear
19
47.5
Joint
21
52.5

v Respondent’s Profile of Form of Organization :- Table - 5

Type
No. of Respondents
Percentage
Proprietor
12
30
Partnership
20
50
Pvt. Ltd.
8
20

v Respondent’s Profile of Type of Business :- Table - 6

Type
No. of Respondents
Percentage
Family
16
40
New
24
60

v Annual Turnover of Respondents :- Table - 7

Turnover
No. of Respondents
Percentage
Below 50 lacs
6
15
50 lacs – 1 crore
8
20
1 crore – 2 crore
12
30
2 crore – 3 crore
10
25
Above 3 crore
4
10



Q1. Which products are you manufacturing ?

Q2. Which markets you are catering to ? Table - 8

Response
No. of Respondents
Percentage
Local Markets
9
22.5
Within the state
3
7.5
Within Country
24
60
Export
4
10


Q3. What motivated you to start the business ? Table - 9

Response
No. of Respondents
Percentage
To run the family
10
25
For name and fame
9
22.5
Incentives provided by Govt.
3
7.5
Not satisfied with the job/Unemployed
18
45



Q4. Did you face any problem while setting up the unit ? Table - 10

Response
No. of Respondents
Percentage
Yes
32
80
No
8
20


If yes, which problems did you come across ?

I. Registration
II. Finance (Getting Loan)
III. Raw Materials (Inputs)
IV. Technology (Machinery)
V. Skilled Workers
VI. Legal Formalities
VII. Product Selection

Q5. Do you think joining family business is easier than setting up a unit from the beginning ?
Table - 11
Response
No. of Respondents
Percentage
Yes
26
65
No
14
35
Can’t say
0
0

Q6. Do you think moral support of family members works in setting up the business ?

Table - 12
Response
No. of Respondents
Percentage
Very much
22
55
To some extent
13
32.5
Not at all
5
12.5

Q7. Did you get financial support from the family for setting up the unit ?
Table - 13
Response
No. of Respondents
Percentage
Yes
22
55
No
18
45

Q8. Did you approach Banks/Financial Institutions for working capital / term loan ?
Table - 14
Response
No. of Respondents
Percentage
Yes
37
92.5
No
3
7.5

Q9. What different functions do you deal with ? Table - 15

Response
No. of Respondents
Percentage
Marketing
18
45
Production
6
15
Personnel
4
10
Finance
12
30



Q10. In managing the business do you face any problem ?

Table - 16
Response
No. of Respondents
Percentage
A
14
35
B
6
15
C
12
30
D
8
20

Q13. Are you satisfied with the present business ? Table - 17

Response
No. of Respondents
Percentage
Fully Satisfied
24
60
Partly Satisfied
16
40
Partly dissatisfied
0
0
Dissatisfied
0
0

Q14. Would you like to set up your own unit independently in future ?

Table - 18
Response
No. of Respondents
Percentage
Yes
13
32.5
No
27
67.5

CHAPTER – 4




ANALYSIS
AND
INTERPRETATION


Analysis AND Intrepretation

Demographics

v Respondent’s Profile of Age :- Table - 1

Age Group
No. of Respondents
Percentage
No. of Respondents
Below 30
15
37.5
15
30-40
8
20
8
40-50
6
15
6
50-60
5
12.5
5
Above 60
6
15
6


No. of Respondents

Out of total respondents 37.5% was below 30 years, 20% was between 30-40 years of age, 15% were from 40-50 years and remaining were above this age group.
v Respondent’s Profile of Experience :- Table - 2

Experience
No. of Respondents
Percentage
Below 10
13
32.5
10-20
8
20
20-30
8
20
Above 30
11
27.5


Out of total entrepreneurs only 33% have experience below 10 years, 28% have experience more than 30 years and the remaining ranges between 10 to 30 years.

v Respondent’s Profile of Educational Qualification :- Table - 3
Educational Qualification
No. of Respondents
Percentage
Matric
12
30
Under Graduate
14
35
Graduate
14
35
Post Graduate
0
0
Professional
0
0

Majority of the respondents are graduates and post graduates which implies that they are well educated to adhere to the needs of environment, satisfy customers and thus become a good entrepreneurs.

v Respondent’s Profile of Family :- Table - 4
Type
No. of Respondents
Percentage
Nuclear
19
47.5
Joint
21
52.5

Out of total respondents 48% were having nuclear family while 52% were having joint family.
v Respondent’s Profile of Form of Organization :- Table - 5

Type
No. of Respondents
Percentage
Proprietor
12
30
Partnership
20
50
Pvt. Ltd.
8
20



Out of total 40 respondents 30% possess proprietary form of organization structure, 50% have their partnership firm and the rest 20% have their private limited organisations.

v Respondent’s Profile of Type of Business :- Table - 6

Type
No. of Respondents
Percentage
Family
16
40
New
24
60


60% of the respondents opens a new business venture while remaining 40% have family business.

v Annual Turnover of Respondents :- Table - 7

Turnover
No. of Respondents
Percentage
Below 50 lacs
6
15
50 lacs – 1 crore
8
20
1 crore – 2 crore
12
30
2 crore – 3 crore
10
25
Above 3 crore
4
10


Out of total respondents 30% are having annual turnover between 1 crore – 2 crore, 25% are having between 2 crore – 3 crore, 20% are having between 50 lacs – 1 crore, 15% are having below 50 lacs and remaining are having turnover above Rs. 3 crore.

Q1. Which products are you manufacturing ?
v Carpet woollen yarn
v Insulated Electric wires and Cable’s etc.
v Spices
v Papad, Bhujia, and other food items.
v Hotel and Restaurent.
v Soya Badi and Besan.
v Bakery Products
v Cotton Dari / Goat, Camel Hair Dari / Silk / Woollen Dari etc.
v Packing Material
v Ceramic Products
v Marketing of Two Wheel


Q2. Which markets you are catering to ? Table - 8

Response
No. of Respondents
Percentage
Local Markets
9
22.5
Within the state
3
7.5
Within Country
24
60
Export
4
10



Out of 40 respondents 23% caters local markets, 60% does their production to satisfy the needs of people of their own country, 8% caters only their state and remaining are export oriented.

Q3. What motivated you to start the business ? Table - 9

Response
No. of Respondents
Percentage
To run the family
10
25
For name and fame
9
22.5
Incentives provided by Govt.
3
7.5
Not satisfied with the job/Unemployed
18
45



The main motivational factor was that most of the respondents i.e. 45% were not satisfied with their job or they were unemployed, the other factor was to run their ancestoral business and the least factor that motivates the respondents was the incentives that were provided by the Government.

Q4. Did you face any problem while setting up the unit ? Table - 10

Response
No. of Respondents
Percentage
Yes
32
80
No
8
20

Majority of the entrepreneurs i.e. 80% face problems while setting up a new unit. These problems have been elaborated in the following table and diagram :- Table – 10
Response
No. of Respondents
Percentage
Raw Material
6
18.75
Legal Formalities
8
25
Technology
2
6.25
Finance
9
28.13
Skilled Workers
4
12.5
Registration
3
9.37
Product Selection
0
0

Out of 32 respondents who face any difficulty while setting up new unit 28% face problem in getting loan or financial assistance, 25% face problem in fulfilling the legal formalities enforced, 19% face problem regarding non-availability of raw material, 13% face difficulty in getting skilled work force for their product, 10% face difficulty in getting registration, and the remaining face difficulty in copying up with the developed technology and machinery.
Q5. Do you think joining family business is easier than setting up a unit from the beginning ?
Table - 11
Response
No. of Respondents
Percentage
Yes
26
65
No
14
35
Can’t say
0
0


Majority of the respondents i.e. 65% agreed that joining family business is much more easier than setting up your own unit right from the beginning.

Q6. Do you think moral support of family members works in setting up the business ?
Table - 12
Response
No. of Respondents
Percentage
Very much
22
55
To some extent
13
32.5
Not at all
5
12.5


Out of total respondents 54% agreed that family members provides a great amount of moral support while 33% said that family support is necessary to some extent and the rest does not need any support from family while setting up new business unit.

Q7. Did you get financial support from the family for setting up the unit ?
Table - 13
Response
No. of Respondents
Percentage
Yes
22
55
No
18
45


Majority of the respondents i.e. 55% gets financial support from their family while setting up a new business venture and the remaining 45% remains needy.

Q8. Did you approach Banks/Financial Institutions for working capital / term loan ?
Table - 14
Response
No. of Respondents
Percentage
Yes
37
92.5
No
3
7.5



Large amount of entrepreneurs i.e. 92% approach Banks or financial institutions for their working capital or term loan while setting up a new production unit.



Q9. What different functions do you deal with ? Table - 15
Response
No. of Respondents
Percentage
Marketing
18
45
Production
6
15
Personnel
4
10
Finance
12
30


Majority of the entrepreneurs deals with marketing as their major functional area i.e. 45%, 30% deals with finance, 15% deals with production and remaining considers personel as their functional field.

Q10. In managing the business do you face any problem ?
Table - 16
Response
No. of Respondents
Percentage
A
14
35
B
6
15
C
12
30
D
8
20



Out of total entrepreneurs 35% said that they face problems related to personnel area, 30% said that they face problem while marketing their products, 20% said that they face problem while financing their unit and remaining face problem in production area.

Q11. Do you face any problem while travelling oustation ?
If Yes, (Please specify the Problems)
All the entrepreneurs are of the opinion that they do not face any problem while travelling outstation either in the context of their work of elsewith.

Q12. Do you think family business has its own limitations ?
If Yes (Please Elaborate)
According to the entrepreneurs family business have some limitations which are elaborated as follows :-
v Individual decisions have no value in business decisions.
v Less independent in business decisions.
v Less involvement in various functional areas i.e. Marketing, Finance etc.
v Less delegation of authority and responsibility.


Q13. Are you satisfied with the present business ? Table - 17

Response
No. of Respondents
Percentage
Fully Satisfied
24
60
Partly Satisfied
16
40
Partly dissatisfied
0
0
Dissatisfied
0
0


Majority of the entrepreneurs i.e. 60% satisfied with their current position and business and remaining are not satisfied with their work.



Q14. Would you like to set up your own unit independently in future ?

Table - 18
Response
No. of Respondents
Percentage
Yes
13
32.5
No
27
67.5


Out of the total entrepreneurs 67% are not willing to set up their own independent unit in future while remaining are ready to take risk and set up their unit in near future.

v If Yes, Why ?

The persons who are willing to set up a new business unit of their own in future, wants to opt this option because :-

v In order to gain experience of independent business.
v For name and fame.
.

1.
Family Businesses

In India family businesses account for about 70 percent of the total sales and net profits of the biggest 250 private sector companies. Big families have carved up the big industries. In vehicles, for example, the Tatas make lorries, the Birlas make Ambassador cars, the Bajaj family makes two whelers and the Mahindras make jeeps. They diversified into any business where they could get a permit to operate. Borrowing, mainly from public sector institutions, was easy, and company law make it simple to control subsidiaries through very small shareholdings. The Tata empire, for example, embraces some 70 companies, making everything from tea to watches, in which the parent company’s average stake is rarely above 15 per cent.

Entrepreneurship is not just a way to increase the level of innovation and productivity of organisations, although it will do total. More importantly, it is a way of initiating vast business so that work be comes a joyful expression of one’s contribution to society. The Indian entrepreneurs, intrapreneur and / or manager of the 90’s have to be moulded in phycho-philosophy rooted in the Indian context and values.

“The crisis in business is spiritual says Prof. Sitangshu Kumar Chakraborty, “All management ideas till now have been external-directed paradigms, developing behaviour and skills, not character and values. But meaning and richness must flow from mind to work, not the other way. We need a fundamental shift from the current reductionist, fragmentist, materialistic paradigm to one which recognises relationships, consciousness and spirit as the right aproach.”

The concept of entrepreneur and entrepreneurship incorporates basic qualities of leadership, innovation, enterprise, hard work, vision and maximisation of profits. All his socio-economic, organisational and managerial qualities are always directed towards the well being of the society and the community. He is committed to progress. He is a catalytic agent of development and change. Personal satisfaction and monetary rewards are blended with social betterment and welfare of mankind.
68-69.

Although many aspects of an entrepreneur’s background have been explored, only a few have differentiated the entrepreneur from the general populace of managers. The background areas explored include childhood family environment, education, personal values, age and work history.

Childhood family Environment.

Specific research topics concerning the family environment of the entrepreneurs include birth order, parents occupation(s) and social status, and relationship with parents. The studies of birth order have had conflicting results since Henning and Jardim found that female executives tend to be the firstborn. Being the firstborn or an only child is postulated to result in the child receiving special attention and thereby developing more self-confidence. For example in a national sample of 408 female entrepreneurs, Hisrich and Brush found 50 percent to be firstborn. Conversely, in many studies of male and female entrepreneurs, the firstborn effect has not been present. Since the relationship to entrepreneurship has not been established, further research on the firstborn effect is still needed to determine if it really does have an effect on an individual’s becoming an entrepreneur.

73

Moral Support Network

It is important for each entrepreneur to establish a moral-support network of family and friends – a cheering squad. This chearing squad plays a critical role during the many difficult and lonely times that occur throughout the entrepreneurial process. Most entrepreneurs indicate that their spouses are their biggest supporters and allow them to devote the excessive amounts of time necessary to the new venture.

Friends also pay key roles in a moral-support network. Not only can friends provide advice that is often more honest than that received from other sources, but they also provide encouragement, understanding, and even assistance. Enterpreneurs can confide in friends without fear of criticism.

Finally relatives (children, parents, grandparents, aunts, and uncles) can also be strong sources of moral support, particularly if they are also entrepreneurs. As one entrepreneur stated, “The total family support I received was the key to my success. Having an understanding cheering squad giving me encouragement allowed me to persist through the many difficulties and problems.

242

Why some Business Plans Fail

The entrepreneur has not made a total commitment to the business or to the family.

Lenders or investors will not be favorably inclined toward a venture that does not have full time commitment. Moreover, lenders or investors may expect the entrepreneur to make a significant financial commitment to the business even if it means a second mortgage or a depletion of savings.

The entrepreneur should also document customer needs before preparing the plan. Customer needs can be indentified from direct experience, letters from customers, or marketing research. A clear understanding of these needs and how the entrepreneur’s business will effectively meet them is vital to the success of the new venture.

19

Employment history also has an impact on entrepreneurial careers, in both a positive and a negative sense. On the positive side, entrepreneurs tend to have a higher probability of success when the venture created is in their field of work experience. This increased success rate makes the providers of risk capital particularly concerned when this work experience is not present. Negative displacement (such as dissatisfaction with various aspects of one’s job, being fired or demoted, being transferred to an undesirable location, or having one’s spouse take a new position in a new geographic area) encourages entrepreneurship, not only in the United States but in other cultures as well.

Although no definitive research has been done on the adult development history of entrepreneurs, it appears to also affect entrepreneurial careers. One’s development history has somewhat more of an impact on women, since they tend to start businesses at a later stage in life than men, usually after having experienced significantly more job frustration.

There is a similar lack of data on adult family/nonwork history. Although there is some information on entrepreneurs’ marital and family situations, the available data add little to our understanding of entrepreneurial career paths.

80

Is there something that differentiates an entrepreneur from the rest of the population? This chapter outlines the current thinking and research related to identifying the unique characteristics of a person who successfully launches a new venture. Developing an understanding of the characteristics and background of individuals starting new ventures is an important step in encouraging potential entrepreneurs and improving their probability of success.

A typical entrepreneurial profile in terms of experience and family background has been more clearly defined. Adult encouragement, successful entrepreneurial parents who serve as role models, and a supportive relationship that encourages in dependence and achievement are factors strongly linked to later entrepreneurial behaviour. Although there are personal characteristics and skills frequently present in successful entrepreneurs – such as leadership traits, experiences, and acquired skills differentiates a successful entrepreneur from an unsuccessful one, or even from a manager.

The research clearly indicates that there are many variables involved in the decision to become an entrepreneur. There are many successful corporate business careers. Perhaps these individuals lack an appropriate role model or support system. Watching a peer face the challenges and overcome risks associated with a new venture startup is frequently mentioned as a key influence in the entrepreneurial decision process. Although an individual can act as an inspiration to the new entrepreneur, a new venture is also in need of support from an individual or group providing information, advice, and guidance. There are many sources of support systems starting with friends and family and moving into the wider circle of professional contracts, clients, and industry organizations.

Significant growth in the number of women employed outside the home has created a new field of research that is concerned with the question of whether female employees, managers, and entrepreneurs are different from their male counterparts. It is clear that male and female entrepreneurs have much in common. Although some of the background and personality characteristics are quite similar, there are striking differences between the sexes in terms of motivation, departure point, and business skills brought to the venture. The difference in the types of businesses started can be attributed in large part to differences in education and work history.

In developing a unique description of an entrepreneur, there are several personality types that appear to be only entrepreneurial. One of these is the inventor, who can take on the role of an entrepreneur if a business is started around the product invented. Care needs to be taken to ensure that the business is not second in importance to the invention itself Other problem character traits include a lack of tenacity, perfectionism, the tendency to oversimplify, and paranoia.

368-369

After the entrepreneur, family and friends are the next most common source of capital for a new venture. They are most likely to invest due to their relationship with the entrepreneur. This helps overcome one portion of uncertainty felt by impersonal investors-knowledge of the entrepreneur. Family and friends provide a small amount of equity funding for new ventures, reflecting in part the small amount of capital needed for most new ventures. Even though it is relatively easy to obtain money from family and friends, like all sources of capital, there are positive and negative aspects. Even though the amount of money provided may be small, if it is in the form of equity financing, the family member or friend then has an ownership position in the venture and all rights and privileges of that position. This may make them feel they have a direct input into the operations of the venture, which may have a negative effect on employees, facilities, or sales and profits. Although this possiblity must be guarded against as much as possible, frequently family and friends are not problem investors and in fact are more patient than other investors in desiring a return on their investment.

In order to avoid problems in ths future, the entrepreneur must present the positive and negative aspects and the nature of the risks of the investment opportunity to try to minimize the negative impact on the relationships with family and friends should problems occur. One thing that helps to minimize possible difficulties is to keep the business arrangements strictly business. Any loans or investments from family or friends should be treated in the same businesslike manner as if the financing were from an impersonal investor. Any loan should specify the rate of interest and the proposed repayment schedule of interest and principal. The timing of any future dividends must be disowned in terms of an equity investment. If the family or friend is treated the same as any investor, potential future conflicts can be avoided. It is also beneficial to the entrepreneur to settle everything up front and in writing. It is amazing how short memories become when money is involved. All the details of the financing must be agreed upon before the money is put into the venture. Such things as the amount of money involved, the terms of the money, the rights and responsiblities of the investor, and what happens if the business fails must all be agreed upon and written down. A formal agreement with all these items helps avoid future problems.

Finally, the entrepreneur should carefully consider the impact of the investment on the family member or friend before it is accepted. Particular concern should be paid to any hardships that might result should the business fail. Each family member or friend should be investing in the venture because they think it is a good investment, not because they feel obligated.

482

To finance the assets and ensure that the new venture can meet its cash needs, it may be necessary for the entrepreneur to consider borrowing funds. Generally, to finance fixed assets the entrepreneur will assume long – term debt by borrowing from a bank. The bank’s collateral for such a loan will be the fixed asset itself. The alternatives to borrowing from a bank are to borrow from a family member, friend, or in the case of a partnership, having each partner contribute more funds to the business. A corporation may sell stock to raise funds for the new venture. This decision, however, may require the entrepreneure(s) to give up some equity in the business. Whatever the option chosen, the entrepreneur should consider the pros and cons of each.

597-599

SUCCESSION OF BUSINESS

Many new ventures will be passed onto family menbers. If there is no one in the family interested in the business, it is important for the entrepreneur to either sell the business or train someone within the organisation to take over.

Transfer to Family Members

Successfully passing the business down to a family member faces tough odds. Experts estimate that half of these attempts fail in the transition from first – to second generation ownership. Only about 14 percent make it to the third generation. The solution to minimize the emotional and financial turmoil that can often be created during a transfer to family members is a good succession plan.

An effective succession plan needs to consider the following critical factors :

The role of the owner in the transition stage : Will he or she continue to work full time, part time, or retire ?

Family dynamics : Are some family members unable to work together?

Income for working family members and shareholders.

The current business environment during the transition.

Treatment of loyal employees.

Tax consequences.

The transfer of a business to a family member can also create internal problems with employees. This often results when a son or daughter is handed the responsibility of running the business without sufficient training. A young family member can be more successful in taking over the business if he or she assumes various operational responsibilities early on. It is beneficial for the family member to rotate to different areas of the business in order to get a good perspective of the total operation. Other employees in these departments or areas will be able to assis in the training and get to know their future leader.

It is also helpful if the entrepreneur stays around for a while to act as an advisor to the successor. This can be helpful in the business decisions. Of course, it is also possible that this can result in major conflicts if the personalities involved are not compatible. In addition employees who have been with the firm since start up may resent the younger family member assuming control of the venture. However, while working in the organization during this transition period, the successor can help prove his or her abilities, justifying his or her future role.

Transfer to Nonfamily Members

Often a member of the family is not interested in assuming responsibility for the business. When this occurs, the entrepreneur has three choices: Train a key employee and retain some equity, retain control and hire a manager, or sell the business outright.

Passing the business onto an employee ensures that the new principal is familiar with the business and the market. The experience of the employee minimizes trasitional problems. In addition, the entrepreneur can take some time to make the transition smoother.

The key issue when passing the business onto an employee is ownership. If the entrepreneur plans to retain some ownership, the question of how much becomes an important area of negotiation. The new principal may prefer to have control, with the original entrepreneur remaining as a minority owner, stockholder, or consultant. The financial capacity and managerial ability of the employee will be important factors in the decision on how much ownership is transferred. In many cases the transfer or succession of a venture can take many years to meet all of the requirements of the parties involved. Since evidence indicates that most entrepreneurs wait until it is too late, it is important to begin the process long before there is a need to sell or transfer the ownership of the business. The U.S. Commerce Department indicates that about 70 percent of successful ventures never make it to the second generation of ownership.

Ron Noreli was one of the exceptions because he realized the importance of a succession plan and hired a search firm to help him find a successor. Unfortunately, even though he was able to hire someone who was to be groomed as his successor, the individual decided that he did not want to take the risk. Norelli had to start the process all over again and this time conducted the search personally by using his network of trusted business associates. After a number of candidates were evaluated and interviewed by the staff, they settled on a successor who would, over a number of years, buy Norelli out. Norelli went even further by promoting one of his staff to vice president with the intent that this individual would be a good candidate to succeed his successor. The entire process took about five years, and since he began the process early enough, it gave him the opportunity to leave the business gradually with the confidence that it would successfully continue in the future.

If the business has been in the family for some time and the succession to a family member may become more likely in the future, the entrepreneur may hire a manager to run the business. However, finding someone to manage the business in the same manner and with the same expertise as the entrepreneur may be difficult. If someone is found to manage the business, the likely problems are compatibility with the owners and willingness of this person to manage for any length of time without a promise of equity in the business. Executive search firms can help in the search process. It will be necessary to have a well-defined job description to assist in identifying the right person.

The last option, often referred to as harvesting, is to sell the business outright to either an employee or an outsider. The major considerations in this option are financial which will likely necessitate the help of an accountant and / or lawyer. This alternative also requires that the value of the business be determined.

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