UNIT-3

Incubation and Take-off:

INCUBATION:
Business Incubation is the name given to the process, wherein an individual or
an organization supports the establishment and growth of a start-up. Those supporting
the start-up or new companies are called business incubators.

Business incubator is an organization that helps startup companies and

individual entrepreneurs to develop their businesses by providing a fullscale range of
services starting with management training and office space and ending with venture
capital financing.

The National Business Incubation Association (NBIA) defines business

incubators as a catalyst tool for either regional or national economic development.
NBIA categorizes its members' incubators by the following five incubator types:
academic institutions; non-profit development corporations; for-profit property
development ventures; venture capital firms, and a combination of the above.

Business incubators differ from research and technology parks in their

dedication to startup and early-stage companies. Research and technology parks, on
the other hand, tend to be large-scale projects that house everything from corporate,
government, or university labs to very small companies. Most research and
technology parks do not offer business assistance services, which are the hallmark of
a business incubation program. However, many research and technology parks house
incubation programs.
TAKE-OFF:
Growth has been one of the key driving forces behind our entire humanity as
we know it - centuries of capitalism and cultural nuances have led us to seek growth
in ourselves, our communities, and our businesses. It’s part of our DNA, and
considered a natural evolution of one way in which we can measure success and
happiness.
When embarking on the journey to start a business, every business owner
begins with the hope of a strong and successful future. Once you’ve moved past the
startup period, a period of growth ensues. Few business owners, however, are ready.
As a result, over-stretching, poor planning, or unexpectedly rapid growth could lead
to the collapse of your business.
Here are some foundational signs that your business is ready for rapid, sustainable
growth:

1. Be ready to commit
Going from the startup phase to the rapid growth phase requires passion,
longer work hours, dedication and a lot of responsibility. If you are ready to put in
your all while also managing other aspects of your life, you may be ready to take your
business to the next level.
2. Set up your finance and structure
Financial management and corporate structure are two key aspects of any
business and become increasingly important as your business grows. Having an
understanding of your own accounting and finances will allow you to effectively
allocate capital and resources, understand how financial investments will impact your
profits, and sustainably scale your business. From a practical standpoint, your
business should have the right legal and financial structure to ensure you and your
business are protected.
3. Tweak your revenue models
It’s important to structure your business model in a way that is profitable in
the long term. Your current revenue model should be performing presently, but you
should take steps to maximize revenue and master your revenue model before taking
your business to the next level. In addition to sustainable profitability, the road to
rapid growth also requires cost efficiencies and a healthy profit margin. For example,
using e-commerce and leveraging technology as opposed to a physical sales force will
keep your overhead costs down drive up your profit margin per sale.
4. Cash is key
Your goals of expansion can only be achieved with capital. Growth is often
dependent upon a business’s ability to generate and manage cash. Cash flow crises are
a top killer of small businesses. As you grow, you will have increased expenses that
include higher rent, utilities, more employees and inventory costs. You should also be
financially able to weather unanticipated events, seasonal variations in business, and
invest in new technology and capital assets. If you project a need for greater cash flow,
you can consider engaging investors for external financing.
5. Select a growth strategy
Knowing your business is ready for rapid growth involves having a strategy
for growth that involves evaluating your vision, industry trends, market forces,
competition, and target audience behaviour. ex. Your strategy should also outline
growth pathways for existing customers, new business, new competencies and new
ways to market.
Your plan can be ever evolving, but it must help you react quickly and
efficiently to marketplace changes. Consider how you are going to allocate your
capital to grow, what your staffing plans are and how you are going to manage daily
processes during all of that.
6. Good people are critical
Many business owners start their business with friends or family, but the key
to rapid growth is understanding that relationships above and beyond those are critical
to fuel a successful and scalable business. In some cases, teams that have launched a
business initially may not have the skills to scale the business over long term.

Problems encountered - Structural:

A company with a strong organizational structure benefits from improved
communication, a well-defined hierarchy and the ability to create a unified company
message. As efficient as organizational structure can be, it can also create problems
that can lead to loss of productivity and internal conflict. In order to maintain a robust
company framework, you need to be able to identify issues within an organizational
structure and deal with them as they occur.
Some of the problems are:

Conflict Caused by Departmental Loyalty

One of the dangers of creating departments is the appearance of an "us versus
them" mentality between different groups. Sales may feel in conflict with accounting
because new customers are not getting approved for credit terms. Logistics is at odds
with manufacturing because products are not being built fast enough to meet shipping
deadlines.

Departments tend to get competitive and feel that their work is more important to the
success of the company than the work of the other groups. This can cause breaks in
communication that affect productivity.

Changes Brought on by New Management

If there have not been changes in management for many years, then the
company will start to settle into a way of doing things that is efficient and comfortable
for the existing management team. Changes in management, for whatever reason, can
put a strain on the organizational structure of an organization. The new manager, or
managers, may be unfamiliar with the way the organizational structure has been run
for years and try to put a new spin on how things should be run. There is an
adjustment period for employees and other managers.

Effective Communication Keeps a Business Running Smoothly

Effective communication is required to keep an organizational structure
running smoothly. Without communication, new ideas and processes can get confused.
Managers may begin to redouble efforts in an attempt to claim certain parts of a
process as their own.
This is why executive communication to the rest of the company is critical to the
success of any organizational structure. If departments are not clear on precisely what
their responsibilities are, then the ensuing confusion can slow production down.

Communication About Company Goals

An organizational structure is only effective when the entire company uses it
properly, according to management consultants Liebowitz and Associates. When
upper management creates departmental goals for the rest of the company without
first consulting with the managers of those departments, the company runs the risk of
not making its goals. In order for an organizational structure to be effective, goal-
making needs to be a two-way process. When upper management does not seek the
input of the rest of the company to create company goals, then resentment can set in
and morale begins to drop.

Problems encounted Structure, Financial and Managerial Problems:

Structural Problems:-
i. Strategy
ii. Development
iii. Marketing
iv. Business Type
v. Planning

Financial Problems :-
i. Lack of Investment
ii. Lack of Investment Guidance
iii. Poor control of working capital

Managerial Problems:-
i. Inappropriate talent
ii. Poor employees
iii. Management of Organization

Types of Uncertainty:
Uncertainty plays a crucial role for most entrepreneurship theories and is thus
at the core of entrepreneurship research. Despite decades of research efforts, the
notion of uncertainty is still somewhat vague and elusive, however. Consequently,
desirable improvement of our understanding of uncertainty requires further
considerations.
There are three types of uncertainty, namely as follows;
i. State Uncertainty
ii. Effect Uncertainty
iii. Response Uncertainty

State Uncertainty
State uncertainty refers to when a business manager is unable to determine what
could happen as a result of the business environment. For example, if you're running
a business that holds outside events, you deal with state uncertainty during the
months of April and October when you really can't be sure what the weather will be.
It can also occur when you're unsure of what laws the government might pass that
could impact your business.

Effect Uncertainty
Once you've figured out what might happen, effect uncertainty comes into play. It
refers to when you can't figure out how outside environmental events might affect
your business either now or in the future. If you run an outdoor event business,
effect uncertainty occurs when you know it's going to rain but you don't know if it'll
keep people away.

Response Uncertainty
Once you know what effects a change in state will have for your business, you can
then plan a response. Response uncertainty refers to your inability to be sure of how
the market will react to the actions that you take. For instance, if you move your
outdoor event indoors, you can't be sure that people will want to be inside.

Institutional support for new ventures

SUPPORTING ORGANISATIONS - ALL INDIA INSTITUTIONS
1 Small Scale Industries Board:
SSI Board is the apex non-statutory advisory body constituted by the
Government of India to render advice on all issues pertaining to the SSI sector. It
provides a forum to its members for interaction tofacilitate co-operation and inter
institutional linkages and to render advice to the Government on various
policy matters, forthe development of the sector. The Board was first constituted in
1954. Its term is for two years.
2 Ministry of Small Scale Industries:
The process of liberalization and market reforms has created wide-ranging
opportunities of the development of small scale industries. At the same time, 280
changing world scenario has thrown up new challenges to the very existence of this
sector. The need of the hour is to suitably strengthen the sector so that it could adapt
itself to the changed environment and face the challenges boldly and effectively.
The implementation of policies and various programmers/schemes for
providing infrastructure and support services to small enterprises is undertaken
through its attached office, namely the Small Industries Development Organization
(SIDO),
Statutory bodies/other organizations like
 Khadi and Village Industries Commission (KVIC) & Coir Board,
 National Small Industries Corporation (NSIC) and
Three training institutes-
 National Institute of Small Industry Extension Training (NISIET), Hyderabad,
 Indian Institute for Entrepreneurship (IIE),
 National Institute for Entrepreneurship and Small Business Development
(NIESBUD)

3 Small Industry Development Organisation (SIDO):

 Advising the Govt. in policy matters concerning small scale sector.
 Providing techno-economic and managerial consultancy, common facilities and
extension services.
 Providing facilities for technology up-gradation, modernization quality
improvement & infrastructure.
 Human resources development through training and skill up-gradation.
 Providing economic information services.
 Maintaining close liaison and vital linkage with the Central Ministries, Planning
Commission, Financial Institutions, State Govts. & similar other developmental
organizations/agencies related to the promotion and development of SSI Sector

4 National Small Industries Corporation (NSIC) Limited:

Some of the main services provided by NSIC are described below:
 Machinery and Equipment (Hire-Purchase Scheme)
 Machinery and Equipment (Lease Scheme)
 Financial Assistance Scheme
 Assistance for Procurement of Raw Material
 Marketing Assistance
 Government Store Purchase Programme
 Technology Transfer Centre

5 The Khadi and Village Industries Commission (KVIC)

The Khadi and Village Industries Commission (KVIC) is a statutory body created by
an Act of Parliament in April 1957.
The KVIC is supposed to do the planning, promotion, organization and
implementation of programmes for the development of khadi and other village
industries in the rural areas in coordination with other agencies engaged in rural
development wherever necessary. The broad objectives that the KVIC has set before
it are:
 The social objective of providing employment
 The economic objective of producing saleable articles,
 The wider objective of creating self-reliance amongst the poor and building up of
a strong rural community spirit

6 Coir Board:
Coir Board is a statutory body established by the Government of India under a
legislation enacted by the Parliament namely Coir Industry Act 1953 for the
promotion and development of Coir Industry in India as a whole.

7 Industrial Finance Corporation of India ltd (IFCI):

Some sectors that have directly benefited from IFCI’s disbursals
include:
 Consumer goods industry (textiles, paper, sugar);
 Service industries (hotels, hospitals);
 Basic industries (iron & steel, fertilizers, basic chemicals, cement);
Incentives and facilities for Entrepreneurs:

 Reservation
 Preference in Government purchases
 Price preference
 Supply of raw materials
 Excise duty
 RBI's credit guarantee scheme
 Financial assistance
 Technical consultancy services
Examples of Incentives
Industrial estates, industrial complexes, availability of power, concessional finance,
capital investment subsidy, transport subsidy, are few examples of incentives to solve
constraints faced by entrepreneurs in small scale sector.

Advantages of providing Incentives to Entrepreneurs

Following are the advantages of providing incentives to entrepreneurs.

1. Decentralization of economic power

Incentives encourages prospective entrepreneurs to take up industrial ventures and
results in decentralization of economic power in few hands.
2. Balanced regional development
Incentives are given to entrepreneurs establishing industries in backward areas. Hence,
it results in the dispersal of industries over India’s geographical area and contributes
to regional balanced development.
3. Transformation of Technology
Incentives help in the transformation of traditional technology into modern
technology. Traditional technology is characterized by low skill; low productivity and
low wages, whereas modern technology is subsequently characterized by improved
skills, high productivity, raising wages and a higher standard of living.
4. Overcomes Difficulties
The package of incentives and concessions are given to entrepreneurs for setting up
units both in backward as well as developed districts. But generally it is given for
setting up units in backward area. It is provided to offset the disadvantages prevailing
in such places.
5. Generates Industrialization
Industrial policy uses incentives both to correct the market imperfections and to
accelerate the process of industrialization in the country. Regional balances can also
lead to effective utilization of regional resources, removal of disparities in income and
levels of living and contribute to a more integrated society.
6. Encourages Entrepreneurship
The new entrants in the field face many obstacles on account of inadequate
infrastructures. The new entrepreneur is supported by the government agencies
through various incentives. Being a new entrant, an entrepreneur may lack marketing
and entrepreneurial skills. An entrepreneur requires support from government
agencies to compete with competitors. The subsidies and concessions motivate the
entrepreneur both financially and non financially and promotes entrepreneurship in
the country by removing economic constraints.
7. Helps to Overcome Competition
Incentives help the entrepreneur to survive and compete with the competitors. Some
of the incentives are concerned with the survival and growth of industries. Several
incentives are confined to the first few years of the establishment of the unit while a
few of them are made available over a long period.

Some of the financial institutions supporting small scale industries in

India are:-

1. State Finance Corporations (SFCs)

2. Commercial Banks
3. Small Industries Development Bank of India (SIDBI)
4. Industrial Finance Corporation of India (IFCI)
5. Industrial Credit and Investment Corporation of India (ICICI Bank)
6. Industrial Development Bank of India (IDBI)
7. Small Industries Development Fund (SIDF)
8. National Small Industries Corporation
9. National Bank for Agriculture and Rural Development (NABARD)
10. Central Government Stores Purchase Programme
Financial Institution # 1. State Finance Corporations (SFCs):
These institutions extend term loans for the purchase of land, construction of factory
premises and purchase of machinery and equipment for the setting up of new
industries or for expansion and modernization of the existing ones. SFCs generally
prescribe a margin of 25 per cent and allow an initial holiday of two years for the loan
repayment

Financial Institution # 2. Commercial Banks:

These mostly provide short term and, in some cases, medium term financial
assistance to small scale units. Short term credit facilities are granted for working
capital requirements like those for raw materials, goods-in-process, finished products,
bills receivables, and book debts.
Medium term loans are granted for the acquisition of land, construction of factory
premises, purchase of machinery and equipment, and operative expenses. These loans
are generally granted for periods ranging from five to seven years. Banks also
establish letters of credit on behalf of their clients favouring suppliers of raw
material/machinery (both Indian and foreign) which extend the bankers assurance for
payment and thus help their delivery

Financial Institution # 3. Small Industries Development Bank of India (SIDBI):

The Small Industries Development Bank of India—the apex bank for small
scale industries—extends assistance to SSI units through various schemes.
The activities of SIDBI are as follows:
i. Refinancing of loans and advance extended by the primary lending institutions to
industrial concerns in the small scale sector and also providing resource support to
them;
ii. Discounting and rediscounting of bills arising from sale of machinery to, or
manufactured by, industrial concerns in the small scale sector;
iii. Extension of seed capital/soft loan assistance under National Equity Fund, Mahila
Udyam Nidhi, and Seed Capital Schemes through specified lending agencies;
iv. Granting direct assistance as well as refinancing of loans extended by primary
lending institutions for financing export of products manufactured by industrial
concerns in the small scale sector;
v. Providing services like factoring, leasing, etc., to industrial concerns.
Some of the Government Policies for development and promotion of Small-Scale
Industries in India are:
1. Industrial Policy Resolution (IPR) 1948,
2. Industrial Policy Resolution (IPR) 1956,
3. Industrial Policy Resolution (IPR) 1977,
4. Industrial Policy Resolution (IPR) 1980 and
5. Industrial Policy Resolution (IPR) 1990.

1. Industrial Policy Resolution (IPR) 1948:

The IPR, 1948 for the first time, accepted the importance of small-scale

industries in the overall industrial development of the country. It was well realized

that small-scale industries are particularly suited for the utilization of local resources

and for creation of employment opportunities.

However, they have to face acute problems of raw materials, capital, skilled

labour, marketing, etc. since a long period of time. Therefore, emphasis was laid in

the IPR, 1948 that these problems of small-scale enterprises should be solved by the

Central Government with the cooperation of the State Governments. In nutshell, the

main thrust of IPR 1948, as far as small-scale enterprises were concerned, was

‘protection.’

2. Industrial Policy Resolution (IPR) 1956:

The main contribution of the IPR 1948 was that it set in the nature and pattern

of industrial development in the country. The post-IPR 1948 period was marked by

significant developments taken place in the country.

The parliament had also accepted ‘the socialist pattern of society’ as the basic

aim of social and economic policy during this period. It was this background that the

declaration of a new industrial policy resolution seemed essential. This came in the

form of IPR 1956. The IPR 1956 provided that along with continuing policy support

to the small sector, it also aimed at to ensure that decentralised sector acquires
sufficient vitality to self-supporting and its development is integrated with that of
large- scale industry in the country. To mention, some 128 items were reserved for

exclusive production in the small-scale sector.

3. Industrial Policy Resolution (IPR) 1977:

During the two decades after the IPR 1956, the economy witnessed lopsided industrial

development skewed in favour of large and medium sector, on the one hand, and

increase in unemployment, on the other. This situation led to a renewed emphasis on

industrial policy. This gave emergence to IPR 1977.

4. Industrial Policy Resolution (IPR) 1980:

The Government of India adopted a new Industrial Policy Resolution (IPR) on July 23,

1980. The main objective of IPR 1980 was defined as facilitating an increase in

industrial production through optimum utilization of installed capacity and expansion

of industries. Promotion of village and rural industries to generate economic viability

in the villages well compatible with the environment.

Thus, the IPR 1980 reimphasised the spirit of the IPR 1956. The small-scale sector

still remained the best sector for generating wage and self-employment based

opportunities in the country.

5. Industrial Policy Resolution (IPR) 1990:

The IPR 1990 was announced during June 1990. As to the small-scale sector, the

resolution continued to give increasing importance to small-scale enterprises to serve

the objective of employment generation.