As India moves into the new millennium, the onerous task of providing sustainable livelihoods to the ever-increasing population would be a challenge to contend with for any government. Realising this, the concept of entrepreneurship development has come to assume a greater significance in government policies than simply providing jobs to the unemployed. For this purpose, numerous institutions have been established to provide support services to upcoming entrepreneurs in the areas of finance, technology, raw material procurement etc. However, the results have not been encouraging considering the resources expended on such entrepreneurship development programs.
 
Development Alternatives, in its endeavour to promote sustainable livelihoods, has been involved in the study of factors responsible for success of small businesses, especially in the rural areas. It has had a fair degree of success in promoting such enterprises, which involves selection and training of entrepreneurs in technical and managerial skills. However, some entrepreneurs seem to do better than the others which becomes critical for the future sustainability of these enterprises. In the following case study, an attempt has been made to highlight various strategies deployed by an entrepreneur, which seem to indicate the reasons for success and imply the necessary mindset required of an entrepreneur to succeed.
 
Initiating a rural enterprise
Vikram, who is an employee of Development Alternatives, decided to help his father Ramchandra Rai start their own production of roofing tiles in his village Bedaul in North Bihar in 1994. Since Vikram had a good experience in training other entrepreneurs in technical aspects of Micro Concrete Roofing Tiles technology, he decided that it was an appropriate technology to work with and earn some money. This raised a lot of apprehension from other family members who were opposed to any idea of initiating a business, especially in a village where the purchasing power of people was low and dealings in money difficult. However, this did not deter Vikram and he succeeded in persuading his father to set up an MCR enterprise. Thus, with technical assistance from Vikram, Ramchandra Rai started to manage the operations of the unit. Soon, he was joined by his eldest son Shivji and together the entire family undertook the operations and management of the unit.
 
Initial barriers
As the technology and the product were virtually unheard of in the area, in the initial period the unit only had stocks of MCR tiles building up with no sales taking place. This created a financial problem for Ramchandra Rai to the extent that he was unable to pay the back the cement dealer. He then got a small sum of money from one of his employees, which he invested as working capital into the enterprise. Very soon, he got an order for 500 tiles which he sold at a low price of Rs. 3 with only Rs.0.50 as the profit margin. Inspite of the low price, he positioned his product as a high quality durable product providing value for money. Soon, the word of mouth spread around and his sales increased manifold. He even started delivering tiles at an interest-free credit to low income groups that did not have the full amount to pay him at one time. However, he avoided giving credit to influential people as he realized it would be difficult to recover money from them.
 
Market competition and brand promotion
With a clear-cut positioning in the premium segment, he raised the price of tiles to Rs. 5 in 1995 and to Rs. 9 in 1996-97. His main customers were the local farmers wanting to upgrade to a better roof. However, soon there was competition from other manufacturers of MCR tiles who were selling for as low a selling price as Rs.5. As a result, Vikram had to bring down his prices to Rs. 7 per tile. But, soon, he realized that it would be a never-ending downward spiralling of prices, which could prove to be fatal for his business. Therefore, he further strengthened the premium image of his product and adopted the sales strategy of keeping tiles of various strengths so as to let the customer distinguish for himself the difference in the varying quality of tiles. He also started following the strategy of providing the delivery of tiles after a period of five days. This was to convey to the customers the large magnitude of orders that his unit was handling.
 
In the initial stages of product promotion, he used a generic name for the product ‘cement tile’ which would instantly be recognised by the rural people. Only when the product came to be well-known, and competition from other tile manufacturers increased, did he start promoting a brand name called ‘Sita’ tiles.
 
Business expansion
As the turnover of the enterprise increased, Ramchandra Rai invested in a second MCR machine out of the profits generated. This doubled the production of his unit to 12,000 tiles a month with a revenue generation of Rs. 84,000 (at the rate of Rs.7 a tile). At Rs.2 a tile, the total profit of the unit worked out to Rs. 24,000 a month. With these profits, he further invested in a generator and a tractor and also reconstructed his house. Today, the cumulative sales of his tiles of the past five years has crossed the total of half a million tiles.
 
Ramchandra Rai now proposes to take up an agency for marketing the MCR machines and earn commissions through their sales. For this purpose, he wants to negotiate with a local machine manufacturer who would supply him the machines. However, he is clear that he will retain his local market of tiles through his own production unit.
 
Critical learnings
Ramchandra maintains that despite the negative response he got from his family members and initial financial problems, the most important factor that kept him going was his firm belief in the product. This helped him to clearly position his product as a high quality premium product providing the value for money, for which he has maintained its quality from day one.
 
The success story of Ramchandra is truly a triumph of determination, guided by a dream, a vision and backed by hard work. But, this is only the beginning as Ramchandra maintains - "more exciting days lie ahead." q


The Author is with Market and Enterprise Development Unit (MEDU), Development Alternatives, New Delhi.