Tag: Strategic Marketing Management Mumbai University BMS Notes

Venture Capital Assistance is financial support in the form of an interest free loan provided by SFAC to qualifying projects to meet shortfall in the capital requirement for implementation of the project.

The Small Farmer’s Agri-Business Consortium (SFAC) has launched the scheme named Venture Capital Assistance (VCA) Scheme for the welfare of farmer-entrepreneur to develop their agri-business. This scheme intends to assist in the form of the term loan to the qualifying projects of the farmers to meet their capital requirements for the implementation of the project.

Th primary aim of the scheme is to target Agri-business entrepreneurs through financial participation. It targets following people:

• Farmers
• Self Help Groups
• Producer Groups
• Companies
• Agriculture Exporters
• Units in agriexport zones
• Agriculture graduates either individually or collectively to start a agribusiness projects.
• Partnerships or Proprietory Firms.

List of Qualifying Projects:

(i) Project should be in agriculture or allied sector or related to agricultural services. Poultry and dairy projects will also be covered under the Scheme.

(ii) Project should provide assured market to farmers/producer groups.

(iii) Project should encourage farmers to diversify into high value crops, to increase farm incomes.

(iv) Project should be accepted by Notified Financial Institution for grant of term loan.

Objectives of the Scheme

• To help farmers, producer groups, and agriculture graduates to participate in the value chain through the Project Development Facility.
• To support the entrepreneurs in setting up an agribusiness venture which is approved by the banks, financial institutions regulated by the RBI.
• To strengthen the previous stages of state and central SFAC.
• To promote training and visits of agri-entrepreneurs in setting up agribusiness projects.
• To assist the backward linkages of agribusiness projects with producers.
• To provide assured markets to the producers to increase rural income and employment.

• Start-ups will be reimbursed a fixed amount for the seats occupied by them at co-working spaces/ incubators/ accelerators listed by the SPC. The benefits at the co-working spaces can be availed maximum for a period of two years per startup, at incubators can be availed maximum for a period of 1 year per startup and at accelerators will be for a period of 3 months per startup.
• The startup will be reimbursed 50% per seat cost offered by the co-working spaces listed by the SPC or a maximum benefit of INR 3000 per seat and can claim this benefit for a maximum cap of 8 seats only.
• The startup will be reimbursed 50% per seat cost offered by the incubators listed by the SPC or a maximum benefit of INR 5000 per seat and can claim this benefit for a maximum cap of 8 seats only.
• The startup will be reimbursed 50% per seat cost offered by accelerators listed by the SPC or a maximum benefit of INR 6000 per seat and can claim this benefit for a maximum cap of 8 seats only.
• The reimbursement in this scheme can be claimed on any of the plans offered by the co- working spaces/ incubators/ accelerators listed by the SPC.
• A total of 100 seats in co-working, 50 seats each in incubator and accelerator will be subsidized under this scheme each year.
• For certain deserving startups determined through the internal guidelines of the SPC, the SPC may choose to reimburse up to 100% of the amount paid to co-working/incubator/accelerator by the startups.
• Under no circumstance shall the benefits under this scheme be considered an entitlement. The SPC shall reserve the sole right to accept or reject applications.

Eligibility Criteria:

Start-ups certified by the Start-up Promotion Cell (SPC) are eligible for the benefits of subsidized seats offered by the co-working spaces/ incubators/ accelerators listed by the SPC.

All the startups have to pay digitally to co-working spaces/ incubators/ accelerators listed by the SPC. In case digital payments are not possible then it shall be up to the decision of SPC as per its guidelines to admit the expenditure.

The bank accounts of the Director/s of the start-ups should be linked to Aadhaar.

Link: https://www.startup.goa.gov.in/StartupIncentives

Startups are known to switch between accelerators as they naturally gravitate towards or start to seek value. Amid such a dynamic landscape what must an accelerator do to differentiate itself in the market? For starters, a truly successful accelerator must define a clear USP for itself and align with others to ensure true value for the ecosystem. Designing a sustainable program that helps a startup in every situation of its journey along with providing access to a robust set of expert mentors are vital to the success of an incubator or accelerator.

Business incubation has been identified as a means of meeting a variety of economic and socioeconomic policy needs, which may include job creation, fostering a community’s entrepreneurial climate, technology commercialization, diversifying local economies, building or accelerating growth of local industry clusters, business creation and retention, encouraging minority entrepreneurship, identifying potential spin-in or spin-out business opportunities, or community revitalization.

• They offer marketing and PR assistance to new companies to set up a brand name.
• Help a start-up to start basic operations and financial management.
• Business incubators have a strong network of influential people, and therefore, they can connect the business with the same to grow.
• Incubators also provide assistance and resources for conducting market research.
• They also help the start-ups in sorting their accounting books.
• Incubators bring credibility to the company. This helps the company to get loans and credit facilities from financial institutions.
• Often the start-ups do not know how to create an effective presentation to impress angel investors, venture capital and other investors. Business incubators, with plenty of experience behind them, help these companies with the presentations as well.
• Business incubators also act as mentors and advisors and assist the start-ups in all sorts of business-related issues.

Business incubators are essentially organizations that increase the survival rates of innovative startups and support the entrepreneurial process. Incubators earlier used to focus mainly on the IT segment but now they work with companies from diverse industries and orientations. This post discusses the concept of business incubators and business incubation, the role of business incubators, types of incubation services, and the phases involved in business incubation development.

Role of Business Incubators

• Business incubators help with the basics of business.
• They provide networking activities.
• They guide startups/ventures on how to compete with established industry players.
• They help startups save on operating costs.
• Incubators provide marketing assistance.
• Incubators help with market research.
• They provide high-speed internet access.
• Incubators help with accounting/financial management.
• They provide access to bank loans, loan funds, and guarantee programs.
• Incubators bring credibility to the company. This helps the company receive loans and credit facilities from financial institutions.
• They create long-lasting jobs for new graduates, experienced mid-career personnel, and veteran executives.
• Incubators help with presentation skills.
• They have a strong network of influential people who can connect startups/ventures with established businesses and individuals.
• They provide access to higher education resources.
• Incubators can tap into their networks of experienced entrepreneurs and retired executives.
• They link companies with strategic partners.
• They provide access to angel investors and venture capital.
• Business incubators organize comprehensive business training programs.
• They act as advisory boards and mentors.
• They help in management team identification.
• They offer marketing and PR assistance to new companies for brand establishment.
• They help with business etiquettes.
• They provide technology commercialization assistance.
• They help with regulatory compliance.
• They provide intellectual property management.
• They create jobs for mid-career personnel and veteran executives which benefits communities and drives economic growth.

Capital, Product and Marketing are the three key pillars through which a startup can become a sustainable company in the long run. Many startups end up focusing only on one or, at most, two of these pillars, which negatively affects them sooner or later.

Self-funded: This is the money you put into the company through your own savings or money borrowed from your friends/family. You should rely on it only to build a small prototype (or MVP) of your idea. Show off your MVP to a few target customers/investors to get their initial feedback. This will help you understand whether it makes sense to continue pursuing the idea or change it completely.

Investor funds: This can range from initial seed funding from an HNI to VC funding during Series A, B or C rounds. This money usually comes in only when your startup has already started earning its revenues from an existing set of customers. In some cases, however, investors will give you money if you have successfully exited startups earlier.

Customers: This is the profit you generate by selling your products or services to your customers. This is the most important source of capital for your startup, and you should spend a good amount of time building up this source. If you have a B2C product, then remember that it will require larger scale to bring in sufficient money initially. So, either continue looking for an investor or tie up with other businesses for bulk deals. You need to be cognisant of the fact that even in the B2B world, the money will flow in only three to six months after the delivery of your work.

A startup incubator is a collaborative program designed to help new startups succeed. Incubators help entrepreneurs solve some of the problems commonly associated with running a startup by providing workspace, seed funding, mentoring, and training (see list below for a a more extensive list of common incubator services). The sole purpose of a startup incubator is to help entrepreneurs grow their business.

Services provided by business incubators:

• Help with business basics
• Networking opportunities
• Marketing assistance
• High-speed Internet access
• Accounting/financial management assistance
• Access to bank loans, loan funds and guarantee programs
• Help with presentation skills
• Connections to higher education resources
• Connections to strategic partners
• Access to angel investors or venture capital
• Comprehensive business training programs
• Advisory boards and mentors
• Management team identification
• Help with business etiquette
• Technology commercialization assistance
• Help with regulatory compliance
• Intellectual property management and legal counsel

Design thinking is a term used to represent a set of cognitive, strategic and practical processes by which design concepts (proposals for products, buildings, machines, communications, etc.) are developed. Many of the key concepts and aspects of design thinking have been identified through studies, across different design domains, of design cognition and design activity in both laboratory and natural contexts.

Design thinking is also associated with prescriptions for the innovation of products and services within business and social contexts. Some of these prescriptions have been criticized for oversimplifying the design process and trivializing the role of technical knowledge and skills.

Wicked problems

Design thinking is especially useful when addressing problems which are wickedly difficult, in the sense of being ill-defined or tricky, not malicious. Horst Rittel and Melvin Webber contrasted these with “tame” or “well-defined” cases where the problem is clear and the solution available through applying rules or technical knowledge.

Problem framing

Rather than accept the problem as given, designers explore the given problem and its context and may re-interpret or restructure the given problem in order to reach a particular framing of the problem that suggests a route to a solution.

Solution-focused thinking

In empirical studies of three-dimensional problem solving, Bryan Lawson found architects employed solution-focused cognitive strategies, distinct from the problem-focused strategies of scientists. Nigel Cross suggests that ‘Designers tend to use solution conjectures as the means of developing their understanding of the problem’.

Abductive reasoning

In the creation of new design proposals, designers have to infer possible solutions from the available problem information, their experience, and the use of non-deductive modes of thinking such as the use of analogies. This has been interpreted as a form of Peirce’s abductive reasoning, called innovative abduction.

Co-evolution of problem and solution

In the process of designing, the designer’s attention typically oscillates between their understanding of the problematic context and their ideas for a solution in a process of co-evolution of problem and solution. New solution ideas can lead to a deeper or alternative understanding of the problematic context, which in turn triggers more solution ideas.

Representations and modelling

Conventionally, designers communicate mostly in visual or object languages to translate abstract requirements into concrete objects. These ‘languages’ include traditional sketches and drawings but also extend to computer models and physical prototypes. The use of representations and models is closely associated with features of design thinking such as the generation and exploration of tentative solution concepts, the identification of what needs to be known about the developing concept, and the recognition of emergent features and properties within the representations.

The five phases of Design Thinking:

• Empathise with your users
• Define your users’ needs, their problem, and your insights
• Ideate by challenging assumptions and creating ideas for innovative solutions
• Prototype to start creating solutions
• Test solutions

Team Is the Most Valuable Asset In Early Stage Startups

Every innovation is fueled by human capital so there is no doubt that a team is what drives every success story. However, at startups’ initial stages, with just an idea, vision and founders’ passion to build the next big thing, it is the team by which the startup is valued, that is, it is the team that investors fund, accelerators and incubators recruit, and key talents decide to join. Building a startup team with a shared passion, vision and with skills that complement each other should thus be one of the main priorities of entrepreneurs while keeping in mind that.

A Startup Is Not a Small Business

It is a phase and not a type of business. It is the phase during which founders aim at finding and validating a model that scales repeatedly, usually by leveraging technology. Startups are built for growth and it is for this main reason that most startups are tech startups; reaching more people through technology. Small businesses, in the other hand, execute proven models rather than search for one such as owning a restaurant, barbershop or a grocery store. From a business and revenue model perspective, small businesses are ahead of the curve.

Always collect a nickel from everyone who promises to buy from you. Do this and you won’t need any other revenue stream. People make promises all the time, especially to bright-eyed entrepreneurs. Nobody wants to say no and it’s easy to say yes something in the concept-stage. When it’s time to actually pay, customers seem to vanish. Always remember, there is a difference between someone who says they are going to buy and a buyer. Do you best to figure it out early.

Failure Is Part Of The Startup Success Formula

This essentially applies to anything in life but we have numbers to back this statement when it comes to building startups. According to a research study by Paul Gompers, Josh Lerner and David S. Sharfstein, first time entrepreneurs have an 18% chance of succeeding (from idea to exit) with their ventures whereas those who failed once have a 20% chance of making it the second time.

Furthermore, with a successful startup in the books, founders have a 30% chance to build another successful venture. That is, startup founders are more likely to build a successful company if they failed than if they’ve never tried. Don’t be afraid to fail; it’s all part of the startup success formula.

Never let anyone get in between you and the money. This applies to two fronts- financing and revenue.

Most Startups Are Self-Funded

According to Fundable, less than one percent of startups are funded by angel and venture capital investors. 0.05% of startups receive venture capital funding while 0.91% are angel funded. Building or at least initiating a startup venture using personal savings, credits, family and friends has been the medium for most startup founders. 80% of startups are self-funded.

Don’t think your product will sell itself. This rarely happens. Entrepreneurs need to always be in sales mode. Unfortunately most of them spend more time developing their product than finding customers. If you simply can’t resist the temptation to work on your product make a rule for yourself to spend at least as much time selling it.

There Is No Such Thing as Bug-Free Software

Especially with complex software. Frequent changes in software specification, architectural decisions, requirement gathering, usability, robustness, etc. are a few reasons why complex software, one that attempts to solve big problems faced by many people at the same time, will have bugs in one way or another. Startups build great products, ones with less bugs and better experience, over time.

Culture Matters

It is the set of written and unwritten rules, values, and assumptions by which a startup operates and grows. More often than not, the startup culture takes after the styles, beliefs and personalities of the founders. While there is nothing wrong with that, it can be a limiting factor in startup growth, especially if the startup grows out of the initial startup phase and the values and principles that should drive the startup are not aligned with the culture. For instance, if among the rules and values in the culture of a startup are about taking measurable decisions, minimizing risk, and hiring locals first, growth potential and investors’ interest decline consequently.

Furthermore, startup culture has been shown to have a major impact on recruitment and employee retention. A survey by a commercial real estate startup, TheSquareFoot, revealed that for workers, culture is as important as business strategy, has a major impact on employee happiness and satisfaction, affects financial and employee performance, and highly influenced by the physical office space. Why is this so important? First, the findings show that startups with happy employees outperform the competition by 20% and secondly, highly engaged employees are 38% more likely to have above average productivity.

Feasibility Analysis refers to the process of examining the viability of a business idea. It means assessment of the potential and practical applicability of business idea. It is not just concerned with product or service but it is study of business viability as a whole. Feasibility analysis helps in identifying possibility, practicality, capacity and achievability of the project.

A prospective entrepreneur having creative and innovative idea must conduct feasibility analysis. It may not only add vitality to the viability of the underlying business proposition but also add vision to the business opportunity.

The following points equips an entrepreneur to decide if he should continue with the existing business idea or not:

• Is this business possible?
• Is this business practicable?
• Probability of success of business in future?
• Do I have access to all the resources required to start the business?

Feasibility analysis helps to critically analyze the business concept in detail. It requires use of both primary as well as secondary data.

Primary data can be collected from potential customers, industry experts etc. while secondary data can be collected through previous studies (if any), published sources, reports and feedback taken by other firms.

Need for Feasibility Analysis

• Feasibility analysis helps in providing guidelines for preparing business plan.
• Through feasibility study, Shortcomings/gaps if any can be detected and measures can be taken to resolve them.
• It helps in understanding the viability of the concept or business idea.
• It boosts up the confidence level of an entrepreneur w.r.t the business idea.
• It reduces the chances of business failure.
• It apprises entrepreneur about the risk involved.
• It Saves an entrepreneur from potential business loss and instills the prospects of success driven by hard work and risk taking capability.
• It also ropes in the confidence of potential investors.

Elements of Feasibility Analysis

Feasibility analysis includes study of various aspects of a business. It includes identifying product viability, technical feasibility and commercial feasibility.

Following are some of the important aspects that should be considered by an entrepreneur while conducting a feasibility analysis:

1. Product/Service Feasibility Analysis – Give Example:

It includes studying various aspects of product/service to be provided to customers. The main aspect to be examined here is testing the desirability and demand for product/service.

In order to test the desirability, one needs to examine following factors:

• What excites consumer about the product. What attributes makes him desire a product? Is it look of the product, is it the fragrance, do users provide importance to size and shape of the product (e.g. soaps).
• What need does the product satisfy?
• Does it fill a gap in market?
• Does it solve customer’s problem?

1. Not only these, it also includes the study of right time to introduce a product? Is there any particular occasion when people buy/try new product e.g. during the time of Diwali, Wedding Season etc. For example, during wedding season there is not only wide range of Indian clothes available in the market but there is also increase in related products like ornaments, footwear’s etc.

So, in order to test desirability and demand for the product, concept testing is done at this stage. Under this, description about product/service is mentioned and shared with potential customers, industry experts to solicit their responses. Their feedback on the same, provides insights about the viability of a product. It provides answers to questions like preferences/dislikes about the product, suggestions that can be incorporated to improve the utility of the product.

Given the volatile nature of the market, these days forecasting the demand for the product is not an easy task. Therefore start-ups can go for “Buying Intention Survey”. It helps entrepreneurs identify/ estimate the demand for a product in the market in future.

An entrepreneur may use questionnaire for this and distribute it among targeted markets. It gives them an indication about intention of customers to buy the product. Any modifications required in the product may be brought to the notice of the entrepreneur at this stage. It improves chances of successfully launching the product in the market.

2. Industry Analysis/Target Market Accessibility (Primary Search, Secondary Search):

Industry refers to groups of firms producing similar or substitute products/services.

An Entrepreneur should conduct feasibility analysis to find, industry attractiveness for the product. Various parameters can be used to study an industry like demographic characteristics of the target group, growth pattern in industry, number of firms competing against each other, profit margins, entry barriers in the industry etc.

Industry is considered attractive enough if profit margins are high, number of competitors are low and firm’s life cycle is in initial stages. This gives lot of scope for the firm to venture in the industry and innovate.

3. Technical Feasibility/Concept Test:

Technical feasibility is study of most appropriate technology to be adopted by business to transform business idea into easily marketable product. Under this, factors like technology to be used, production process involved, type of raw materials needed, ideal size of plant to be installed and equipments required are assessed.

Also factors like manpower requirement, funds needed to support use of latest technologies, cost involved in developing or buyout along with implementation, are judged for success of business.

4. Commercial Feasibility/Business Concept:

Commercial viability is the study of viability of business idea on commercial scale. It is possible to develop environmentally sustainable as well as useful products, yet such products may not be commercially appropriate. Therefore, it is imperative to conduct commercial feasibility test before taking the final decision to commence the production of a product.

A commercial feasibility facilitates an entrepreneur to identify following relevant factors:

• Manufacturing cost of production over short run and long run.
• Anticipating demand for product in near future and in long run.
• Competition level in the market.

Higher cost of production, intense competition level and inefficiency in operations can pose serious threats for firm in long run. One should either be able to fight these challenges to survive or should scrap the project at its planning stage only to avoid wastage of time, resources, manpower and capital.

5. Financial Feasibility:

Assessing financial feasibility of the product involves study of various costs aspects related with carrying of the project.

Under financial feasibility firm identifies following factors:

• Cost of the Project-Fund Required to Start Sustain Initial Losses:

Cost of project primarily includes capital budgeting expenditure on acquisition of capital assets like land and building, plant and machinery, furniture and fixture and other long term revenue yielding assets. It is a long term commitment of substantial amount therefore decisions for investment in these types of assets should be taken carefully. Investments in long term assets are irreversible in nature and expose the firm to substantial risks.

• Working Capital:

Estimation of Working capital requirements should be done with utmost care as both over investments as well as under investments in working capital can hamper routine nature activities to great extent. Having insufficient working capital will lead to liquidity crunch and will stall the business activities while excessive investments in working capital will block the funds that will undermine the profitability.

• Break Even Analysis:

Break-even level is that level of activity at which a firm is able to meet all the variable costs out of its revenue. Identifying the possible sales volumes at which break-even level will be achieved is important for working of business, as it indicates the stage till which firm will continue to make losses. Break-even level will give an idea about resources and time required to reach that particular level of activity,

• Projected Income Statements:

Finance is the backbone of any business. Future sales are projected and revenue charts are prepared to assess the inflow and outflow of funds in the business. Projected income and expenditure statements reflect the magnitude of gap between the income and expenditure so that the difference between the two can be bridged by arranging for funds or deploying excess funds in lucrative avenues.

Debt financing occurs when a firm raises money for working capital or capital expenditures by selling debt instruments to individuals and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid. The other way to raise capital in debt markets is to issue shares of stock in a public offering; this is called equity financing.

A company can choose debt financing, which entails selling fixed income products, such as bonds, bills, or notes, to investors to obtain the capital needed to grow and expand its operations. When a company issues a bond, the investors that purchase the bond are lenders who are either retail or institutional investors that provide the company with debt financing. The amount of the investment loan also known as the principal must be paid back at some agreed date in the future. If the company goes bankrupt, lenders have a higher claim on any liquidated assets than shareholders.

Cost of Debt

A firm’s capital structure is made up of equity and debt. The cost of equity is the dividend payments to shareholders, and the cost of debt is the interest payment to bondholders. When a company issues debt, not only does it promise to repay the principal amount, it also promises to compensate its bondholders by making interest payments, known as coupon payments, to them annually. The interest rate paid on these debt instruments represents the cost of borrowing to the issuer.

The sum of the cost of equity financing and debt financing is a company’s cost of capital. The cost of capital represents the minimum return that a company must earn on its capital to satisfy its shareholders, creditors, and other providers of capital. A company’s investment decisions relating to new projects and operations should always generate returns greater than the cost of capital. If a company’s returns on its capital expenditures are below its cost of capital, the firm is not generating positive earnings for its investors. In this case, the company may need to re-evaluate and re-balance its capital structure.

The formula for the cost of debt financing is:

KD = Interest Expense x (1 – Tax Rate)

where:

KD = cost of debt

Since the interest on the debt is tax-deductible in most cases, the interest expense is calculated on an after-tax basis to make it more comparable to the cost of equity as earnings on stocks are taxed.

Debt Financing Options

Bond issues

Another form of debt financing is bond issues. A traditional bond certificate includes a principal value, a term by which repayment must be completed, and an interest rate. Individuals or entities that purchase the bond then become creditors by loaning money to the business.

Bank loan

A common form of debt financing is a bank loan. Banks will often assess the individual financial situation of each company and offer loan sizes and interest rates accordingly.

Family and credit card loans

Other means of debt financing include taking loans from family and friends and borrowing through a credit card. They are common with start-ups and small businesses.

Debt Financing Over the Short-Term

Businesses use short-term debt financing to fund their working capital for day-to-day operations. It can include paying wages, buying inventory, or costs incurred for supplies and maintenance. The scheduled repayment for the loans is usually within a year.

A common type of short-term financing is a line of credit, which is secured with collateral. It is typically used with businesses struggling to keep a positive cash flow (expenses are higher than current revenues), such as start-ups.

Debt Financing Over the Long-Term

Businesses seek long-term debt financing to purchase assets, such as buildings, equipment, and machinery. The assets that will be purchased are usually also used to secure the loan as collateral. The scheduled repayment for the loans is usually up to 10 years, with fixed interest rates and predictable monthly payments.

Advantages of Debt Financing

Tax-deductible interest payments

Another benefit of debt financing is that the interest paid is tax-deductible. It decreases the company’s tax obligations. Furthermore, the principal payment and interest expense are fixed and known, assuming the loan is paid back at a constant rate. It allows for accurate forecasting, which makes budgeting and financial planning easier.

Preserve company ownership

The main reason that companies choose to finance through debt rather than equity is to preserve company ownership. In equity financing, such as selling common and preferred shares, the investor retains an equity position in the business. The investor then gains shareholder voting rights, and business owners dilute their ownership.

Debt capital is provided by a lender, who is only entitled to their repayment of capital plus interest. Hence, business owners are able to retain maximum ownership of their company and end obligations to the lender once the debt is paid off.

Disadvantages of Debt Financing

Adverse impact on credit ratings

If borrowers lack a solid plan to pay back their debt, they face the consequences. Late or skipped payments will negatively affect their credit ratings, making it more difficult to borrow money in the future.

The need for regular income

The repayment of debt can become a struggle for some business owners. They need to ensure the business generates enough income to pay for regular installments of principal and interest.

Many lending institutions also require assets of the business to be posted as collateral for the loan, which can be seized if the business is unable to make certain payments.

Potential bankruptcy

Agreeing to provide collateral to the lender puts their business assets at risk, and sometimes even their personal assets. Above all, they risk potential bankruptcy. If the business should fail, the debt must still be repaid.