Problems faced by Entrepreneurs

Problems faced by Entrepreneurs


Entrepreneurs face a number of problems in the promotion of units and during production,marketing,distribution,procurement of raw material,and availing of incentives offered by the State government.

The problems of entrepreneurs may be divided into two groups-external and internal.External problems are those, which result from factors beyond the control of entrepreneurs while internal problems are those, which are not influenced by external factors.

The problems of industries,whether in the small sector or in organized sector are almost identical.However,given that the organized industry is financially very strong and its resources large,it can therefore,face its problems more effectively.Owing to its weak financial structure,the resources of the small sector are limited.While the large sector can employ trained and experienced managers,in the small industry,its proprietor or partners or if the unit is a company, its director or directors themselves have to take care of all the problems.The large sector can influence its raw material suppliers,its customers and at times even the government in framing its policies, but the small entrepreneur is helpless in this respect.

I. Internal Problems of Entrepreneurs

1. Planning

a) Technical feasibility

  • Inadequate technical know-how.
  • Locational disadvantage
  • Outdated production process

b) Economic viability

  • High cost of input.
  • Break-even point too high
  • Uneconomic size of project
  • Choice of idea
  • Feeble structure
  • Faulty planning
  • Poor project implementation
  • Lack of strategies
  • Lack of vision
  • Inadequate connections
  • Lack of motivation
  • Underestimation of financial requirements
  • Unduly large investment in fixed assets
  • Overestimation of demand

2. Implementation

Cost over-runs resulting from delays in getting licenses,sanctions and so on and inadequate mobilization of finance.

3. Production

a) Production management

  • Inappropriate product mix
  • Poor quality control
  • Poor capacity utilization
  • High cost of production
  • Poor inventory maintenance and replacement
  • Lack of timely and adequate modernization and so on
  • High wastage
  • Poor production

b) Labour management

  • Excising high wage structure
  • Inefficient handling of labour problems
  • Excessive manpower
  • Poor Labour productivity
  • Poor labour relations
  • Lack of trained skilled labour or technically competent personnel

c) Marketing Management

  • Dependence on a single customer or a limited number of customers/single or a limited number of products.
  • Poor sales realization
  • Defective pricing policy
  • Booking of large orders at fixed prices in an inflationary market
  • Weak market organization
  • Lack of market feed back and market research
  • Unsrupulous sale purchase practices

d) Financial management

  • Poor resource management and financial planning
  • Faulty costing
  • Dividend policy
  • General financial indiscipline and application of funds for unauthorized purposes
  • Deficiency of funds
  • Over trading
  • Unfavourable gearing or keeping adverse debt equity ratio
  • Inadequate working capital
  • Absence of cost consciousness
  • Lack of effective collection machinery

e) Administrative management

  • Over centralization
  • Lack of professionalism
  • Lack of feedback to management (management Information System)
  • Lack of timely diversification
  • Excessive expenditure on R&D

 II. External Problems of Entrepreneurs

a) Infrastructure

  • Location
  • Power
  • Water
  • Post Office and so on
  • Communication
  • Non-availability or irregular supply of critical raw materials or other inputs
  • Transport bottlenecks


  • Capital
  • Working capital
  • Long term funds
  • Recovery
  • Marketing Taxation
  • Raw material
  • Industrial and financial regulations
  • Inspections
  • Technology
  • Government policy Administrative hurdles
  • Rampant corruption
  • Lack of direction
  • Competitive and volatile environment

Specific Management Problems

Besides internal and external problems of entrepreneurs,some specific problems faced by the entrepreneurs are discussed:

a)Management deficiency

It is well known factor that management deficiency is one of the main reasons for poor performance and sickness of small enterprises.The new entrants in the field of small industries in general do not have any prior training or background in the management of their units. With growing sophistication and modernization of market requirements for their products,it is very important for entrepreneurs to employ modern methods of management.Entrepreneurship is not only inborn gift; it can be cultivated through application and training.


Financial inadequacy is alsoreported to be one of he most important causes leading to sickness of small scale units. Critical issues in financial management require to be constantly borne in mind to ensure that a small scale business enterprise remains healthy.Planning for profits must be ensured at all times by resorting to periodical performance evaluation and while reporting such performance actual or planned the merits of being conservative should not be lost sight of.Poor utilization of various assets is critical to profit maximization.Along with credibility,solvency and liquidity are essential for enterprise growth.

c)Manufacturing and technical problems

Most units face production problems due to lack of raw material availability,skilled labour shortage,under utilization of capacity and time and cost overrun.Manufacturing and technical problems arise right at the stages of project planning and feasibility report preparation.Problem areas are product pricing,selection of right equipment,plant and machinery,selection of personnel and training them,technical know how,technology transfer,industrial engineering,production engineering use of standard quality control and use of high tech equipment.

e)Product planning

The election of product depends on technical know-how,infrastructure facilities and managerial abilities of entrepreneurs to complete a project successfully.

Selection of equipment,plant and machinery.No detailed scrutiny is done before selecting equipment,plant and machinery.However,this needs to be done and while doing so, entrepreneurs should give importance to production capacity,process capability,accuracy requirements and other supporting facilities.They are required to look for alternative and appropriate high tech equipment if they are technology-economically feasible.

f)Human Resource Development

Selecting the right person for the right job would contribute for smooth and efficient working of the enterprise.After selecting the right personnel on scientific lines,it is very essential to train them at appropriate organizations so that they have both theoretical and on the job training in improving the productivity of the enterprise.Entrepreneurs should know that it is not the machine alone that work but the people behind the machines who make it work.

g)Technical know how

Most small scale units are neither technical equipped nor do the possess technical know-how. While there are numerous ways of doing a job, there is only one way of doing it in a manner that is more effective,efficient and highly productive. Many entrepreneurs do not realize that their trial and error method wastes time,money,energy and other resources.


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