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Market Research
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Market research is any organized effort to gather information about target
markets or customers. It is a very important component of business strategy.
The term is commonly interchanged with marketing research; however,
expert practitioners may wish to draw a distinction, in that marketing
research is concerned specifically about marketing processes, while market
research is concerned specifically with markets.
Market research is one of the key factors used in maintaining
competitiveness over competitors. Market research provides important
information to identify and analyze the market need, market size and
competition. Market-research techniques encompass both qualitative
techniques such as focus groups, in-depth interviews, and ethnography, as
well as quantitative techniques such as customer surveys, and analysis of
secondary data.
Market research, which includes social and opinion research, is the
systematic gathering and interpretation of information about individuals or
organizations using statistical and analytical methods and techniques of the
applied social sciences to gain insight or support decision making
Market Research Process
Stage 1: Formulating the Marketing
Research Problem
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Formulating a problem is the first step in the research process. In many ways, research
starts with a problem that management is facing. This problem needs to be understood,
the cause diagnosed, and solutions developed.
However, most management problems are not always easy to research. A management
problem must first be translated into a research problem. Once you approach the
problem from a research angle, you can find a solution. For example, “sales are not
growing” is a management problem.
Translated into a research problem, we may examine the expectations and experiences
of several groups: potential customers, first-time buyers, and repeat purchasers. We will
determine if the lack of sales is due to:
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Poor expectations that lead to a general lack of desire to buy, or
Poor performance experience and a lack of desire to repurchase.
What then is the difference between a management problem and a research problem?
Management problems focus on an action. Do we advertise more? Do we change our
advertising message? Do we change an under-performing product configuration?
If so, how? Research problems, on the other hand, focus on providing the information you
need in order to solve the management problem.
Step 2. Determine Your “Research
Design
Now that you know your research object, it is time to plan out the type of research that will best obtain the necessary
data. Think of the “research design” as your detailed plan of attack. In this step you will first determine your market
research method (will it be a survey, focus group, etc.?). You will also think through specifics about how you will
identify and choose your sample (who are we going after? where will we find them? how will we incentivize them?,
etc.). This is also the time to plan where you will conduct your research (telephone, in-person, mail, internet,
etc.). Once again, remember to keep the end goal in mind–what will your final report look like? Based on that, you’ll
be able to identify the types of data analysis you’ll be conducting (simple summaries, advanced regression analysis,
etc.), which dictates the structure of questions you’ll be asking.
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Your choice of research instrument will be based on the nature of the data you are trying to collect. There are three
classifications to consider:
Exploratory Research – This form of research is used when the topic is not well defined or understood, your hypothesis
is not well defined, and your knowledge of a topic is vague. Exploratory research will help you gain broad insights,
narrow your focus, and learn the basics necessary to go deeper. Common exploratory market research techniques
include secondary research, focus groups and interviews. Exploratory research is a qualitative form of research.
Descriptive Research – If your research objective calls for more detailed data on a specific topic, you’ll be conducting
quantitative descriptive research. The goal of this form of market research is to measure specific topics of interest,
usually in a quantitative way. Surveys are the most common research instrument for descriptive research.
Causal Research – The most specific type of research is causal research, which usually comes in the form of a field test
or experiment. In this case, you are trying to determine a causal relationship between variables. For example, does
the music I play in my restaurant increase dessert sales (i.e. is there a causal relationship between music and sales?).
Step 3. Design & Prepare Your
“Research Instrument
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In this step of the market research process, it’s time to design
your research tool. If a survey is the most appropriate tool
(as determined in step 2), you’ll begin by writing your
questions and designing your questionnaire. If a focus
group is your instrument of choice, you’ll start preparing
questions and materials for the moderator. You get the
idea. This is the part of the process where you start
executing your plan.
By the way, step 3.5 should be to test your survey instrument
with a small group prior to broad deployment. Take your
sample data and get it into a spreadsheet; are there any
issues with the data structure? This will allow you to catch
potential problems early, and there are always problems
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Step 4. Collect Your Data
This is the meat and potatoes of your project; the time when you are
administering your survey, running your focus groups, conducting your
interviews, implementing your field test, etc. The answers, choices, and
observations are all being collected and recorded, usually in spreadsheet
form. Each nugget of information is precious and will be part of the
masterful conclusions you will soon draw.
Step 5. Analyze Your Data
Step 4 (data collection) has drawn to a close and you have heaps of raw
data sitting in your lap. If it’s on scraps of paper, you’ll probably need to
get it in spreadsheet form for further analysis. If it’s already in
spreadsheet form, it’s time to make sure you’ve got it structured
properly. Once that’s all done, the fun begins. Run summaries with the tools
provided in your software package (typically Excel, SPSS, Minitab, etc.),
build tables and graphs, segment your results by groups that make sense
(i.e. age, gender, etc.), and look for the major trends in your data. Start to
formulate the story you will tell.
Step 6. Visualize Your Data and
Communicate Results
After you have spent hours pouring through your
raw data, building useful summary tables, charts
and graphs. Now is the time to compile the most
meaningful take-aways into a digestible report or
presentation. A great way to present the data is to
start with the research objectives and business
problem that were identified in step 1. Restate
those business questions, and then present your
recommendations based on the data, to address
those issues.
Industry Analysis
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Industry analysis is business research that focuses on the potential of an industry.
An industry is a group of firms producing a similar product or service, such as music,
fitness drinks, or electronic games.
Once it is determined that a new venture is feasible in regard to the industry and the
target market in which it will compete, a more in-depth analysis is needed to learn the ins
and outs of the industry the firm plans to enter.
This analysis helps a firm determine if the niche or target markets it identified during its
feasibility analysis are accessible and which ones represent the best point of entry for the
new firm.
When studying an industry, an entrepreneur must answer three questions before pursuing
the idea of starting a firm.
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First, is the industry accessible—in other words, is it a realistic place for a new venture to enter?
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Second, does the industry contain markets that are ripe for innovation or are underserved?
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Third, are there positions in the industry that will avoid some of the negative attributes of the
industry as a whole? It is useful for a new venture to think about its position at both the company
level and the product or service level. At the company level, a firm’s position determines how the
company is situated relative to its competitors,
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It’s also important to know that some industries are simply tougher than others in
terms of survival rates and profit potential. For example, the four year survival rate
in the information sector is only 38 percent, while it is 55 percent in education and
health care. What this means is that the average start-up in education and health
care is roughly 50 percent more likely than the average start-up in the information
sector to survive four years, which is a big difference.
These types of differences exist for comparisons across other types of industries. The
differences can be mitigated some by firm-level factors, including a company’s
products, culture, reputation, and other resources. Still, in various studies researchers
have found that from 8 to 30 percent of the variation in firm profitability is directly
attributable to the industry in which a firm competes.
As a result, the overall attractiveness of an industry should be part of the equation
when an entrepreneur decides whether to pursue a particular opportunity. Studying
industry trends and using the five forces model are two techniques entrepreneurs
have available for assessing industry attractiveness
Studying trends
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Environmental Trends
The strength of an industry often surges or wanes not so much because of the management skills
of those leading firms in a particular industry, but because environmental trends shift in favour
or against the products or services sold by firms in the industry. Economic trends, social trends,
technological advances, and political and regulatory changes are the most important
environmental trends for entrepreneurs to study.
For example, companies in industries selling products to seniors such as the eyeglasses industry
and the hearing aid industry benefit from the social trend of the aging of the population. In
contrast, industries selling food products that are high in sugar, such as the candy industry and
the sugared soft-drink industry, are suffering as the result of a renewed emphasis on health and
fitness. Sometimes there are multiple environmental changes at work that set the stage for an
industry’s future.
Demand for motorcycle dealers is expected to speed up over the next five years. Industry
revenue is anticipated to increase 2.5% to $24.2 billion in the five years to 2016. Disposable
income is poised to increase over the next five years while the U.S. economy gains steam. With
more money in their pockets, consumers will hit motorcycle lots again. Furthermore, the tight
lending standards of the past are projected to dissipate, and more financing will be available
for consumers to use when purchasing a motorcycle. High fuel prices will also feed into industry
demand as some consumers switch from cars to motorcycles
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Business Trends
Other trends impact industries that aren’t environmental trends per se but are
important to mention. For example, the firms in some industries benefit from an
increasing ability to outsource manufacturing or service functions to lower-cost
foreign labour markets, while firms in other industries don’t share this advantage. In
a similar fashion, the firms in some industries are able to move customer
procurement and service functions online, at considerable cost savings, while the
firms in other industries aren’t able to capture this advantage. Trends like these
favour some industries over others.
Porters five force model
Market Segmentation
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Market segmentation is the process of dividing a broad consumer or business market, normally consisting
of existing and potential customers, into sub-groups of consumers (known as segments) based on some type
of shared characteristics. In dividing or segmenting markets, researchers typically look for shared
characteristics such as common needs, common interests, similar lifestyles or even similar demographic
profiles. The overall aim of segmentation is to identify high yield segments – that is, those segments that are
likely to be the most profitable or that have growth potential – so that these can be selected for special
attention (i.e. become target markets).
Many different ways to segment a market have been identified. Business-to-business (B2B) sellers might
segment the market into different types of businesses or countries. While business to consumer (B2C) sellers
might segment the market into demographic segments, lifestyle segments, behavioral segments or any
other meaningful segment.
The STP approach highlights the three areas of decision-making
Market segmentation assumes that different market segments require different marketing programs – that
is, different offers, prices, promotion, distribution or some combination of marketing variables. Market
segmentation is not only designed to identify the most profitable segments, but also to develop profiles of
key segments in order to better understand their needs and purchase motivations. Insights from
segmentation analysis are subsequently used to support marketing strategy development and planning.
Many marketers use the S-T-P approach; Segmentation→ Targeting → Positioning to provide the
framework for marketing planning objectives. That is, a market is segmented, one or more segments are
selected for targeting, and products or services are positioned in a way that resonates with the selected
target market or markets.
Identifying the market to be
segmented(Target Marketing)
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The market for a given product or service known as the market potential or the total addressable market
(TAM). Given that this is the market to be segmented, the market analyst should begin by identifying the
size of the potential market. For existing products and services, estimating the size and value of the
market potential is relatively straight forward. However, estimating the market potential can be very
challenging when a product or service is totally new to the market and no historical data on which to
base forecasts exists.
A basic approach is to first assess the size of the broad population, then estimate the percentage likely
to use the product or service and finally to estimate the revenue potential. For example, when the ridesharing company, Uber, first entered the market, the owners assumed that Uber would be a substitute for
taxis and hire cars. Accordingly, they calculated Uber's TAM based on the size of the existing taxi and
car service business, which they estimated at $100 billion. They then made a conservative estimate that
the company could reach 10 percent share of market and used this to estimate the expected revenue. To
estimate market size, a marketer might evaluate adoption and growth rates of comparable technologies
Another approach is to use historical analogy. For example, the manufacturer of HDTV might assume
that the number of consumers willing to adopt high definition TV will be similar to the adoption rate for
Color TV. To support this type of analysis, data for household penetration of TV, Radio, PCs and other
communications technologies is readily available from government statistics departments. Finding useful
analogies can be challenging because every market is unique. However, analogous product adoption
and growth rates can provide the analyst with benchmark estimates, and can be used to cross validate
other methods that might be used to forecast sales or market size.
Bases for segmenting consumer
markets
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A major step in the segmentation process is the selection of a suitable base. In this
step, marketers are looking for a means of achieving internal homogeneity (similarity
within the segments), and external heterogeneity (differences between segments). In
other words, they are searching for a process that minimises differences between
members of a segment and maximises differences between each segment. In addition,
the segmentation approach must yield segments that are meaningful for the specific
marketing problem or situation. For example, a person's hair colour may be a relevant
base for a shampoo manufacturer, but it would not be relevant for a seller of financial
services. Selecting the right base requires a good deal of thought and a basic
understanding of the market to be segmented.
In reality, marketers can segment the market using any base or variable provided that
it is identifiable, measurable, actionable and stable. For example, some fashion houses
have segmented the market using women's dress size as a variable. However, the most
common bases for segmenting consumer markets include: geographics, demographics,
psychographics and behavior. Marketers normally select a single base for the
segmentation analysis, although, some bases can be combined into a single
segmentation with care. For example, geographics and demographics are often
combined, but other bases are rarely combined. Given that psychographics includes
demographic variables such as age, gender and income as well as attitudinal and
behavioral variables, it makes little logical sense to combine psychographics with
demographics or other bases. Any attempt to use combined bases needs careful
consideration and a logical foundation.
Segmentation base
Brief explanation of base (and
example)
Typical segments
Demographic
Quantifiable population characteristics.
(e.g. age, gender, income, education,
socio-economic status, family size or
situation).
e.g. Young, Upwardly-mobile,
Prosperous, Professionals (YUPPY);
Double Income No Kids (DINKS);
Greying, Leisured And Moneyed
(GLAMS); Empty- nester, Full-nester
Geographic
Physical location or region (e.g.
country, state, region, city, suburb,
postcode).
e.g. New Yorkers; Remote, outback
Australians; Urbanites, Inner-city
dwellers
Geo-demographic or geoclusters
Combination of geographic &
demographic variables.
e.g. Rural farmers, Urban
professionals, 'sea-changers', 'treechangers'
Psychographics
Lifestyle, social or personality
characteristics. (typically includes basic
demographic descriptors)
e.g. Socially Aware; Traditionalists,
Conservatives, Active 'club-going'
young professionals
Behavioural
Purchasing, consumption or usage
behaviour. (e.g. Needs-based, benefitsought, usage occasion, purchase
frequency, customer loyalty, buyer
readiness).
e.g. Tech-savvy (aka tech-heads);
Heavy users, Enthusiasts; Early
adopters, Opinion Leaders, Luxuryseekers, Price-conscious, Qualityconscious, Time-poor
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Positioning refers to the place that a brand occupies in the mind of the customer
and how it is distinguished from products from competitors. In order to position
products or brands, companies may emphasize the distinguishing features of their
brand (what it is, what it does and how, etc.) or they may try to create a suitable
image (inexpensive or premium, utilitarian or luxurious, entry-level or high-end, etc.)
through the marketing mix. Once a brand has achieved a strong position, it can
become difficult to reposition it.
A good positioning helps guide marketing strategy by clarifying the brands essence,
what goals it helps customers achieve and how it does so in a unique way.
The result of posotioning is the successful creation of a customer focused value
proposition, a cogent reason why the target market should buy the product.
Marketing Mix
Marketing Mix 4P’s
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The marketing mix has been defined as the "set of
marketing tools that the firm uses to pursue its
marketing objectives in the target market". Thus the
marketing mix refers to four broad levels of marketing
decision, namely: product, price, promotion, and place.
It is about putting the right product or a combination
thereof in the place, at the right time, and at the right
price. The difficult part is doing this well, as you need to
know every aspect of your business plan.
PRODUCT OR SERVICE
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“Product” refers to the goods and services you offer to
your customers. Apart from the physical product itself,
there are elements associated with your product that
customers may be attracted to, such as the way it is
packaged. Other product attributes include quality,
features, options, services, warranties, and brand name.
Thus, you might think of what you offer as a bundle of
goods and services. Your product’s appearance,
function, and support make up what the customer is
actually buying. Successful entrepreneurs pay close
attention to the needs their product bundles address for
customers.
PRICE
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“Price” refers to how much you charge for your product. Your pricing approach
should reflect the appropriate positioning of your product in the market and result
in a price that covers your cost per item and includes a profit margin,
As a entrepreneur, you can follow a number of alternative pricing strategies:
Cost-plus: Adds a standard percentage of profit above the cost of producing a
product. Accurately assessing fixed and variable costs is an important part of this
pricing method.
Mark ups/margin: In many industries, such as jewellery, beauty supply, furniture,
and clothing , the retailers of the products use a standard mark-up to price goods in
their stores. This mark-up is expected to cover overhead cost and some profit.
Competition: Based on prices charged by competing firms for competing products.
This pricing structure is relatively simple to follow because you maintain your price
relative to your competitors’ prices. In some cases, you can directly observe your
competitors’ prices and respond to any price changes. In a non-differentiable
product market the only justification for charging the higher price would be if the
entrepreneur could provide additional services to the customer.
PLACE
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“Place” refers to the distribution channels used to get your product
to your customers. What your product is will greatly influence how
you distribute it. It should also be consistent with other marketing-mix
variables.
If the market is concentrated than entrepreneur may consider option
of direct selling, while if it is dispersed across wide geographical
area than use of longer channels with wholesalers and retailers must
be necessary.
Middleman can add important value to the product. They lower the
cost for single-product start-ups because they operate with
economies of scale. Additionally, you may also reduce the storage
space necessary for inventory.
Channel decision may change over time. As the venture grows
entrepreneur may find its own work force to be more efficient and
no longer cost prohibitive.
PROMOTION
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“Promotion” refers to the advertising and selling part of
marketing. It is how you let people know what you’ve got for
sale. The purpose of promotion is to get people to
understand what your product is, what they can use it for,
and why they should want it. To be effective, your
promotional efforts should contain a clear message targeted
to a specific audience reached via an appropriate channel.
Promotion may involve advertising, public relations, personal
selling, and sales promotions.
Entrepreneur can consider advertising media such as print,
radio or television.
Larger market could be reached through internet, direct
mail, trade magazines, or newspapers.
Marketing Budget
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A marketing budget is an estimate of projected costs to market your products or
services. A typical marketing budget will take into account all marketing costs e.g.
marketing communications, salaries for marketing managers, cost of office space
etc. However much of the budget is concerned with marketing communications e.g.
public relations, website, advertising, etc. Both are considered here.
The costs in a marketing budget will be allocated according to the campaign and
the media to be utilized. Some prior research will be necessary for the cost
estimates to be as realistic as possible. This is called advertising or marketing
communications research.
Step #1: Organize Financial
Information
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The first step to creating a solid marketing budget is to get organized about your current financial
situation. When you are working around estimates, it is impossible to create a realistic marketing
budget.
Understanding your finances starts with organizing your revenue information. You need to know how
much money your company makes on a monthly basis and the variations that might exist. Although
income can vary significantly throughout the year, you must organize the information based on
reliable revenue.
“Reliable revenue” is the minimum amount of money your company makes each month. For example, if
your company has revenue ranges from $5000 per month to $7000 per month, the reliable revenue is
the lowest figure of $5000 a month. Any amount over that monthly minimum is extra revenue that
cannot be added to the budget because it is not reliable and can change.
After organizing the total reliable revenue that you can expect to earn each month, you need to
subtract expenses. Your business expenses can include renting a space, the cost of materials, the cost
of paying employees, etc.
Any expense that the company must pay each month should be subtracted from the revenue before
trying to create a marketing budget.
When you have determined the amount of disposable income available for the company, you should
determine where the money will go.
Divide up the money based on your goals.
Step #2: Determine Where You Want
to Spend Marketing Funds
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After you know the total amount available to spend on marketing, the next
part of creating a solid plan is organizing how you intend to spend that
money. Three main factors contribute to how you spend marketing funds:
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the budget size,
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your past experiences,
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where you can reach the right audience
Step #3: Assess Data and Make
Appropriate Changes
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The final step of building a solid marketing budget is the analysis of the plan and
adjustments that improve revenue production. Ultimately, marketing is designed to
bring in extra revenue. If the strategy does not bring in new revenue in excess of
the cost, then it is better to remove that strategy and try something else.
Assessing the data is a vital part of creating an effective marketing strategy.
Evaluation begins with comparing past performance to the performance after
marketing the product or services. Look at the changes to revenue and determine if
it has increased, decreased, or stayed the same. And ideally, you’re able to tie
increased revenues directly to each advertising source.
Assessing capital requirement of
Business
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Capital refers to the total investment of money, tangible assets like buildings, and
intangible assets like goodwill.
Capitalisation is the amount and types of long-term financing used by a firm. Types
of financing include common stock, preferred stock, retained earnings, and longterm debt
Firms can either be over capitalized or under capitalized
Capital of a firm includes fixed capital and working capital.
Capital needed to acquire those assets which are used for production purposes for
longer period of time and which are not acquired for selling purposes is termed as
fixed capital or block capital. Obvious examples of fixed capital are capital for
purchasing land and buildings, furniture’s and fixtures and machinery and plant.
Such capital is required usually at the time of establishment of new enterprise.
However, existing undertakings may also need such capital to finance expansion
and development programmes and to affect replacement of equipment.
Initial planning of fixed capital requirements is made by the promoter. For this
purpose first of all, he prepares a list of fixed assets to be needed by the firm in
consultation with his colleagues and technical experts associated with that line of
business. Thereafter, cost of these assets is estimated.
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There is generally no problem in getting information regarding value of land. Cost
of construction of building could be surmised with the help of building contractor.
Value of plant and machinery could be determined by obtaining price list from their
manufacturers. If the costs of different fixed assets are summed, the resulting figure
would be the total of fixed capital requirement of a new undertaking.
Planning fixed asset requirements is the most difficult task which calls for greater
acumen and skill on the part of the projector. This is essentially because of relatively
high cost of the fixed assets as compared to current assets and any errors resulting
from the acquisition will have long-term adverse effect on financial health of the
enterprise and so also its profitability. Furthermore, risk factor is greatly associated
with investment in fixed assets.
Factors Affecting the Estimate of
Fixed Capital Requirements
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A. Internal Factors
 Nature
of Business
 Extent of Lease
 Arrangement of Subcontract:
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B. External Factors:
 Trend
in the Economy
 Population Trends
 Consumer’s Preferences
 Competitive Factors
 Shift in Technology
Assessment of Working Capital
Requirements
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After estimating fixed capital requirements of the firm a promoter has to assess the amount of
capital that would be needed to ensure smooth functioning of the enterprise. A manufacturing
concern requires finds to pile up adequate amount of raw materials in stock to ensure
uninterrupted production activity.
Likewise, sufficient stock of finished goods has also to be maintained in the anticipation of future
demand and for this purpose firm would need capital.
Some of the materials because of being in different stages of productions are in semi- finished
form. Funds are tied in these materials until they come out of final stage of production and are
disposed off in the market. In actual parlance, goods are sold in cash and or on credit (against
accounts receivables).
Goods sold on credit do not return cash immediately. Firm will have, therefore, to arrange funds to
finance accounts receivable for the period until they are collected. Alongside this, a minimum level
of cash is required for the ordinary operations of the enterprise. This cash requirement applies to
the need to pay ordinary expenses of operation, viz., wages and factory overheads before a
product can be sold and receipts are collected. Ample cash is required to take advantage of cash
discounts. Adequate cash is also essential from the point of view of maintaining good credit
relations.
Furthermore, firm has to hold special cash reserves to avail the advantages emanating from
business opportunities-opportunities for merger, special purchases of supplies and so forth. Since
uncertainty is always a characteristic of business, some excess of cash should be maintained as
insurance against unexpected adversities.
Risk Capital
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Risk capital is funds invested speculatively in a business, typically a start-up.
Risk capital comes from private equity. Funds belonging to high net-worth individuals and
institutions that are amassed for the purpose of making investments and acquiring equity in
companies. Venture capital is a common type of private equity
Risk capital is your home-run money. It refers to funds that are invested in high-risk, high-reward
investments. That can mean alternative investments such as venture capital, hedge funds, or private
equity; or it could be funds used to start your own small business. It can also just be a subset of
your portfolio set aside simply for taking on extra risk.
Generally speaking, risk capital is money that, if lost completely, would not have an overly harmful
impact on you financially. It's money you can afford to lose.
The amount of risk capital at your disposal will change with time. When you're young, you may not
mind taking a few swings for the fences. If one works out, great. If it flops, you still have 20 or 30
years to earn and save.
When you're older, you may not want to put as high of a percentage of your hard-earned savings
at risk. However, because your nest egg has probably grown larger in dollar terms, a smaller
percentage could nevertheless work out to a larger dollar amount. If that's the case, you could
take more home-run swings without putting your financial future in jeopardy.
No matter how old or young, rich or poor, all investors have some percentage of their portfolio
that could be considered risk capital. We work hard to diversify our investments across industries,
asset classes, and so on. Many of us fail to consider risk as a factor that should be diversified as
Venture Capital
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Venture capital is a type of private equity a form of financing that is provided by firms
or funds to small, early-stage, emerging firms that are deemed to have high growth
potential, or which have demonstrated high growth (in terms of number of employees,
annual revenue, or both). Venture capital firms or funds invest in these early-stage
companies in exchange for equity–an ownership stake–in the companies they invest in.
Venture capitalists take on the risk of financing risky start-ups in the hopes that some of
the firms they support will become successful. The start-ups are usually based on an
innovative technology or business model and they are usually from the high technology
industries, such as information technology (IT), social media or biotechnology.
Features of venture capital:
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It is a high risk venture
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It finances high tech projects
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The gestation period is long. The benefit from the venture capital will start accruing only after an
average period of 4-5 years
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The venture capitalist also makes available to the assisted unit managerial and marketing assistance.
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When the assisted company reaches a certain stage of profitability the venture sells his share of stocks
at a hefty premium in the market.
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It is an active form of investment with higher degree of involvement in the management of a venture.
Functions of venture capitalist
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Venture capital provides finance as well as skills to new enterprises and new
ventures of existing ones based on high technology innovations.
The venture capitalist fills the gap in the owners funds in relation to the quantum of
equity required to support the successful launching of a new business or the optimum
scale of operations of an existing business.
The venture capitalists role extends even as far to see that the firm has proper and
adequate commercial banking and receivable financing
The venture capitalist assists the entrepreneurs in locating , interviewing, and
employing corporate achievers to professionalize the firm.
Ratio Analysis
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The Latin word ratio stands for reason. In English ratio stands for relationship. Ratio
analysis is defined as the establishment of a reasoned relationship of a fixed variable
character between measurements of certain phenomenon having some kind of linkage. It
shows the arithmetical relationship between two figures.
Inter firm comparison of ratios is helpful to illustrate:
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Different methods of trading followed by them
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Different uses of sources of capital
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Different policies followed
Advantages
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It is concerned with significant data relationships which give the decision maker insights into the company
being assessed.
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It involves a study of total financial picture. By evaluating this the analyst can recommend and indicate
positive action with confidence.

It helps in predicting company failures

It helps the management to analyze business situations and to monitor their performance as well as that
of competitors.
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It helps to chalk out future plans for the company
Break Even Analysis
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The determination of break even point of a firm is an important factor in assessing its
profitability. It depicts the relation between total cost and total revenue at the level of
particular output.
Break even point is an important measure being used by the proponents and banks in
deciding the viability of a new project in respect of manufacturing activities.
The break even point establishes the level of output which evenly breaks the costs and
revenues.
Utility of BEP

It serves as the most useful and important managerial tool to study cost-output-profit relationship at
varying levels of output

It is useful in reviewing pricing policies.
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It aids in planning capitalization of the enterprise
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It provides the entrepreneur to decide whether to acquire or not assets involving additional fixed costs.