MODULE 1

ENTREPRENEURIAL COMPETENCIES
INTRODUCTION Every role has a skill and competency requirement. For a teacher or a performing artist, for example, it is the skill to communicate that plays a decisive role in their effectiveness besides, of course, their knowledge. For a craftsman or an artist, it is the creativity and skill in the chosen craft. Talking about entrepreneurship, you need to have a knack for spotting business opportunities and creativity and innovation in developing and delivering a product or service. It is hoped that after reading this module you will actually see the potential of a career in entrepreneurship, and experience a desire to start a venture of your own. At the same time there might be certain inhibitions in your mind whether such a task is feasible, practical and sustainable. For every task one needs certain competencies. In this module you would learn in detail about the entrepreneurial competencies. Whereas competencies reinforce a persons perception of feasibility of a career option, there also has to be the will and urge, a perception of the desirability. Is it not impossible that entrepreneurship has a key role to play in economic development, yet there are very few who ever think of it as a career option? And, it is not that they may be lacking in skills. What one often finds is the lack of motivation! Competencies equip you with the knowledge of how to do (know-how) of entrepreneurial behavior and motivation provides answers to why to do (know-why) of entrepreneurial behavior. You would also be learning about why people opt for entrepreneurship. The question of why entrepreneurship is also linked to reward expectations, be these financial, social status or psychological satisfaction. In case of entrepreneurship, successful performance of the venture itself becomes a reward for the entrepreneur. OBJECTIVES After reading the lesson you would be able to: Describe the entrepreneurial competencies and evaluate how you fare on these. Describe what motivates an entrepreneur and develop your motivation to be an entrepreneur Develop a measure of entrepreneurial performance Distinguish between financial and non-financial rewards of entrepreneurship
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As noted in the introduction, every career draws on the competencies of an individual. Some of these competencies may be general and some peculiar to the chosen career. You may understand competencies to mean abilities and skills. However, we would cease from calling these as personality traits as such a conceptualization only reinforces the mistaken belief that entrepreneurs are born rather than made. We believe that recognition of these competencies as abilities and skills makes entrepreneurship as a teachable and learnable behavior. In this module we orient you towards a set of entrepreneurial competencies developed by entrepreneurial researchers. These competencies were identified by a thorough research procedure based on critical analysis of the case studies of the successful entrepreneurs. We also annex a questionnaire that you can use to evaluate your score on each of these competencies. We would also suggest how you might improve on your scores.

Initiative

Acting out of choice rather than compulsion; taking the lead rather than waiting for others to start.

Sees and Acts on Opportunities

A mind set where one is trained to look for business opportunities from everyday experiences. Persistence A never say die attitude; not giving up easily; striving Information seeking continuously until success is achieved. Knowing

Knowing who knows, consulting experts, reading relevant material and an overall openness to ideas and information.

Concern for High Quality of Work

Attention to details and observance of established standards and norms. Commitment to Work Contract

Taking personal pains to complete a task as scheduled. Efficiency Orientation

Concern for conservation of time, money and effort. Systematic Planning

Breaking up the complex whole into parts, close examination of the parts and inferring about the whole; e.g. simultaneously attending to production, marketing and financial aspects (parts) of the overall business strategy (the whole).

Problem solving

Observing the symptoms, diagnosing and curing. Self-confidence Not being afraid of the risks associated with business and relying on ones capabilities to successfully manage these.

Assertiveness Conveying emphatically ones vision and convincing others of its value. Persuasion

Eliciting support of others in the venture.

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Use of Influence Strategies

Providing leadership.

Monitoring

Ensuring the progress of the venture as planned.

Concern for Employee Welfare

Believing in employee well being as the key to competitiveness and success and initiating programs of employee welfare.

The self-administered questionnaire in the last part of this module would help you measure where you stand on these competencies. Given that these competencies matter in entrepreneurial success. Researchers estimates that development of these competencies can substantially (as much as 33%) bring down incidence of business failures/industrial sickness.

DEVELOPING COMPETENCIES
Awareness, they say, is the first step towards improvement and success. Now that you are aware of the critical competencies for entrepreneurial success and also have a measure of your scores on these, it is appropriate that you also think in terms of how to improve your scores. Suppose, you find yourself lacking in the competency- opportunity spotting, you may start practicing to think like an entrepreneur (See Box entitled Thinking like an Entrepreneur). With just a little change in perspective, the world changes for you. Similarly you may work on the other competencies as well.

Thinking Like an Entrepreneur

On a trip down south, in Quezon province, you marvel at the coconuts and the price at which they are available. You buy several and consume these merrily en route. This is consumers mindset. On the contrary, an entrepreneurially thinking individual, he may buy and enjoy the coconuts as well, would also start thinking what if I arrange for their transportation and sale at my place if volume-weight factor and perishability is the constraint how about packaged coconut (buko) juice, where would the technology come from, India? Would Filipinos like to consume packaged juices when by the roadside they can get fresh juice? Exports? Which are the countries that could serve as the potential market? What would be their quality expectations?

The role of Prior Work Experience

Project work, summer training as well as prior work experience hone the entrepreneurial competencies. Whichever area you might decide upon to start a venture be it a school, restaurant, garments, courier service, interior decoration etc. along with the educational qualifications, if any, you need to acquire practical experience in that field. For it is while you get on the job training/experience that you familiarize yourself with all aspects of the venture. You can learn as to how to handle customers, suppliers, and government officials, financiers. You will also be able to acquaint yourself with the basics of the production process, bottlenecks like power disruptions, delay or non-availability of raw materials and a host of other things. Day to day dealings of the various facets of business will equip you to handle your own venture cleverly, with confidence and with minimum costly mistakes.

Check your progress

You have learnt about various competencies. Please identify 3-4 most important competencies for the following careers/ventures Teacher ___________________________________________________________________ ___________________________________________________________________
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Software Specialist ___________________________________________________________________ ___________________________________________________________________

Paete sculptor ___________________________________________________________________ ___________________________________________________________________

Restaurant Owner ___________________________________________________________________ ___________________________________________________________________

Interior Decorator ___________________________________________________________________ ___________________________________________________________________

QUESTIONS TO ANSWER

Q.1 Comment on competencies considered necessary for successful entrepreneurial behavior. Q.2 Enumerate the basis of evaluating entrepreneurial performance. Q.3Can one be content with seeing their dream being converted into reality? Comment. Q.4 Is there any difference in motivation of male and female entrepreneurs?

SELF- RATING QUESTIONNAIRE Your Name . Company Address Date .

Instructions

1. This questionnaire consists of 70 brief statements. Read each statement and decide how well it describes you. Be honest about yourself. 2. Select one of the numbers below to indicate how well the statement describes you :

5 = very well 4 = well 3 = somewhat 2 = Very little 1 = Not at all

3. Write the number you select on the line to the right of each statement. Here is an example: I remain calm in stressful situations. The person who responded to the item above wrote a 2 indicating that the statement 2 described him or her very little. 4. Some statements may be similar, but no two are exactly alike. 5. Please answer all questions.
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Write the number on the line to the right of each statement.

1. I look for things that need to be done. ---------2. I like challenges and new opportunities. ----------3. When faced with difficult problem, I spend a lot of time trying to find a solution. ----4. When starting a new task or project, I gather a great deal of information. ----------5. It bothers me when things are not done very well. ----------6. I give much effort to my work. ---------7. I find ways to do things faster. --------8. I plan a large project by breaking it down into smaller tasks. -------9. I think of unusual solutions to problems. ------10. I feel confident that will succeed at whatever I try to do. --------11. I tell others when they have not performed as expected. --------12. I get others to support my recommendations. --------13. I develop strategies to influence others. --------14. No matter whom Im talking to, Im good listener. -------15. I do things that need to be done before being asked to by others. ---16. I prefer activities that I know well and with which I am comfortable. -------17. I try several times to get people to do what I would like them to do. 18. I seek the advice of people who know a lot about the problems or tasks I am working on. -----19. It is important to me to do a high quality job. --------20. I work long hours and make personal sacrifices to complete jobs on time. --------21. I am not good at using my time well. --------22. I think about the advantages and disadvantages of different ways of ccomplishing things. ---23. I think of many new ideas. ---------24. I change my mind if others disagree strongly with me. ---------25. If I am angry or upset with someone, I tell that person. ---------26. I convince others of my ideas. ---------27. I do not spend much time thinking about how to influence others. ----28. I feel resentful when I dont get my way. ------------29. I do things before it is clear that they must be done. -----------8

30. I notice opportunities to do new things. -----------31. When something gets in the way of what I am trying to do, I keep on trying to accomplish what I want. -----------32. I take action without seeking information. -----------33. My own work is better than that of other people I work with. ------34. I do whatever it takes to complete a job. ----------35. It bothers me when my time is wasted. ---------36. I try to think of alone problems I may encounter and plan what to do if each problem occurs. ---------37. Once I have selected an approach to solving a problem, I do not change that approach. -------38. When trying something difficult or challenging, I feel confident that I will succeed. 39. It is difficult for me to to order people to do things. --------40. I get others to see how I will be able to accomplish what I set out to do. -------41. I get important people to help me accomplish by goals. --------42. In the past, I have had failures. -------43. I take action before it is clear that I must. -------44. I try things that are very new and different from what I have done before. -------45. When faced with a major difficulty, I quickly go on to other things. 46. When working on a project for someone, I ask many questions to be sure I understand what that person wants. --------47. When something I have been working on is satisfactory I do not spend extra time trying to make it better. -------48. When I am doing a job for someone, I make a special effort to make sure that person is satisfied with my work. -------49. I find ways to do things for less cost. --------50. I deal with problems as they arise, rather than spend time trying to anticipate them. ---------51. I think of many ways to solve problems. ---------52. I do things that are risky. --------53. When I disagree with others, I let then know. ---------54. I am very persuasive with others. ---------55. In order to reach my goals, I think of solutions that benefit everyone involved in a problem. ---9

56. There have been occasions when I took advantage of someone. --57. I wait for direction from others before taking action. ---------58. I take advantage of opportunities that arise. ---------59. I try several ways to overcome things that get in the way of reaching my goals. --60. I go to several different sources to get information to help with tasks or projects. 61. I want the company I own to be the best of its type. --------62. I do not let my work interfere with my family or personal life. ----63. I get the most I can out of the money I have to accomplish a project or task. ------64. I take a logical and systematic approach to activities. --------65. If one approach to a problem does not work, I think of another approach. ---------66. I stick with my decisions even if other disagree strongly with me.-67. I tell people what they have to do, Even if they do not want to do it. ---------68. I cannot get people who have strong opinions or ideas to change their minds. ---69. I get to know people who may be able to help me reach my goals.- --------70. When I dont know something, I dont mind admitting it. ---------SCORING SHEET FOR SELF-RATING QUESTIONNAIRE Instructions

1. Enter the ratings from the completed questionnaire on the lines above the items numbers in parentheses. Notice that the item numbers in each column are consecutive: item number 2 is below item number 1, and so forth. 2. Do the addition and subtraction indicated in each row to compute each competency score. 3. Add all competency scores to compute the total score.

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Rating of Statements Score Competency

___+ ____ + ____ + ____ - ___ + 6 = _____ Initiative (1) (15) (29) (43) (57)

___- ____ + ____ + ____+ ___ + 6 = _____ Sees and Acts on opportunities (2) (16) (30) (44) (58)

___+ ____ + ____ - ____ + ___ + 6 = _____ Persistence (3) (17) (31) (45) (59)

___+ ____ - ____ + ____+ ___ + 6 = _____ Information seeking (4) (18) (32) (46) (60)

___+ ____ + ____- ____ + ___ + 6 = _____ Concern for high Quality of work (5) (19) (33) (47) (61)

___+ ____ + ____ + ____ - ___ + 6 = _____ Commitment to Work Contract (6) (20) (34) (48) (62)

___- ____ + ____ + ____ + ___ + 6 = _____ Efficiency Orientation (7) (21) (35) (49) (63)

___+ ____ + ____ - ____ + ___ + 6 = _____ Systematic Planning (8) (22) (36) (50) (64)

___+ ____ - ____ + ____+ ___ + 6 = _____ Problem Solving (9) (23) (37) (51) (65)

___- ____ + ____ + ____+ ___ + 6 = _____ Self-confidence (10) (24) (38) (52) (66)

___+ ____ - ____ + ____+ ___ + 6 = _____ Assertiveness (11) (25) (39) (53) (67)

___+ ____+ ____ + ____ - ___ + 6 = _____ Persuasion (12) (26) (40) (54) (68)

___- ____ + ____ + ____ + ___ + 6 = _____ Use of influence Strategies (13) (27) (41) (55) (69)

TOTAL SCORE ___- ____ - ____ - ____ - ___ + 18 = _____ Correction Factor (14) (28) (41) (55) (70)

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CORRECTED SCORING SHEET

Instructions

1. The correction factor (the total of items 14, 28, 42, 56 and 70) is used to determine whether or not a person tries to present a very favorable image of himself. If the total score on this factor is 20 or greater, then the total scores on the 13 competencies must be corrected to provide a more accurate assessment of the strength of the competencies for that individual.

Subtract the following correction number If the correction Factor score is : 24 or 25 7 22 or 23 5 20 or 21 3 19 or less 0 from the total score for each competency: 7 5 3 0

2. Use the following numbers when figuring the corrected score: 3. Use the page below to correct each competency before using the Profile Sheet.

COMPETENCY PROFILE SHEET FOR SELF-RATING QUESTIONNAIRE Instructions 1. Transfer the corrected competency score to the profile sheet by marking X at the appropriate point on the dotted horizontal line for each competency. 2. Draw a heavy line over the dotted horizontal line for each competency, from the left vertical line to the point you have marked with an X. The heavy lines you have drawn graphically represent the strength of each competency. 3. The following is an example of how to create the profile sheet.

If the score for Initiative is 19, it will appear as follows: Initiative ______________X___________ 0 5 10 15 20 25

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CORRECTED SCORE SHEET

Competency Original Score Correction number* = Corrected Total

Initiative Sees and acts on Opportunities Persistence Information seeking Concern for High Quality of Work Commitment to work Contract Efficiency Orientation Systematic Planning Problem solving Self-Confidence Assertiveness Persuasion Use of influence Strategies

_______ -

_________

= ___________

_______ _______ _______ -

__________ __________ __________

= ___________ = ___________ = ___________

_______ _______ _______ _______ _______ _______ _______ _______ _______ -

__________ __________ __________ __________ __________ __________ __________ __________ __________

= ___________ = ___________ = ___________ = ___________ = ___________ = ___________ = ___________ = ___________ = ___________ ___________

Corrected Total Score

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MODULE 2
SCANNING THE ENVIRONMENT

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Environmental scanning is the acquisition and use of information about events, trends, and relationships in an organization's external environment, the knowledge of which would assist management in planning the organization's future course of action. Organizations scan the environment in order to understand external forces of change so that they may develop effective responses which secure or improve their position in the future. To the extent that an organization's ability to adapt to its outside environment depends on knowing and interpreting the external changes that are taking place, environmental scanning constitutes a primary mode of organizational learning.

Environmental scanning is complementary to but distinct from information gathering activities such as competitor intelligence, competitive intelligence, and business intelligence. Michael Porter wrote that the objective of competitor intelligence is "to develop a profile of the nature and success of the likely strategy changes each competitor might make, each competitor's probable response to the range of feasible strategic moves other firms could initiate, and each competitor's probable reaction to the array of industry changes and broader environmental shifts that might occur." Competitor intelligence is therefore focused on the actions, behaviors, and options of one or more existing or potential competitors. Competitive intelligence refers to the analysis of competitors as well as competitive conditions in particular industries or regions. The Society of Competitive Intelligence Professionals defines competitive intelligence as "the process of monitoring the competitive environment" that "enables senior managers in companies of all sizes to make informed decisions about everything from marketing, R&D, and investing tactics to long-term business strategies." Business intelligence has a similarly broad scope, and has been described as "the activity of monitoring the environment external to the firm for information that is relevant for the decision-making process in the company." In practice, business intelligence often concentrates on current competitors as in competitive intelligence, but may also include areas such as analysis of potential acquisitions and mergers, and risk assessments for particular countries.

Environmental scanning casts an even wider net, and analyzes information about every sector of the external environment that can help management to plan for the organization's future. Scanning covers not only competitors, suppliers, and

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customers, but also includes technology, economic conditions, political and regulatory environment, and social and demographic trends. Research on Environmental Scanning

What may be gleaned from the research that has examined environmental scanning? Figure 1 presents an information-seeking framework to summarize important findings:

Situational dimensions: The effect of perceived environmental uncertainty.

Managers who perceive the environment to be more uncertain will tend to scan more. Several studies have found that perceived environmental uncertainty is a good predictor of the amount and intensity of scanning. Perceived environmental uncertainty is a function of the perceived complexity (number of factors, opacity of causal relationships) and perceived dynamism (rate of change) of the external environment. Furthermore, if the perceived importance of the environment is included in a measure of perceived strategic uncertainty, the association between environmental uncertainty and scanning is even stronger. Organizational strategy and scanning strategy

An organization's overall business strategy is related to the sophistication, scope, and intensity of its environmental scanning. An organization that follows a particular strategy, such as a product differentiation, cost leadership, or focus strategy, or adopt a certain strategic stance, such as prospector, analyzer, or defender, is likely to operate a scanning mode that provides the required information and information processing capabilities to pursue its desired strategy. There is also tentative evidence to suggest that a balanced organizational culture is likely to encourage managers to scan more frequently and take on a more adaptive outlook.

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Managerial traits: Unanswered questions

The effect of a manager's job-related and cognitive traits on scanning is an area in need of further research. There is tentative evidence to suggest that managers scan widely, covering not just their functional specializations but also other areas; and that upper-level managers scan more and more broadly than lower-level managers. Information needs: The focus of environmental scanning

Business organizations focus their scanning on market-related sectors of the environment. Information about customers, competitors, and suppliers is seen to be the most important. In industries where other sectors of the environment, such as technology or demographics, are perceived to be having a large impact, these sectors would also be considered high scanning priorities.

Information seeking: Source usage and preferences

Although managers scan with a wide range of sources, they prefer live information from personal sources when seeking information about market-related environmental sectors which are highly fluid and equivocal. There is some evidence to indicate that source selection for scanning is influenced by the perceived quality of the source, and not just its perceived accessibility.

Information use: Strategic planning and organizational learning

Information derived from environmental scanning is increasingly being used to drive the strategic planning process in business and public-sector organizations. Research suggests that environmental scanning is linked with improved organizational performance. However, the practice of scanning by itself is insufficient to assure performance -- scanning must be integrated with strategy, and scanning information must be effectively employed in the planning process. An important effect of scanning is to increase and enhance communication and discussion about futureoriented issues by people in the organization. Coupled with the availability of

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information on external change, scanning can promote generative organizational learning.

Figure 1. Summary of Research on Environmental Scanning

Modes of Environmental Scanning

Scanning is not a monolithic activity. Environmental scanning includes both looking at information (viewing) and looking for information (searching). Research in organization science suggests that it might be helpful to distinguish between four modes of organizational scanning: undirected viewing, conditioned viewing, informal search, and formal search

In undirected viewing, the individual is exposed to information with no specific informational need in mind. The goal is to scan broadly in order to detect signals of change early. Many and varied sources of information are used, and large amounts of information are screened. The granularity of information is coarse, but large

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chunks of information are quickly dropped from attention. As a result of undirected viewing, the individual becomes sensitive to selected areas or issues. In conditioned viewing, the individual directs viewing to information about selected topics or to certain types of information. The goal is to evaluate the significance of the information encountered in order to assess the general nature of the impact on the organization. The individual wishes to do this assessment in a cost-effective manner, without having to dedicate substantial time and effort in a formal search. If the impact is assessed to be sufficiently significant, the scanning mode changes from scanning to searching. During informal search, the individual actively looks for information to deepen the knowledge and understanding of a specific issue. It is informal in that it involves a relatively limited and unstructured effort. The goal is to gather information to elaborate an issue so as to determine the need for action by the organization. If a need for a decision or response is perceived, the individual dedicates more time and resources to the search.

During formal search, the individual makes a deliberate or planned effort to obtain specific information or information about a specific issue. Search is formal because it is structured according to some pre-established procedure or methodology. The granularity of information is fine, as search is relatively focused to find detailed information. The goal is to systematically retrieve information relevant to an issue in order to provide a basis for developing a decision or course of action. Formal searches could be a part of for example, competitor intelligence gathering, patents searching, market analysis, or issues management. Formal searches prefer information from sources that are perceived to be knowledgeable, or from information services that make efforts to ensure data quality and accuracy. The four modes of scanning are compared in Figure 2.

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Scanning Modes

Information Need General areas of

Information Use

Amount Number of of Targeted Sources Effort

Tactics - Scan broadly a

Undirected Viewing

interest; specific need to be revealed Able to

Serendipitous discovery "Sensing" Minimal Many

diversity of sources, taking advantage of what's easily accessible - "Touring" - Browse in pre-

Conditioned recognize Viewing topics of interest

Increase understanding "Sensemaking" Low Few

selected sources on pre-specified topics of interest - "Tracking"

Increase Informal Search Able to formulate queries knowledge within narrow limits "Learning" Medium Few

- Search is focused on an issue or event, but a good-enough search is satisfactory - "Satisficing" - Systematic

Formal Search

Able to specify targets

Formal use of information for planning, acting "Deciding" High Many

gathering of information on a target, following some method or procedure - "Retrieving"

Figure 2. Modes of Scanning

In order to be effective, environmental scanning needs to engage all four modes of viewing and searching. Undirected viewing helps the organization to scan broadly and develop peripheral vision so that it can see and think "outside the box." Conditioned viewing tracks trends and gives the organization early warning about emerging issues. Informal search draws a profile of an issue or development, allowing the organization to identify its main features and assess its potential impact. Formal search systematically gathers all relevant information about an issue to enable intelligent decision making.
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Figure 3 shows how the four modes of scanning are supported by a continuum of online information gathering and communication methods that range from:

information characterised by novelty and variety to information characterized by accuracy and focus;

secondary sources to primary sources; many-to-many communications (newsgroups, mailing lists) to one-to-one communications (e-mail, telephone, face-to-face meeting);

the chaotic, informal World Wide Web to the structured, formal online databases.

Figure 3. Modes of Scanning (2)

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Learning from Best Practices

Surveys of effective scanning practices in organizations appear to converge on a set of common best-practice principles.

Plan and manage scanning as a strategic activity. As an engine of organizational learning, scanning should be managed as a strategic activity. In many ways, the scanning function is like a research and development program, where the investment is for the longer term, but the payoff may be spectacular. Like R&D, scanning needs to be given a critical mass of talent and resources in order for it to take off, and it needs time to develop its knowledge and expertise. Experts suggest that successful programs take 3-5 years to mature: his study found that the most effective scanning departments were at least five years old or were run by executives with tenures of five or more years.

Implement scanning as a formal system. A formal scanning system is one that is planned, sustained, and coordinated. Planning ensures that information gathering is based on the organization's goals and critical information needs. Continuous monitoring enables the organization to detect deviations from the norm and sense early warning signals. Sustained monitoring also allows the system to grow its information networks and build up its knowledge base. Coordination minimizes duplication and maximizes the scope and efficiency of information gathering.

Partner with domain experts and IT specialists in designing the scanning system. Effective scanning requires the partnership of three groups of knowledge workers in an organization: domain experts who have deep knowledge about the business; information experts who organize information into useable and useful resources; and IT experts who build the technical infrastructure to support information management. Domain experts transform information into intelligence that can guide action and decision making. They are not just consumers of the end products of scanning but active participants in the collection and analysis of information. Information specialists add value to information in various ways to signal its significance and enhance its accessibility and utility. IT specialists implement systems that accelerate and simplify the movement and sharing of information.
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Manage information as the core of the scanning function. As shown in Figure 4, information management is a network of six interrelated processes: identifying information needs, acquiring information, organizing and storing information, developing information products or services, disseminating information, and using information. In identifying information needs , key groups of information users are clearly identified and the situations in which they will use the scanning information carefully understood. Information acquisition is a widely distributed organizational activity, in which virtually everyone participates. At the same time, the information collection network is coordinated, usually at a single locus, to properly manage issues relating to coverage, redundancy, and economies of scale and specialization. Information organization and storage is accomplished using a central database or repository where information is structured to facilitate both searching (retrieving information) and browsing (connecting information). Information products should be "relevant" not only in the sense of being on topic, but also "right" in its focus, orientation, format, and other value-added attributes. Products could exploit a mix of dissemination channels, including face-to-face briefings, workshops, written reports, and special exhibits. Information use in organizations takes place in three linked arenas: sensemaking (what do the external signals mean?), knowledge-creating (what knowledge do we need and how can we develop it?), and decision-making (what course of action is best for the organization?) Information from scanning is a vital resource in all three arenas.

Figure 4. Information Management in Environmental Scanning

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What these best practices suggest is that environmental scanning has to balance the tensions between control and creativity, centralization and decentralization, focus and exploration. While scanning is a formal, planned activity, it should also provide the space and freedom for participants to challenge assumptions and create new interpretations. While the scanning program is centrally coordinated, it is also a distributed activity where many groups and individuals gather and share information. While scanning is focused on the organization's information needs, it should also provide the peripheral vision and long-range perspective for the organization to grow. Ultimately, scanning as information seeking in support of organizational learning will always remain much more of an art than a science.

QUESTIONS TO ANSWER
1. What is Environmental Scanning? Why is it important to undergo environmental scanning? 2. Who is Michael Porter? What contributions has he made to Environmental Scanning? 3. Should a person who intends to put up a sari-sari store undergo environmental scanning? 4. Differentiate Competitor Intelligence, Competitive Intelligence and Business Intelligence. 5. Discuss the different scanning modes. 6. If you are putting up a carenderia, which among the scanning modes would be appropriate for you to use? Why? Explain thoroughly.

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MODULE 3
IDENTIFYING THE NEW VENTURE
Knowing what you want to accomplish is the first step in planning a new enterprise. Once you have a clear idea of the enterprise, you can develop guidelines for action.

OBJECTIVES:
After studying this module, the student should be able to: 1. 2. 3. 4. Write a definition of your planned business. Compare the legal forms of business enterprise. Explain plans for getting the work done. Identify sources of assistance for planning the enterprise.

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DEFINITION OF THE BUSINESS

Your first step in starting a business is to turn your idea for a business into a plan of action. You will do this by writing a business plan. A business plan is a written description of every part of the new enterprise. Beginning with a definition of the business you intend to conduct, you will map out the course for the enterprise.

A definition of the business contains a description of the industry, your company, the products or services you will offer, and the image you desire.

The Industry
All the firms that offer a particular product or service make up an industry. IBM, Apple Computer, and the other computer manufacturers make up the computer industry. Likewise, PepsiCo, Inc. and Coca-Cola Co. are two of the companies in the soft drink industry.

A definition of the business should include the outlook for the industry. Discuss changes or trends that could affect your business either positively or negatively. Are people buying more or less of the industrys product? Will new products from another industry make it harder or easier to sell your products?

Your Company
A definition of the business must contain a description of the company you intend to start. Here is an example of a definition of a company:

The store will sell a complete line of office supplies and customprinted forms to consumers and to businesses. No other local firm offers such an extensive line of products. Offices, banks, and other users will be given both discounted prices and free delivery service when they place large orders.

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The business name is a part of the description of your company. You should explain the business name in the business plan. Because the name may be difficult to change later on, take care in selecting the name in the beginning. Your answers to the following questions should be helpful when deciding on a business name:

1. Does the name tell people what my company makes or sells? 2. Is any other company or organization using the name I am considering? Is anybody using a similar name? Two or more companies using the same or similar names can be confusing to customers. You may also find yourself in legal difficulty if you use an established firms name. 3. Am I aware of the problems that may arise when I put my own name on the business? Having your name on the business could be embarrassing to you and your family if the business fails. On the other hand, if the business is successful, you may have difficulty selling it because prospective buyers may not want a business with someone elses name on it. If you are successful in selling it, you may not like what the new owner does to your name through dishonesty or poor treatment of customers. 4. Is my companys name linked to a current fad, catchword, or anything else that could lose it popularity? If so, the name may someday tell customers that the business, along with its products and services, is outdated.

Products and Services Offered

You can look at products and services from two different viewpoints: the sellers and the consumers. Sellers Viewpoint. The sellers viewpoint is a narrow definition of products and services. That is, many sellers see products as physical objects only. They think of the products in terms of the component parts and materials used in manufacturing. In a similar way, sellers may see services as consisting only of the tasks performed.

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Consumers Viewpoint. From the consumers viewpoint, products and services are seen in terms of the benefits derived from their use. They key idea is that consumers buy what the products or services will do for them. Therefore, entrepreneurs should see themselves as sellers of benefits. Consumers shopping for a microwave oven are buying more than just an oven. They are buying convenience and the ability to get meals on the table quickly. When you buy a car, you are probably buying more than a means of transportation. You may also be buying a symbol of status, taste, and achievement. How will you answer the question, What is your business? Some examples may help you think of a response. The owner of a tire store may answer, I sell more than tires, I sell customer safety. The operator of a fast-food restaurant may say, I sell more thatn food, I sell family fun and convenience at a low price.

Image Desired
An enterprise can also be described in terms of its image, which is how customers feel about doing business with the enterprise. It is a personality and identity that makes customers think immediately of the business when they want the particular kind of products or services it offers. What makes or creates the image of a business? Image is the result of the total business and all its parts. You will determine the image when you (1) plan to sell specific products and services, (2) plan what customer services to offer, (3) select a location, and (4) hire employees. Specific Products and Services. After you select the type of enterprise you want, you must choose specific products and services to offer. You must define exactly what you are going to sell.

It is not enough to say that you will open an auto parts store. What parts will you keep in stock? Will you specialize in certain types of cars? Answers to these questions will help determine the image. If you stock parts for American-made cars, you will have one image. If you limit your inventory to parts for imported cards, you will have another image. You will have a third type of image if you specialize in parts for antique and restored cars.
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You will have to make similar decisions if you open a service enterprise. As an example, the policy of one photographer might be to serve people who want pictures taken at weddings, family reunions, and other special occasions. Another photographers services might be limited to taking portraits in the studio. In a similar way, owners of travel agencies, motels, and movie theaters must define exactly what services they sell. Customer Services. Customer services are the extra benefits that a business provides for its customers. For example, some grocery stores provide custom trimming of meat at no extra cost, neighborhood bulletin boards, and a courtesy booth for the payment of utility bills. Another example is clothing sores that offer free alterations to customers.

Customer services are often associated with, but not limited to, retail stores. Think of the mail-order firms that permit a thirty-day trial of merchandise, the muffler shops that guarantee their product for as long as you won the car, and dry cleaners that offer one-hour service.

You must make definite plans about the customer services that you will offer. Your decision will affect the image of the enterprise. Location. Where will the enterprise be located? A jeweler who wants to convey a quality image should locate near fashionable stores. On the other hand, a building materials discount store could be appropriately located in a warehouse district. In addition, customers should have easy access to the business with ample and convenient parking. When selecting a location, ask yourself this question: How will my customers feel about coming to this location? Employees. The attitude of employees affects the image of the business. A restaurant with excellent food will acquire a poor image if meals are not served promptly and courteously. An efficient appliance repair service may lose its clientele if employees are not polite when entering customers homes.

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You may be the only employee in the beginning. When you are ready to hire others, remember what image you want to establish for the enterprise. Then, hire only those employees who will help you achieve that image.

LEGAL FORMS OF BUSINESS ENTERPRISE

The three principal legal forms of business enterprise are (1) sole proprietorship, (2) partnership, and (3) corporation. One of the entrepreneurs most important decisions is choosing the appropriate legal form for the business. Before making this decision, prospective entrepreneurs should consider these questions:

1. How soon do I want to get the enterprise started? 2. Am I willing to share the profits with others? 3. Do I want complete control in running the enterprise? 4. How much liability am I willing and able to assume? 5. Will one particular legal form of business enterprise result in lower taxes? 6. Am I able to provide all the capital needed to get the enterprise started? 7. Is my enterprise based on a secret process or formula? 8. Do I want the enterprise to continue when I am no longer able to run it myself?

The legal form of organization affects most areas of the enterprise. Therefore, the entrepreneur should understand all three forms and be familiar with the advantages and disadvantages of each. At the same time, entrepreneurs should know they may be required to comply with certain regulations, regardless of the legal form of the enterprise. For example, the law generally requires every business with one of more employees to obtain an Employer Identification Number is obtained by filing Form SS-4 with the Internal Revenue Service. This identification number is not the same as the Social Security number required on individual income tax returns.

An entrepreneur should also realize that the legal form of the business can be changed as the enterprise develops and grows. For instance, a new business may begin as a sole proprietorship and develop into a partnership. Some proprietorships and partnerships may later become corporations.
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Sole Proprietorship
A sole proprietorship is an enterprise that is owned by only one person. It is sometimes referred to simply as a proprietorship. This is by far the most popular legal form. Proprietorships exist in just about every filed of business activity. However, they are dominant in the areas of services, retail trade, and construction. Proprietorships generally have small sales volumes and employ only a few workers.

Advantages of Sole Proprietorships

Proprietorships are popular because of several advantages: (1) profits to owner, (2) easy start-up, (3) complete control and flexibility, (4) tax benefits, (5) satisfaction, (6) secrecy, and (7) easy dissolution. Profits to Owner. A proprietor owns the business. A proprietor is the sole owner of any profits earned and does not have to share them with anyone else. This is not the case with other legal forms. In partnerships and corporations, some portion of the profits will be distributed to others.

Easy Start-up. Many people prefer the proprietorship because it is the easiest and simplest form of business to start. Generally, no legal document is necessary to establish a sole proprietorship. It exists as soon as business is conducted. For example, you can be the proprietor of your own carpet cleaning service as soon as you purchase the appropriate equipment and cleaning supplies. In other words, you could be in business and ready to serve your first customer by tomorrow.

Depending on the type of enterprise you open, you may have to obtain a license. For example, restaurant must usually be approved by the local board of health.

Complete Control and Flexibility. Since a sole proprietor does not have to get anyone elses approval, decisions affecting the business can usually be made more

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quickly. In partnerships and corporations, important decisions are generally made only after consulting others. Consider a painting contractor who has an opportunity to buy paint at a bargain price. The order must be for a large quantity, and the order must be placed by the end of the day. In a sole proprietorship, the entrepreneur could make the decision in a matter of minutes. In a partnership or corporation, the entrepreneur might not be able to consult with the others by the deadline. As a result, the chance to save money would be lost.

Tax Benefits. Sole proprietors are taxed as individuals; the business itself is not taxed. Special taxes that are levied against a corporation do not apply to proprietorship. The proprietorships tax return is similar to any other individual taxpayers. Personal and family deductions and exemptions are listed on the Internal Revenue Service Form 1040. In addition, proprietors file Schedule C to deduct business expenses from business income. Business income is total dollars received for all goods and services sold during the year. Business expenses are ordinary and necessary costs of operating the business. Generally, a sole proprietor may deduct expenses such as employees wages and salaries, interest on business debts, insurance premiums, bad debts, and rent on buildings, trucks, and other equipment. Satisfaction. The proprietor of a successful business enjoys a sense of accomplishment by applying skills, making personal sacrifices, and making decisions that often overcome obstacles. The satisfaction of knowing that one is largely

responsible for the success of the enterprise is a reward in itself. If this reward must be shared with others, as in the other legal forms, the same feeling of satisfaction may not result. Secrecy. Sole proprietorship offers the best possibility for keeping information

confidential. This may be important it the success of the enterprise depends on a secret process of formula. Also, the owner does not have to tell anyone other than the Internal Revenue Service what the profits are.

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Easy Dissolution. Proprietorship are easy to start, and they are almost as easy to dissolve. All a proprietor must do is sell the equipment, inventory, and other assets used in the enterprise. To protect the credit rating, a proprietor should make sure employees and creditors are paid in full.

Disadvantages of Sole Proprietorship.

Sole proprietorships have these disadvantages: (1) unlimited liability, (2) limited life, (3) difficulty in obtaining capital, (4) management difficulty, and (5) little incentive for employees. Unlimited Liability. Proprietors may keep all the profits of their businesses, but they also have unlimited liability. Unlimited liability means that they are personally liable for all business debts. A proprietor may have to use personal savings, investments, or belongings to settle debts. Therefore, proprietors risk not only their invested

business capital but also their personal assets. Limited Life. A proprietorship has limited life because it is directly tied to the life of the owner. Limited life means that the business will be dissolved upon the death, imprisonment, or bankruptcy of the proprietor. In addition, an extended illness of physical disability may force the owner heir wanting to continue the business. Instead of continuing the former enterprise, a new sole proprietorship would have to be established.

Difficulty in Obtaining Capital. Sole proprietors have two sources of funds for starting the business. One source is their own personal funds, which may not be adequate. The other source is borrowed funds. However, lenders often hesitate to grant loans to sole proprietors because of the risk involved in a new enterprise. Having insufficient operating funds can severely limit the enterprises growth and may cause it to fail. Management Difficulty. Management difficulty occurs because the proprietor carries the entire burden of managing the business. Some entrepreneurs describe this situation as spreading themselves too thin. Someone must make the products,
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help customers, complete tax forms, write advertisements, collect overdue bills, and order merchandise. One person seldom does all these things equally well, but usually it is the proprietor who must do them alone. Spending time on these necessary tasks leaves less time for planning the future.

Little Incentive for Employees. By definition, a proprietorship does not have partners or part owners. Therefore, employees can never be more than employees. They cannot but, or be given, a share of the ownership. This may cause a highly competent employee to quit and possibly start a competing business.

Partnership
A partnership is a business enterprise owned by two or more persons. This legal form of ownership overcomes some of the limitations of sole proprietorship. The name of the business often indicates a partnership: for example, Smith and Joness Hardware or Bill and Toms TV Repair. Several types of partnership arrangements exist. However, the following discussion deals with the more common type known as a general partnership. All partners in a general partnership have unlimited liability for the enterprises debts. Advantages of Partnership

Partnerships usually have these advantages: (1) easy start-up, (2) added capital, (3) combined management skills, (4) tax benefits, and (5) employee incentives. Easy Start-up. A partnership is almost as easy to form as proprietorship. The

enterprise is ready to start once the partners have agreed on various details about the partnership. For example, they must decide how much money each will invest, how profits and losses will be shared, and how assets will be divided if the business is dissolved. These and other important points should be included in a written

agreement known as articles of partnership. This agreement is not required by law, but its use can prevent misunderstandings and legal difficulties.

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Added Capital. Many partnerships are formed because two or more people can assemble more money than one person can. This makes it possible to start a larger business and have reserve funds for unexpected expenses. Also, lenders may be more willing to grant loans because more persons are available to repay the debt.

Combined Management Skills. Each partner can contribute a skill to the enterprise that the other may not have. One partner may be an outstanding chef. The other may be a skilled manager who likes to keep records and supervise employees. By combining their skills, the two partners could open a restaurant. partnership they could be successful, where alone they might fail. Tax Benefits. The partnership itself is not taxed. Instead, partners pay income tax on their individual portions of the enterprises profits. Together in a

Employee Incentives. Partners can encourage competent employees to remain with the business by inviting them to become partners. Articles of partnership should be modified to reflect any changes.

Disadvantages of Partnership

The strong points of the partnership may be overshadowed by one or more of the following disadvantages: (1) unlimited liability of the partners, (2) limited life, (3) divided authority, and (4) frozen investment.

Unlimited Liability of the Partners. Each partner is liable for all partnership debts. That is, creditors may sue any of the partners to settle the debt. This is true even if one partner has incurred the debt on behalf of the business.

Limited Life. The life of a partnership is limited and uncertain. Any change among the partners can cause the partnership to dissolve. The death or withdrawal of one partner will bring the enterprise to an end. However, the remaining partners may start a new partnership. Of course, this assumes they have enough money to buy the former partners share of ownership.

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Divided Authority. Because authority is shared by all partners, there is potential for disagreement. Each partner could have different ideas about hiring employees, buying merchandise, or advertising and sales promotion programs. Many otherwise successful enterprises have been dissolved because partners could not work together. The possibility that problems will occur increases with the number of partners. Frozen Investment. It is often difficult to withdraw a partners investment from a partnership. Even if the other partners are willing to buy one partners share, the partners may struggle to agree on a fair price. Therefore, when going into a partnership, entrepreneurs should invest only those funds they can live without for a while.

Corporation
A corporation is an enterprise that has the legal rights, duties, and powers of a person. Because a corporation exists independently of its owners, a corporation is an artificial being or person. A corporation may own property in its own name and may also enter intro contracts, borrow money, and perform other day-to-day business activities.

Corporations are established by obtaining a charter from the state in which the business is to be located. The charter is a written document outlining the conditions under which the corporations will operate. The owners are called stockholders. Individuals become owners by buying shares of stock, which represent shares of ownership in the corporation. Some large corporations have thousands of stockholders, representing people from a variety of occupations. Generally, these people are interested in the business only as an investment. However, in small enterprises, the stockholders and the managers are the same individuals. To them, the business is more than an investment; the business represents their careers.

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Advantages of Corporation

Corporations are often thought of as large businesses. However, because of the advantages, many entrepreneurs have chosen this form of ownership for their enterprises. The main advantages are (1) limited liability, (2) continuous life, (3) easy transfer of ownership, (4) ability to attract funds, and (5) specialized management. Limited Liability. In a corporation, the most a stockholder can lose is the amount of money invested in the business. Because a corporation is a separate entity, the corporation, rather than the owners, owes the debts. Therefore, personal savings and belongings will not be taken to pay debts of the corporation. This is a major advantage of the corporate form of ownership. Continuous Life. When a proprietor or a partner dies, the business is ended legally. This is not true of corporations. A corporations existence is not affected by the death or incapacity of an owner. The enterprise can operate indefinitely as long as it is profitable.

Easy Transfer of Ownership. Ownership in a proprietorship or partnership may be difficult to transfer to another person. This usually involves closing the enterprise and reorganizing it. In a corporation, however, stockholders can sell their stock to another person.

Ability to Attract Funds. Corporations are able to acquire additional funds by selling shares of stock. Individuals may be more willing to invest in corporations than in partnerships because their liability is limited. For these reasons, corporations usually have more opportunities to expand. They are able to et money fro new buildings, equipment, and inventories. Specialized Management. Proprietors and partners must perform a wide variety of functions. However, because they are frequently larger than other legal forms, corporations can have specialized management. This means that each person can concentrate on one set of duties. One manager may oversee the manufacturing of the product while another specializes in accounting.
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Disadvantages of Corporation

The disadvantages of the corporate form of ownership are (1) complicated formation, (2) double taxation, (3) government regulation, (4) charter restrictions, and (5) little secrecy. Complicated Formation. Getting a corporation started usually requires more time and money than other legal forms of ownership. For example, the corporation must conform to certain laws to obtain a character from the state. Thus, a lawyers services are needed in filing the necessary papers. In addition to the lawyers fees, a corporation will probably have to pay fee to the state. Double Taxation. Perhaps the major disadvantage of the corporate form of

ownership is the problem of double taxation. This means that profits are taxed twice. A corporation must pay taxes on its profits. Stockholders also have to pay personal income taxes on their share of the profits.

Government Regulation.

Federal and state regulations of corporations have

increased over the years. Depending on the state in which a corporation is chartered, various reports are required each year. The corporation must also register in all other states in which it does business. This often involves the payment of a special tax.

Charter Restrictions. A charter for a corporation indicated the type of business the corporation will pursue. The charter permits the enterprise to engage in only those business activities stated in the document. Therefore, a corporation cannot make a major change in its line of business until the charter is amended. This eill take time and involve additional legal fees. Little Secrecy. The more owners a corporation has, the more difficult it will be to maintain confidentially. All stockholders are entitled to now sales, profit, and asset figures each year. A special production method may be impossible to keep secret.

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ORGANIZATION OF THE ENTERPRISE

Planning how to get the work done is an important step in starting an enterprise. This involves deciding what tasks must be performed to make the enterprise a success. If there are other partners of employees, an entrepreneur must decide who will perform each task. personnel management. An entrepreneur should also realize the importance of

What Skills Are Required by the Enterprise?

The first step in organizing the work of the enterprise is to determine what tasks should be performed. Some duties are necessary in almost all enterprises: making or buying products, providing services, setting prices, waiting on customers, paying bills, advertising, cleaning and maintenance, and preparing accounting and tax statements.

List every task that comes to mind. Do not worry about how small the task seems to be. Also, you need not follow a particular order or sequence. Just keep adding to the list until you believe it is complete.

Who Will Perform Each Task?

After an entrepreneur has identified the necessary tasks for the enterprise, the entrepreneur should indicate who will perform each task. This can be done with an organization chart. An organization chart is a diagram that shows how one job in the enterprise fits in with others. Of course, a one-person enterprise does not need an organization chart. Some small businesses start out with a few employees and grow larger. The organization chart should be on paper and explained to all members of the enterprise.

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What is Personnel Management?

The single most important resource in an enterprise is its people. Therefore, an entrepreneur must be prepared to manage this resource. The purpose of personnel management is to build a motivated and effective work force. The activities that make up this process are (1) hiring, (2) training, (3) determining compensation, and (4) determining employee benefits. Hiring. The hiring process involved deciding if a prospective employee is suitable for the job. Employers interview job applicants and also contact persons listed as references on the employment application form. As the firm grows in size, however, additional methods may be used. For instance, persons applying for jobs may be required to take written tests or demonstrate that they can perform the work.

Training. The purpose of training is to improve job performance. All new employees require a certain amount of training. Those without prior experience must be taught the skills to do the job. Employees with related job experience probably were hired because they have the skills. However, they still need training. For instance, they may have to learn the procedure for handling customer complaints or making bank deposits. Determining Compensation. Compensation refers to wages and salaries paid to employees. Wages are payments to workers on an hourly basis. Salaries are fixed peso amounts paid regularly such as weekly or monthly. Consider the following questions as you set your compensation policy: What are you willing to pay? Are you willing to pay above the minimum required by law? What must you pay to get the employees you want?

Determining Employee Benefits.

Employees may receive fringe benefits in

addition to regular compensation. Entrepreneurs offer fringe benefits to compare effectively for good employees. A popular benefit is health insurance in which the employer pays all or part of the health insurance premium. Other fringe benefits are paid vacations and holidays, life insurance plans, and pensions. Some employees get a discount on purchases.
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SOURCES OF ASSISTANCE
Starting a business is a complex process, regardless of whether you start from scratch, buy an existing business, or buy a franchise. As a prospective entrepreneur, you should obtain the assistance of advisers in business matters. Advisers you should contact include (1) attorneys, (2) accountants, (3) bankers, and trade associations.

Attorneys
Some persons visit an attorney only when they are involved in a lawsuit. However, many entrepreneurs have learned to consult an attorney on other matters as well. An attorney can help set up the business and give advance warning of potential legal problems. Compliance with local and national laws can be best assured with legal advice. An entrepreneur should study documents such as licenses, permits, and equipment purchase and lease agreements. When considering a franchise, a franchisee should examine carefully the contract used by the franchisor. Paying an attorney for these services is usually money well spent. If possible, select an attorney who is familiar with small business.

Accountants
Records of sales, expenses and profits are necessary in managing an enterprise. Accountants can assist in setting up the records system to provide this information. They can also advise on tax problems and prepare tax returns. A prospective franchisee should discuss the franchisors financial records with an accountant. With an accountants help, a prospective franchisee can find out if the franchisors estimates of sales and profits are realistic.

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Bankers
Bankers are best known as lenders of money. However, they can also provide valuable information on starting a business. Bankers are able to do this because they keep in close touch with the business community. Bankers can help in comparing franchises or in checking credit ratings of customers. Although bankers are not experts inv every area, they can usually help select other professional advisers. For instance, they can give you names of attorneys to consider.

Trade Associations
Another source of assistance is a trade association. A trade association is a group of businesses that have joined together to benefit a particular line of business. These groups assist members by offering ideas and information that will contribute to better management.

QUESTIONS TO ANSWER
1. 2. 3. 4. 5. What should a definition of the business contain? List four decisions of the entrepreneur that will affect the image of the enterprise. What is the first step in planning how to get the work done in the enterprise? Why would an organization chart be useful in an enterprise with five employees? List four types of advisers to contact when starting a new business.

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MODULE 4
SCREENING VENTURE OPPORTUNITIES
Entrepreneurs need to think big. You are going to end up exhausted in building a company. So you might as well end up exhausted and rich!
Patricia Cloherty First Woman President of the National Venture Capital Association

OBJECTIVES After reading the lesson you would be able to: 1. Examine two screening methodologies- QuickScreen and the Venture Opportunity Screening Exercises (VOSE)- that can help you determine whether your ideas are potential opportunities. Begin to consider with more creativity and depth what you need to do to improve both the fit and the risk and reward relationship. Determine whether your best ideas at this time has sufficient potential to pursue the development of a thorough business plan.

2. 3.

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Time is the ultimate ally and enemy of the entrepreneur. The harsh reality is that you will not have enough time in a quarter, a year, or a decade to pursue all the ideas for business you and tour team can think of. Perhaps the coolest part of the paradox is that you have to find and make the time for the good ones. To complicate the paradox, you do not have a strategy until you are saying no to lots of opportunities! This demand is part of the both punishing and rewarding Darwinian aspect of entrepreneurship: many will try, many will fail, some will succeed and a few will excel. While the number of new enterprises launched in the United States can vary widely from year to year, only 10 to 15 percent of those will ever prove to be opportunities that achieve sales of $1million dollars or more. This chapter will put you where the action is, engaging in the first of many titanic-like struggles to determine whether your good idea is truly a good opportunity. Ideas that turn into superior business are not accidents; they are consistent with these four anchors. 1. 2. They create or add significant value to a customer or end-user. They do so by solving a significant problem, removing a serious pain-point, or meeting a significant want or needfor which someone is willing to pay a premium. 3. They have healthy market, margin, and money making characteristics that will allow the entrepreneur to estimate and communicate sustainable value to potential stake holders: large enough high growth, high gross margins, strong and free cash flows (recurring revenue, low assets, and working capital), high profit potential (10 -15 percent plus after tax), and other attractive realizable returns for investors. 4. They are a good fit with the founder(s) and management team at the time and market placealong with an attractive risk-reward balance.

QuickScreen

If most sophisticated private equity investors and venture capitalist invest in only 2 to 3 out of 100 then one can see how important it is to focus on a few superior ideas. The ability to quickly and efficiently reject ideas is a very important entrepreneurial
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mindset. Saying no to lots of ideas directly conflicts with your passion and commitment for a particular idea. To make the struggle more manageable, this module provides two methodologies. The first, QuickScreen, should enable you to conduct a preliminary review and evaluation of an idea in an hour. Unless the idea has been, or you are confident it can be, molded and shaped so, so that it has the four anchors, you will waste a lot of time on a lower potential idea. The QuickScreen exercise can be reproduced for your own use. Venture Opportunity Screening Exercise (VOSE)

The Venture Opportunity Screening Exercise are designed to segment screening of ideas into manageable pieces. The QuickScreen provides a broad overview of an ideas potential. In a team effort, each member of the team should complete the exercise separately and then meet as a team to merge the results. After each VOSE, you should revisit the QuickScreen and reevaluate your scoring. When you are satisfied that all the exercises are complete, the combined documents will provide the substance needed to complete your business plan. It also provides an audit trial of your opportunity shaping activity. Not only does this help you memorize your thinking. But it provides articulation when explaining your thought process to sophisticated investors---many of whom will be asking probing questions to test your depth of knowledge. Whether or not an entrepreneur plans to seek venture capital or an outside private investor to pursue an opportunity it is better to have, it is vital to have a realistic view of the vulnerabilities and realities, as well as the opportunitys compelling strengths. Often, the repetitive process of carefully examining different ideas through many eyes, within and outside your team, often triggers creative ideas and insights about how the initial business concept and strategy can be altered and modeled to significantly enhance the value chain, free cash flows characteristics, and risk-reward relationships and does the fit. This process is central to value creation and the development of higher potential ventures, but it is far from cut and dried. This early seed stage is also a marvelous time for a trial marriage with prospective team members. This work can be detailed, tedious, and downright boring. Finding out now who can deliver what; who has the work ethic, consistency, and reliability; and whether you can work together will save you a lot of money and headaches
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later. Ultimately, the fit issue boils down to this: do the opportunity, the resources required (and their cost), the other team members (if any), the timing, and the balance of risk and reward work for me?

Exercise QUICKSCREEN I. Market and Margin related Issues

Criterion
Need/want/problem/pain-point Customers Payback to users Value added or created Market Size Market growth Rate Gross margin Overall Potential: 1. Market 2. Margins higher____________________ avg ____________________ lower higher____________________ avg____________________ lower

Higher Potential
Identified Reachable and receptive Less than one year IRR 40% + $ 50 100 million More than 20% More than 40% and durable

Lower Potential
Unfocused Unreachable/ loyal to others More than three years IRR less than 20% less than $ 10 million or + $ 1 bil. less than 20%, contracting less than 20% and fragile

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II. Competitive Advantages: Relative to the Current and Evolving Set of Competitors Higher potential
Fixed and variable costs Degree of control Prices and Cost Channels of supply and distribution Barriers to competitors entry Proprietary advantage Lead time advantage (product, Technology, People, resources, location) Service Chain Contractual Advantage Contracts and Networks Overall Potential 1. Costs 2. Channel 3. Barriers to entry 4. Timing higher____________________ avg______________________ lower higher____________________ avg______________________ lower higher____________________ avg______________________ lower higher____________________ avg______________________ lower Strong Edge Exclusive Key Access No Edge None Limited Can Create Defensible Slow Competition Weak/None None None Lowest Stronger

Lower potential
Highest Weaker

III. Value Creation and Realization Issues Higher Potential

10 15% or more and durable Less than 2 years Less than 2 years 40 -70% +, durable High strategic value Low Moderate; fundable IPO, acquisition

Lower Potential

Profit after Tax Time to breakeven Time to Positive cash flow ROI potential Value Capitalization Requirements Exit Mechanism Overall value creation potential 1. Timing 2. Profit/free cash flow 3. Exit/ liquidity

Less than 5%; fragile More than 3 years More than 3 years Less than 20%, fragile Low Strategic Value Very high; difficult to fund Undefined; illiquid investment

higher____________________ avg ______________________ lower higher____________________ avg _______________________ lower higher____________________ avg _______________________ lower

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IV. Overall Potential Go

1. Margins and Markets 2. Competitive Advantages 3. Value creation and realization 4. Fit: O + R + T 5. Risk Reward 6. Timing 7. Other compelling issues: must know or likely to fail a. b. c. d. e.

No Go

Go, if. . .

Venture Opportunity Screening Exercises

The new venture creation process requires a due diligence. We recommend that the components of these exercises be use to channel your thought and data collection efforts toward creating the foundation for development of the complete business plan. Allow for a dynamic processing of each component and thereby the shaping of the opportunity and a plan to execute it. It is okay that you be initially broad in your perspective and then become more focused in later repetitions.

At the end of each exercise you should have a clearer idea of the relative attractiveness of your opportunity. Rarely it is simply cut and dried. Most of the time, there will be considered uncertainty and numerous unknowns and risks. Completing these exercises can, however, help you understand those uncertainties and risks as you make a decision about the idea. The process will help you devise ways to make these uncertainties and risks more acceptable for you, and if not, then you know you need to keep searching.

Every venture is unique. Operations, marketing, cash flow cycles, and so forth vary a good bit from company to company, from industry to industry, from region to region,
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and from country to country. As results, you may find that not every issue is pertinent to your venture, and perhaps some questions are irrelevant. Here and there you may need to add to these exercises or further tailor them to your circumstances.

Working through these exercises is a lengthy process. This is a map of how you think about the tough, dull legwork of good due diligence that should be done before launching into a venture. Completing these exercises will help you determine if your opportunity is attractive enough vis--vis the four anchors to develop a complete business plan. As you work through these exercises, you will find that much of the work of writing a business plan comes from your answers in the exercises. While you may decide to delay work on some of these exercises, eventually you will need to ask you self and your team these questions.

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MODULE 5
THE VENTURES SETTING

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GOVERNMENT RULES AND REGULATIONS

When starting a small business, and entrepreneur must pay attention to the town, city, and provincial regulations. He or she can begin by asking city and provincial officials about license and permit requirements for the business. Ask Your Bureaucrat If the city does not have a central office that provides business start-up information (and only a few large ones do), there are bound to be many other offices with lots of helpful information:

the city clerk and the provincial clerk the building and safety department the health department the planning or zoning department the tax office the fire department the police department, and the public works department.

The assessor or treasurer haS information about local taxes on property, fixtures, equipment, inventory, and income or gross receipts. The health department can give advise about permits and regulations if the business involves food preparation. It also needs to test the water if the business will be in an area where water comes from wells or goes into septic systems. The police, fire, or building and safety departments can help with issues of crowd control and safe exit from the business premises. The fire department will also be concerned about combustible materials used or stored on the business premises. Other sources of information. Other unofficial but often extremely helpful sources of information include: the local chamber of commerce, trade associations,

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contractors who remodel commercial space, other people with businesses like yours, and lawyers who advise small businesses. Business Licenses, a.k.a. Tax Registration Certificates In most locations, every business needs a basic business license, sometimes called a tax registration certificate. The business license usually comes from the city or province. However, the business may need other permits and licenses as well. No single business license ensures compliance with the numerous licenses, permits, and regulatory requirements that apply to small businesses. Zoning Ordinances Before an entrepreneur signs a lease, he or she absolutely needs to know that the space to be rented is properly zoned for usage. If it is not, the entrepreneur must make the lease contingent on his/her getting the property rezoned or on his/her getting a variance or conditional use permit from the planning department. In some communities, the business must have a zoning compliance permit before it can start to function in a given location. Zoning laws may also regulate:

off-street parking water and air quality waste disposal, and the size, construction, and placement of signs.

If the property is in a historic district, approval may be needed to change the color of paint or to modify the buildings exterior. A zoning compliance investigation may be made when the entrepreneur applies for a construction permit for remodeling or when he/she files tax information with the municipality. Building Codes For anything but the most minor renovation, the entrepreneur is likely to need at least one permit from the department that enforces building ordinances and codes. (This is
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usually called the building and safety department, but sometimes another department, or more than one department, enforces the state building code and the local ordinances.) There may be need to separate permits for electrical, plumbing, heating, and ventilating work. "Grandfathering" Building codes are amended frequently, and each revision seems to put more requirements on the building owner. Municipalities often exempt existing businesses from having to bring their premises up to code at each revision. This is sometimes called grandfathering, which is slang for not applying new rules retroactively. Environmental Issues Increasingly, environmental concerns are being addressed by regional (multiprovincial) agencies rather than by (or sometimes in addition to) the state or local government. This is particularly true in the following areas:

air pollution waste water discharge or storage, and hazardous materials storage or disposal.

The new venture may need a permit or license from the regional authority that governs water quality, allocation, or treatment.

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TARGET MARKET
Before starting a business endeavor, be it big or small, it important to first ask Who are your customers? or Who will buy your products? It is not a very good idea to assume that everyone is. Assumptions like this can lead to wrong decisions, wrong pricing, wrong marketing strategy and ultimately, business failure. The most successful small businesses understand that only a limited number of people will buy their product or service. The task then becomes determining, as closely as possible, exactly who those people are, and 'targeting' the business's marketing efforts and dollars toward them. An entrepreneur can build a better, stronger business, by identifying and serving a particular customer group your target market. One of the first things that an entrepreneur needs to do is to refine his or her product or service so that he or she is NOT trying to be 'all things to all people.' Become a specialist! Next, the entrepreneur needs to understand that people purchase products or services for three basic reasons:

To satisfy basic needs. To solve problems. To make themselves feel good.

There is a need to determine which of those categories the product or service is the solution to, and the entrepreneur must be prepared to market it accordingly. The next step in creating an effective marketing strategy is to zero in on the target market.

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Zeroing in on the target market by using Market Segmentation. First of all, is the product international or national in scope? Or is it more likely that it will be sold primarily in the entrepreneurs region or community? The first thing must be done is to research the 'demographics' of the community, and divide it into market segments:

Age: children, teens, young, middle, elderly Gender: male, female Education: high school, college, university Income: low, medium, high Marital status: single, married, divorced Ethnic and/or religious background Family life cycle: newly married, married for 10 20 years, with or without children.

This information should be available through the local town hall, library, or Chamber of Commerce and the more details that can be gathered, the better. Next, the market must be segmented as much as possible using 'psychographics' as guide:

Lifestyle: conservative, exciting, trendy, economical Social class: lower, middle, upper Opinion: easily led or opinionated Activities and interests: sports, physical fitness, shopping, books Attitudes and beliefs: environmentalist, security conscious.

*Note: if the venture is a B2B company, it will also need to consider the types of industries available to it, and their number of employees, annual sales volume, location, and company stability. In addition, the entrepreneur might want to find out how they purchase: seasonally, locally, only in volume, who makes the decisions? It is important to note that businesses, unlike individuals, buy products or services for three reasons only: to increase revenue, to maintain the status quo, or to decrease expenses. If you fill one or more of these corporate needs, you may have found a target market.
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By now there should be a picture emerging of who the 'ideal' customer is or who the venture wants it to be. Depending on the nature of the business, the entrepreneur might even be able to write a description of his or her customer. "My target customer is a middle-class woman in her 30s or 40s who is married and has children, and is environmentally conscious and physically fit." Based on the numbers uncovered in the research, above, the entrepreneur may even know, for example, that there are approximately 9000 of those potential customers in the area! It may well be that 3000 of them are already loyal to a competitor, but that still leaves 6000 who are not, or who have not yet purchased the product from anyone. Research must be done! Lots of times prospective customers do not know about the venture, or can't tell the difference between the new venture and others. It is the entrepreneurs job, once he or she knows who the best customers are, to 'target' the group that has been identified even if there is competition. In addition, it may be decided, using the example above, that the market may be extended to include women from 50 60 years of age. The entrepreneur must review the basic reasons why people purchase goods or services, and find ways to target his or her efforts to that age group, the venture may be successful in capturing a bigger share of the market! On the other hand, what if the product or service is 'specialized' and then research on the target revealed that only a small number will purchase this? First of all, if that small number are corporate customers who will spend hundreds on the product or service annually, then there is nothing to fear. But if that small number is only going to spend PhP1,000 every decade on the product or service then there is a need to go 'back to the drawing board' of planning the business and perhaps determining a wider target market but at least the entrepreneur is now armed with all the information needed to start again, or go in a different direction. Let's face it there's a market, and a target market, for everything.

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EXISTING COMPETITORS
Introduction No business is an island. For success, the business will need to deal with customers, suppliers, employees, and others. In almost all cases there will also be other organizations offering similar products to similar customers. These other organizations are competitors. And their objective is the same as yours - to grow, make money and succeed. Effectively, the businesses are at war - fighting to gain the same resource and territory: the customer. And like in war, it is necessary to understand the enemy:

how he thinks; what his strengths are; what his weaknesses are; where he can be attacked; where the risk of attack is too great.... and so on. And like in war, the competitor will have secrets that can be the difference between profit and loss, expansion or bankruptcy for the business. Identifying these secrets is thus crucial for business survival. But all this is not new... Sun Tzu and the Art of War Around the year 500 BC, the great Chinese military strategist, Sun Tzu wrote a treatise on the Art of War. This work is still relevant today with advice to both military commanders and businesses on winning against competitors: If you are ignorant of both your enemy and yourself, then you are a fool and certain to be defeated in every battle.

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If you know yourself, but not your enemy, for every battle won, you will suffer a loss. If you know your enemy and yourself, you will win every battle. Who is a competitor in business? Business competitors are: Other organizations offering the same product or service now. Other organizations offering similar products or services now. Organizations that could offer the same or similar products or services in the future. Organizations that could remove the need for a product or service.

Why monitor competitors? By knowing our Competitors we may be able to predict their next moves, exploit their weaknesses and undermine their strengths. Customers usually know the differences between companies - their good points and bad points. They know that company A is cheaper than company B and that company C has a better after-sales service. For a business to operate in a market and not know the same, and more, is tantamount to giving up the battle without even starting. As Frederick the Great said: "It is pardonable to be defeated, but never to be surprised." So what is involved? There are four stages in monitoring competitors - the four "C"s: 1. Collecting the information 2. Converting information into intelligence (CIA)
o

Collate and catalogue it, Interpret it and Analyze it

3. Communicating the intelligence. 4. Countering any adverse competitor actions.

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Information will come from a variety of sources, both within the organization and external to it. Sales representatives deal on a daily basis with customers - and will hear what the competitors have been doing. They are the business foot soldiers with the ear to the ground who can forewarn management about impending enemy campaigns. Research & Development may come across new patents, purchasing may find out that a supplier is now also supplying a competitor, market research can give feedback on the customer's perspective... but these are just examples of where information can come from. Information can also be found on the Web itself - many companies are now advertising their services and some specialize in offering information that can be used for competitor research. Among the best are Dun & Bradstreet with a database of over 30 million companies world wide. If you need to know about a company this is probably the best source. No other company offers the same global scope - although some local companies will give D&B a run for its money for single country information. Patent information can be obtained from local patent offices. And global press information is available from databases made available by companies dedicated to this. From information to intelligence Having scanned the press, spoken to the sales force, customers, suppliers, and all, entrepreneurs should now have a large pile of data on their competitors. However much of this will be repetitious, out of date, wrong or inaccurate, misleading or incomplete. However like a jigsaw, each piece can help build up the compete picture. And even if some pieces are missing, one can often get a good idea of what the real picture actually is - even if other pieces are damaged and not all remaining pieces fit perfectly. The company report can give an idea of a company's health - which will be enhanced by information from trade suppliers, trade press articles, and credit information agencies. Patents give an idea of R&D activity, while the trade press gives an idea of marketing activity. And of course there are specialist organizations that have the techniques to dig deeper and get information that can lead to an idea of competitor strategy and future trends. All this information needs to be collated with any links and commonalities highlighted. The information will need to be indexed and catalogued - so that when new information comes along, it can be quickly linked to similar information that had previously been found. Finally, the relevance and importance of each piece of information needs to be interpreted and analyzed - on its
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own and in conjunction with other information, the other pieces in the jigsaw. This is where information starts to become intelligence. Communicating the intelligence Too many companies are overly secretive, protecting information that all their customers and competitors already know. Secrecy is important. It can be extremely dangerous to let a competitor know about the new product being developed. However, letting the sales force attempt to sell products without a full awareness of the products strengths and weaknesses relative to the competition is like sending them out with one arm tied behind their back. They will be unable to answer objections and comparisons convincingly and thus are less likely to make the sale. And if the competitor product is that much better then shouldn't marketing, or product development be looking at ways of improving one's own product - rather than hiding the damaging news ostrich like. Competitor intelligence needs to be evaluated and selectively communicated to all who need to make decisions based on what customers, suppliers, or other companies in the market are doing or are likely to do. And in today's world, that usually means everybody. The worker in the factory needs to know why production processes have changed from what was always done if he is to believe in management. The Mushroom theory of management has always had its adherents but has not usually succeeded in the long term. Countering Competitor actions Having identified what competitors are doing, battle can be entered. Sometimes the battle will be vicious - especially when two competitors have been slugging it out for years. (Pepsi vs. Coca Cola; Procter & Gamble vs. Unilever). Various military strategies have been used to describe different approaches to beating competitors flanking strategies, encirclement and siege strategies, frontal attacks and even guerrilla marketing tactics. However it should always be conducted within the law. Although it is tempting to use underhand ways of gaining an advantage, certain activities may result in a prison sentence as well as extremely damaging publicity, loss of goodwill and loss of revenue.

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ESTIMATING START-UP COSTS

How much money will you need to start your new enterprise. There is no standard answer to this question because each new business is different. For example, money needs vary according to the field of business activitythat is, extractive, manufacturing, wholesaling, retailing, or service. Another determining factor is the size or scale or operations. Obviously your immediate costs will be higher if you have several employees from the start than if yours is a one-person business.

To determine starting costs, you need to estimate your sales volume for the first year. Since your estimate is likely to differ from the actual sales volume, you should select a conservative estimate. A conservative sales estimate is one that is ore likely to be too low than too high. This is desirable because a high estimate will lead you to invest too much money at the beginning.

You should also select a conservative figure when estimating expenses. A conservative expense estimate is one that is more likely to be too high than too low. By overestimating expenses, then, you are less likely to get caught short of money. The two categories of start-up costs are one-time costs and continuing costs. Onetime costs are expenses that will not have to be repeated once the business is under way. The purchase of a sign to be place don the building is an example. On the other hand, continuing costs must be paid both at the beginning ad throughout the life of the enterprise. Examples are rent, telephone, and advertising expenses. Plan to have enough cash on hand to pay continuing costs for more than just the first month. Some experts say you should be prepared for at least the first three months expenses. TYPES OF FUNDS

The two types of funds for businesses are equity funds and debt funds. In operating their businesses, most entrepreneurs use a combination of these two types.
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Equity Funds

Equity is another word for ownership. Thus, equity funds consist of money or capital contributed by owners. Entrepreneurs personal sources of money include savings, retirement benefits, sale of a home, or inheritance. If sufficient start-up money cannot be obtained from personal sources of equity, an entrepreneur may take in a partner or form a corporation and sell shares of stock. Since, in many cases, there is not enough equity money available, entrepreneurs resort to debt funds. One-time Costs Equipment, machinery, fixtures Charges for installing equipment, machinery, fixtures Decorating and remodeling costs Beginning inventory of merchandise or raw materials Deposits for utilities Fees for accountants and lawyers Licenses and permits Advertising and sale promotion for grand opening Cash for unexpected needs Continuing Costs Salaries for proprietor or partners Salaries and wages for other employees Rent Advertising and sales promotion Delivery or shipping expenses Supplies and materials Utilities (telephone, gas, water, electricity) Insurance of all types Taxes (federal, state, local) Interest on debt Repairs and maintenance Fees for accountants and lawyers Employee training costs Unexpected needs Debt Funds

Debt funds are dollars or capital you borrow. Banks, other financial institutions, and individuals are all sources of debt funds. The privilege of paying for goods and
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services after they have been delivered or provided is credit. Suppliers of merchandise or equipment may sell to business on credit terms. When entrepreneurs borrow money or use credit, a charge is involved known as interest.

Comparison of Funds

An entrepreneur should use both equity funds and debt funds for sources off capital. The type of funds used depends on these factors: risk, control, and availability.

Risk. There is little risk to the enterprise with equity capital. Owners do not have to be repaid. By contrast, great risk is involved with debt funds. Failure to make loan payments when they are due could cause lenders to require that the loan be repaid in full immediately. An entrepreneur may have to sell real estate or other business property to obtain sufficient money to repay a loan, or lenders may take ownership of the entire business. Control. An owners degree of control is usually directly related to the percentage of ownership. That is, the more ownership an entrepreneur has, the more authority the entrepreneur will have regarding the operation of the business. Entrepreneurs lose some control of their businesses every time they take in a partner or sell shares of stock. An entrepreneur who started a business to be a boss may suddenly feel as though others are in control. On the other hand, lenders do not ordinarily get actively involved in the operation of their borrowers businesses.

Availability. At a particular time, either debt funds or equity funds could be difficult to obtain. Debt funds may not be available to the business because of high interest rates, the entrepreneurs poor personal credit record, or a history of low earnings or losses for the enterprise. The only sources of available funds may be to obtain equity from new partners or to sell stock. In other situations, an entrepreneur may be unable to find equity investors, leaving the entrepreneur with no alternative buy to borrow the money.

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Questions to Answer:
1. Differentiate zoning ordinances and building codes. 2. Why is it important to identify a ventures target market? 3. What is market segmentation? Give examples. 4. Who are business competitors? 5. Please comment on the following quotation in relation to business: It is pardonable to be defeated, but never to surprised. 6. What are the methods used to determine starting costs? Explain each. 7. Enumerate and define the factors that funds are dependent on.

Assignment 1

QUESTIONS TO ANSWER 1. Comment on competencies considered necessary for successful entrepreneurial behavior. 2. Enumerate the basis of evaluating entrepreneurial performance. 3. Can one be content with seeing their dream being converted into reality? Comment. 4. Is there any difference in the motivation of male and female entrepreneurs?

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Assignment 2

QUESTIONS TO ANSWER 1. What is Environmental Scanning? Why is it important to undergo environmental scanning? 2. Who is Michael Porter? What contributions has he made to Environmental Scanning? 3. Should a person who intends to put up a sari-sari store undergo environmental scanning? 4. Differentiate Competitor Intelligence, Competitive Intelligence and Business Intelligence. 5. Discuss the different scanning modes. 6. If you are putting up a carenderia, which among the scanning modes would be appropriate for you to use? Why? Explain thoroughly.

Assignment 3

QUESTIONS TO ANSWER 1. What should a definition of the business contain? 2. List four decisions of the entrepreneur that will affect the image of the enterprise. 3. What is the first step in planning how to get the work done in the enterprise? 4. Why would an organization chart be useful in an enterprise with five employees? 5. List four types of advisers to contact when starting a new business.

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Assignment 4

What do you think is a worthwhile business opportunity in the PUP Main Campus? Kindly explain why you think this business opportunity will be successful in the said place.

Assignment 5

Questions to Answer: 1. Differentiate zoning ordinances and building codes. 2. Why is it important to identify a ventures target market? 3. What is market segmentation? Give examples. 4. Who are business competitors? 5. Please comment on the following quotation in relation to business: It is pardonable to be defeated, but never to surprised. 6. What are the methods used to determine starting costs? Explain each. 7. Enumerate and define the factors that funds are dependent on.

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