Case Study of Entrepreneur: Prakash Bang

EXECUTIVE SUMMARY

Entrepreneurship is important in the daily business environment and is plays a crucial role in the world economy. Entrepreneurship is an interesting topic as it deals with the behaviour of the firm entrepreneur and the entrepreneur’s main competencies. The author seeks to find the reasons for the successes and failures of entrepreneurs in India by a special case study focus. The author seeks to find the factors essential from the set up phase to the growth phase of a firm. The author has taken a case study of an entrepreneur from India, operating in a small business environment. Entrepreneurship has played an important role in the success of the firms as well as the entire nation. Factors like the opportunity discovery realisation, the importance of networking, impact of government policies and the personality of an entrepreneur has a direct relation with the entrepreneurial process. India is a growing economy and especially after the liberalization period of 1991, there has been a massive change in the outlook of the entrepreneurial and globalization motives. The legendary Indian business tycoons are now world famous and show a promising future for India. The opportunity for the growth of entrepreneurship in India is massive and the concept of entrepreneurship is considered to take off soon. Indian government has now realised the true potential of entrepreneurs and many doors are opened for driving entrepreneurship in India. Factors responsible for the success and failures will be explored in relation to the life story of an entrepreneur.

Successes and Failures of Entrepreneurs- A case study focus on India

Chapter 1: Introduction

1.1 Background

The word entrepreneur has Latin roots – entre means to enter, pre means before and neur means nerve center. Entrepreneurs are individuals who enter any business and change that businesses nerve center (Shefsky, 1994). Another book says that the word entrepreneur originates from the French and the exact meaning is the one who takes between. An entrepreneur is known as the co-ordinator of different factors of production, the risk taker, the capitalist employer, the owner- manager etc. Many writers have contributed towards the roles and concepts of an entrepreneur. Richard Cantillon and Jean Baptiste Say are considered as the most important economist writers to have contributed on the role of an entrepreneur. Other famous writers to observe the role of entrepreneurs are Kirzner, Schumpeter, Knight, Casson and Shackle. This is how the approach to entrepreneurship was developed. The entrepreneurial personality consists of the key characteristics like need for achievement, high internal locus of control, visionary, innovative etc. However, the personality criticisms observed are the ignorance of the learning, preparation, serendipity and environment factors that may be more important than a personality. Entrepreneurship is hugely influenced by the environment in which a person is developed and the culture of an individual (Deakins and Freel, 2006).

Entrepreneurship is not a single concept and is defined in many different ways. In the modern usage an entrepreneur is a person who undertakes a commercial enterprise at a personal financial risk. Continuous change is essential and the development is expected in the technical, social and economical areas. This concept is dissimilar to the ancient and the medieval world where the philosophers failed to give attention to the economic matters. Historically, it is observed that the conceptions of the entrepreneur have evolved over time. The craftsman, the small scale trader, the new technologies and industries founder are all seen as entrepreneurs. As per Schumpeter, the entrepreneur’s view of innovation is revolutionary and discontinuous than small scale, marginal, gradual and cumulative. Gradually this develops into large firms which become the powerhouses of innovation. This leads to a depersonalized and automatized economic progress. On a macro scale, the success of entrepreneurs is a force that prevents the economic system running down and continuously resists the approach of the classical stationary state (Casson, et al., 2008)

Every economist understands that an entrepreneur is important and has a huge impact. Economists consider entrepreneurship as a meta- economic event and profoundly shape an economy. Economists not only have any explanations for the emergence of entrepreneurship which took place during the late nineteenth century but also as why entrepreneurship is not related to a particular culture or a country. However, the main reasons are rooted in the values, perceptions and attitudes in institutions (Drucker, 2006). Many economists have agreed that entrepreneurship plays the key role in developing any economy as the entrepreneurs generate jobs, create new businesses and increase productivity. It is interesting to note that almost 75% of the new jobs added to the American economy every year lead to over 99% of all the United States employers. The 2006 Global Entrepreneurship Monitor (GEM) observed that entrepreneurial behaviour is very important for innovation and growth of an economy and the companies need to take their attention towards the unexploited opportunities (America, 2008). Another entrepreneurship research paper prepared for the first GEM research conference which analysed the GDP for 36 countries, found that entrepreneurship plays a different role in countries in different stages of the economic growth and hugely affects the growth of an economy (GEM database, 2004). Therefore, it is essential to understand the main reasons involved in the successes and failures of entrepreneurs as there is a direct relation between the entrepreneurs and the economy.

Entrepreneurship system evolved in the advanced economy (US) and is successful. Whereas in a developing economy like India, the entrepreneurship system needs modification as the public policies need to support the role of entrepreneurship. After analysing 100 entrepreneurs from the US and Bangalore city of India, it was observed that the Bangalore entrepreneurs started with high capital which also resulted in lower profits and they competed against the large companies in India, whereas the US entrepreneurs started with less capital, competed against the other small business owners and also resulted in higher profits. This study summarised that the failure of Indian entrepreneurs was because of unfavourable tax system, harsh rules, bad restrictions and relatively low efficiency as compared to the favourable conditions enjoyed by the US entrepreneurs (Bhidenet, 2004). However there are many critical issues as why the entrepreneurs/ businesses fail like entrepreneurial weakness, poor leadership and commitment, weak marketing and finance debt, etc (management paradise, 2007)

Thus from the above arguments, we clearly understand the evolution of entrepreneurship, successful entrepreneurship leads to economic development and that many factors are involved in the overall success and failures of entrepreneurs.

1.2 Aims and objectives

1.2a Aim:

To understand the reasons for the successes and failures of the entrepreneurs – A case study focus of an entrepreneurs in India.

1.2b Objectives

The research seeks to study the life story of Mr. Prakash Bang, an entrepreneur based in India with relation to the following points:

1. To understand as how the business opportunity is discovered in the entrepreneurial process
2. To analyse the impact of networking on entrepreneurship and the influence of the social network on the set up and expansion of business.
3. To know as how the ideas or the links for exports are developed and the effect of the government’s role for internationalization.
4. The role model inspiration and the vision of the business.
5. The successes and failures of an entrepreneur.

1.3 Value and Contribution

The study will provide an understanding about the different stages involved in the entrepreneur’s life, i.e. from the start up to the growth of a firm. The research will provide insights about the various challenges faced by a small business entrepreneur. It will also serve as a guideline to the present entrepreneurs and the individuals who wish to become entrepreneurs in future.

1.4 Structure of the study

CHAPTER

CONTENT

Chapter 1

Introduction

This first chapter gives an idea about the project. The evolution and importance of Entrepreneurship. Then, the motivation for research is specified which is based on the successes and failures of the entrepreneurs. The last part shows the aims and objectives for the research.

Chapter 2

Literature Review

The literature review highlights and examines the previous studies in the entrepreneurship area and relevant theories, which form the background of this study. This includes economic importance of entrepreneurship, opportunity realisation and effects, the role of bank loans, entrepreneurial personality factors, role of government policies and entrepreneurial failures. There are different views observed on the factors responsible for entrepreneurship. This chapter presents information on the issues which are related to the entrepreneurship stages.

Chapter 3

Methodology

The chapter describes the research methodology adopted for the study and provides justifications for the approach. Qualitative research is used to analyse the case and the primary data is collected. Finally this chapter analyses the methodology and identifies the various challenges encountered during the research.

Chapter 4

Discussion of Findings

This chapter discusses the findings, considering the relevant current literature. It tries to identify the reasons related to the research and findings.

Chapter5

Conclusions

This chapter concludes the findings of the study and states the contribution of the research. It also identifies areas required for the future research by understanding the past failures of entrepreneurs. Finally this chapter provides recommendations on which will prove useful to the successes of entrepreneurs.

Chapter 2. Literature Review

2.1 Meaning and importance of entrepreneurship

Entrepreneurship is linked with the economic growth. An interesting study by Hicks in study of Texas sales receipts said that the highest failure rates had the highest employment growth and highest wages. It can be noted that entrepreneurship has at least a part on such benefits. It is also found that in case of failure of the entrepreneurs the consumer still get a higher valued offerings (Knott, 2008). Entrepreneurship is believed to be risky as it is highly innovative and high tech. Entrepreneurs shifts the resources from the areas of lower production to the areas of higher production. Entrepreneurship is implied to evolution and revolution. Different authors have different opinions on entrepreneurs. As per Drucker, Entrepreneurs are designers of new realities, i.e. as the introducers of a new product or process. Krizner (1973) suggested that entrepreneurs create new ways of organising economic activities. Mintzberg (1973) in line with the Schumpeterian said that the strategy of entrepreneurs is a discontinuous and radical change, which is guided by a tunnel of a vision. However, Lessem (1984) argued that entrepreneurs are experimental learners. The above views of different authors show that Entrepreneurship brings evolution as well as revolution (Klandt 1993). Entrepreneurs are the creators and leaders of the society who change the way people live, work, play and lead. Entrepreneurship evolved in America before 35 years and had a stunning impact on the cultural and the economic landscape of America. America’s entrepreneurship is now a global movement and has become a model for the business people and policymakers. It is noteworthy that EU’s action plan in 2000 to be the most competitive economy by 2010 by fuelling entrepreneurial minds, encouraging more people to start their own businesses and forming more entrepreneurial friendly regulatory as well as administrative environment. Entrepreneurship has also exploded in the countries like India and China leading to a positive social and economic change (Timmons and Spinelli, 2007)

2.2 Entrepreneurship in India

If we consider the example of India, it is known as the land of the successful world famous entrepreneurs like Mukesh Ambani and Lakshmi Mittal, who are currently at the top 8th and 9th position in the world as per the American magazine – Forbes (edubook, 2009) Besides these legendary family business players many new firms are also emerging in the growing economy – India. Many of the business are funded with the infusion of private equity or venture capital. However, as per the statistics from Brain and Company the venture capital market in India, has declined from US $ 17 billion in 2007 to US$ 14 billion in 2008. In spite these s many entrepreneurs like the CEO of hotmail.com are still bullish on the new ventures and assure that India for entrepreneurship still remains advantageous (Wharton, 2009)

If we consider GEM 2003 statistics for India, it showed that 12.5% of the Indian population is involved in the opportunity based ventures whereas in China it was just 5.5%. The dominance of India is because of the strong entrepreneurship environment and more iconic entrepreneurs. However with the emergence of the Chinese companies like alibaba.com in which yahoo took 40% stake, China has started producing role models. In near future Indian entrepreneurs are likely to fail as compared to the Chinese entrepreneurs (insead, 2008) At this moment, India needs to have a right environment, capital access and should enable networking and exchange as well. Presently, India is a land of technologists and the businesses can survive for much longer time than any other countries (narendra, 2009) Another point to be noted is that the Indian technology firms can add value to the country’s growth because a technology product company adds faster and quicker money using small power. The main challenge here is that these firms need to be competitive in future (sramanamitra, 2007)

Although the present scenario is completely different in India; during the period of 1980’s to 1990’s, the entrepreneurs had to face tough times as they had to obtain multiple licences and the government officers who were involved in the licence aspects were underpaid and ultimately resorted in bribery and corruption. Then the situations changed after 1990’s. The main reason for the change is because the Indian business practices started changing in 1991 after extensive economic reforms. Indian economy has sustained average GDP around 9% from 2006 to 2007. In the past decade, India’s GDP has increased from 21% to 33% and the foreign exchange reserves have reached over $200 billion. In today’s scenario entrepreneurship has taken off and is truly a promising market for the entrepreneurial firms. (go4funding, 2009) The growth of Indian Small Scale Industries (SSI) post liberalization, during 1994 to 2002 was over 4.1% annually and also the employment grew by 4% annually. (small sector growth in india, 2006)

2.3 Discovery of entrepreneurship opportunity and its effects

In Entrepreneurship, it is necessary to understand as how the opportunities are realised by the entrepreneurs. The concept of opportunity generation is a largely overlooked aspect but is central and an important part of entrepreneurship. Opportunity generation is defined as a situation in which a person creates new means to yield profits. It is crucial to understand the discovery of entrepreneurial opportunities in the life of an entrepreneur, as the characteristics of the entrepreneurial opportunities manipulate the entire entrepreneurial process. Authors like Schumpeter and Kirznerian have different view points on the role of opportunities which is represented in the table below:

Schumpeterian Opportunities

Disequilibrating

Requires new information

Very Innovative

Rare

Involves Creation

Kirznerian Opportunities

Equilibrating

Does not require new information

Less innovative Common

Limited to discovery

Table 1(Shane, 2003)

Also, certain individual differences are observed in the discovery of entrepreneurial opportunity:

Access to information

Life experiences

Social networks

Search processes

Opportunity Recognition

Absorptive capacity

Intelligence

Cognitive properties

Table 2 (Shane, 2003)

It is important to understand the Timmons model in entrepreneurship as the opportunity is considered at the heart of the business and is driven by the entrepreneur and the entrepreneur’s team. As per the Timmons model, the shape, size and the depth of the opportunity structures the necessary shape, size and the depth of the resources and the team. It is well explained in the following diagram:

Many activities function in the social, economical, political and family spheres that are categorized under Entrepreneurship. Such entrepreneurial activities require a lot of effort, negotiation and are a chain of activities in relation to something that are gone before. The first stage in the entrepreneurship process is known as the opportunity formation stage, which is a commonly observed phenomenon in entrepreneurship and the business venturing process. The formation of opportunity is relationally and communally constituted. However, this argument is not fully considered in descriptive or linear process models of opportunity recognition. As per the studies of some authors, an opportunity is discovered due to a person’s cognitive skills, organizational learning process and networking skills or career choices. These frame works formulate opportunity recognition process. The problem in such frameworks is that they fail to take a wider picture of societal, economic or cultural structures and patterns that shape entrepreneurship (Fletcher, 2006).

Although, the opportunity generation strategies are important in entrepreneurship, the effects of such strategies are neglected in the entrepreneurship area. It is interesting to note that the performance of a venture is strongly influenced by the opportunity discovery strategies. An observation on three entrepreneurial firms showed that the growth of an entrepreneurial firm is affected positively by proactive search approach of entrepreneurs. We can easily understand the effect of proactive search on the performance of new ventures in the diagram below. The high beta value (.67) shows that the proactive search approach of an entrepreneur is the most important catalyst for the growth of a new venture. It should be also noted that in a similar way, the competitive scanning affects the newness values of a firm (Puhakka, 2007)

2.4 Factors for successful entrepreneurship and its effects

Many successful business entrepreneurs like the Bill Gates and Richard Branson manage to expand their firms very quickly and with gigantic success. The reasons for their high growth success are:

a) They had an entrepreneurial character within themselves. Moreover, the adapted to the change as per the growth of their business.

b) They had an effective business culture which is considered as very important influential leadership tool in a firm. Their enterprise cultures had thorough foundations to grow and were obsessed with the aim of being successful in the long run.

c) Also, they had an expert management team and sound financial control systems. The interesting point to note is that these firms knew as why the customers buy from them and not from their competitors.

d) Lastly they had very strong strategies which helped their firms to lead towards the successes and growth stages (Burns 2006).

Also, other reasons to be successful as an entrepreneurial management are as follows:

a) It should be focussed on the market.

b) It requires a financial prudence and specially planning for the cash flow and the future needs for capital.

c) It needs a well constructed top management team, before the new venture’s requirement and before it can afford one.

d) The founder or the entrepreneur should have a decision in respect to his own role, area of work and relationships. (Drucker,2008)

Success of a venture also depends on the leadership attributes of an entrepreneur and it is said that the successful business is a reflection of the leader (Advancing women, 2006) However, the business success does not always depend on the leader’s vision. This is because a creative entrepreneur develops a product which is in great demand and also produces a product which is efficient and profitable. (Business management, 2008)

There are different views of entrepreneurs on the success of a business venture.

Example: It is interesting to note the view of the young entrepreneur – Jasdeep Singh Bhatia whose article was selected for the ‘Enterprising British Summit 05′. He said that a real entrepreneur has drive and motivation within him and knows his vision (news bbc, 2005) Another example is of the Successful entrepreneur Andy McLoughlin, who believes in his vision and has always followed his father as a role model who inspired him to start his own business (Make your mark, 2009). However; in case of Scarlet, who was nominated for Barclays Inspire award said that she was determined and believed in herself to set up business in spite of the difficulties in her life (Ne business, 2009).

The above views of different entrepreneurs show that entrepreneurs define success in many different ways and the concept of entrepreneurship is a complex issue.

Although the concept of entrepreneurship is difficult to understand, it plays an important role in the success of a nation. Entrepreneurship leads to the economic growth in many ways. Entrepreneurs enter and expand the existing markets leading to increased competition and economic efficiency. Also, new markets are often explored by offering innovative products. Statistics have shown that 14% of the entrepreneurs starting a business declared that their product had no direct competition – a clear indication of the creation of new markets.

Let’s consider US as an example:

The last fifteen years have been robust in the set up of new ventures. Many statistics have shown that in the last ten years new business start ups approached nearly 600, 000 per year. Today, the numbers of businesses in the US have soared more than 20 million and the growth rate is at 2 percent. As per the National Federation of Independent Business (NFIB), more than half of all businesses employ less than five people and almost 90% of the firms have fewer than 20 people. The s mentioned in the table below give us a better idea in terms of the new jobs created and the size of business in the US from the years 1980 to 1995 (Kuratko and Hodgetts,2007).

(SIZE OF BUSINESS)

Years

New Jobs (000’s)

<20 Employees

20-499Employees

500+ Employees

1990 – 1995

6,853

49%

27.5%

23.5%

1988 – 1990

2,666

153.8

-31.9

-18.8

1986 – 1988

6,169

24.1

20.8

55.1

1984 – 1986

4,611

35.5

16.8

47.7

1982 – 1984

4,318

48.8

27.9

23.3

1980 – 1982

1,542

97.9

-2.4

4.5

Table 3 Source: NFIB Small Business Policy Guide (Washington, D>C., November 2000), 31

From the above statistics we can conclude that the small businesses entrepreneurs have successfully created new jobs leading to the strong economic conditions in the US.

However, it is interesting to note that as per the report of Missouri Economic Research and Information Centre (MERIC) the Small Businesses and the Entrepreneurial Growth Companies (EGC) are two different concepts. As per the MERIC report, the owners of EGC’s have significant economic effects on a community by accounting for a large creation of new job growth whereas Small Businesses target controlled growth and continuous profitability (MERIC, 2009).

In reference to the US job creation statistics mentioned earlier, one of the reasons for the success of entrepreneurship in the US is due to the strong support of the US Small Business Administration (SBA) to its entrepreneurs. SBA was created in 1953 as an independent agency of the federal state government and has a vast network of partnership of public and private companies. Also, SBA has many loan assistant programmes and recently, President Obama came up with the American Recovery and Reinvestment Act of 2009 to help the small business owners with tax relief plans to overcome the losses (SBA, 2009). Whereas, if we compare support of Indian government to its entrepreneurs, not only there are very few loan programmes available but also no serious initiative was taken in the crisis situation to help entrepreneurs (Business gov, 2009) This is one of the main reasons for the success of the American entrepreneurs and the failure of Indian entrepreneurs.

2.5 Entrepreneurship scenario in growing economies and role of banks

If situations mentioned above continue in India, the entrepreneurs may highly fail due to less support available. Also, it is also observed that the Indian government shows very low interest to the ideas of individuals.

A very good example to support the above statement: An individual from India shifted to a small south Asian country as he did not get support from Venture Capital funds in India. As a result, this entrepreneur is now moving his company base and will offer employment to the locals of another country (Trak, 2009). From the above points it is clear that the role of government is very important for the success of entrepreneurs and the country.

Support from the banks is also very essential especially in the growing economies for successful entrepreneurship because the bank loans are a source of external funding for small and medium size business. Another interesting point is that many entrepreneurship studies involved in the research of emerging economies have suggested that personal relationships and networks with other entrepreneurs, bankers, government, friends and relatives may play an important role for the lending institutions as well as the borrower. A case study of small and medium enterprises in Vietnam showed that different networks accomplish different purposes and therefore it is necessary to align the networks as per the requirements in the various stages of business. As per the research paper, networking with customers and government officials helps (use of bank loan) to improve business performance whereas networking with suppliers and society reduces the need for a bank loan (shown in the below) (Le, N. T. B. & Nguyen, T. V. 2009)

Bank loan is important for the venture set up. In India, statistics have shown that 41% of the business owners seek for sources of finance. However, the criticism to the bank loan is that a forum of Private Business found that taking a bank loan is not an attractive option because only 26% of the people found the charges of bank are good value for money (Deakins and Freel, 2005). Also, there is a problem for the high technology firms to get loan from the banks because the banks require collateral or a good track record with business propositions. Most of the fast growing businesses grow due to retained profits (Bhide 2000- p 364- Oxford). If we consider another option of investment, i.e. venture capital with reference to India, venture capitalists firms do not fund for the start up enterprises, unless an IT business. The venture capitalists firm think that IT businesses have good growth prospects in India and therefore are a safe funding option (Silicon India, 2009)

Previously we have seen that networking is a crucial element in the success of entrepreneurship. However, another study concluded that if we consider the importance of networking and the three areas – network relationships, governance and structure, then the focus of network development process over the venture gestation, formation and the growth life cycle of a firm receives less attention

2.6 Entrepreneurial personality factors and its importance

In entrepreneurship, there are several factors that can be controlled besides the personality traits and parents (Knott, 2008). In entrepreneurship it important to understand the personality factors of an entrepreneur. Some studies have concluded that 20% of variance in the intentions of entrepreneur origin can be seen by the personality origin of an entrepreneur. However, this ratio drops down to zero while explaining business success. It is found that the personality factors depend on the start up intentions of an entrepreneur. A group of researchers on the basis of configuration- theory approach observed that the personality characteristics of an entrepreneur gradually decrease from the start up phase to the business growth stage. (Refer 5)

Also for the development of the business intentions, correct measures need to be taken in schools and university in order to foster the personality characteristics of an entrepreneur. (Refer 6) (Frank, 2007)

In today’s world, entrepreneurship besides the start up intentions and the personality characteristics of an entrepreneur is also influenced by the global economy. Trading in the global economy or the international market requires understanding of different cultures, risk taking and economic production methods. The process of internationalisation is a progression of stages and a gradual process which begins from an established domestic market. Traditionally, a small firm enters overseas markets through agents to gain knowledge for opening its own subsidiary firm. Then in the final stage overseas production is started. This is well explained in the diagram below:

The entrepreneurship concept though interesting has many challenges or problems. In 1971, author Frank Knight said that entrepreneurship judgement is a natural complement to the theory of the firm. However the challenge is whether the entrepreneur’s insight is incorporated or not, as there are problems related to the modelling issues like the judgement and entrepreneurial experimentation (Muzumdar, 2008)

2.7 Internationalization of a firm and international entrepreneurship

The internationalization process is also influenced by the networks of the entrepreneurs. The knowledge of internationalization can be gained through partnerships or in relation to the business networks. The importance of networks is that they are good source of information, linked to opportunities and vision. Social networks have crucial contribution in making a big difference towards the success. It is noteworthy that the entrepreneurs and the managers understand that firms cannot perform alone and social networks are an important element in a firm’s international success. Therefore firms should involve in the networking process by taking part in specialized conferences to promote their credibility in the international market.

The diagram below shows the three roles of social networks related to the firm, entrepreneur and the entrepreneurial team and the High Tech Small Medium Enterprises (HTSME). In this it is shown that the information is received from the external sources, mainly through the networks. Then the information is used by the lead entrepreneur and his / her team, based on the prior knowledge, experience and thoughts. During this time the information is also gained from t