Chapter 3: Business/ Entrepreneurial Development Process

3.1 . Idea generation and Opportunity Recognition

3. 2. Assessing the Feasibility of a New Venture
3.3.1 Elements in Evaluating New Ventures
3.3.2 Conducting Feasibility study
3. 4. Business plan development
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 The entrepreneurial process
➢An entrepreneur is someone who perceives opportunities

and creates an organization to pursue it.

➢The entrepreneurial process includes all the functions,

activities, and actions that are part of perceiving

opportunities and creating organizations to pursue them.

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 …entrepreneurial process
 Having decided to become an entrepreneur, a successful business idea has to be developed
which can eventually be turned into reality.

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 …
➢ Once an individual decides to take up entrepreneurship as a career

path, He must carefully scan his environment to generate a number

of ideas

➢ After tentatively identifying four to five ideas he should proceed

to undertake a detailed assessment/screening called feasibility

study.

➢ This will help him to crystallize one idea in an objective and

systematic manner, which will greatly enhance his chances of

success.
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 All ideas are not opportunities
➢ Entrepreneurship is all about opportunity.

➢ Would-be entrepreneurs often ask themselves the following two questions:

‘‘How do I come up with a good business idea?’’

and

‘‘Is this idea big enough to make a successful business?’’

➢ While an idea is necessary to entrepreneurship, it isn’t sufficient.

➢ To have a successful entrepreneurial endeavor, your idea needs to be an

opportunity.

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 Identifying and Recognizing Opportunities
➢ An opportunity is a favorable set of circumstances that creates a

need for a new product or service.

➢ Clearly, except in very rare cases, opportunities just do not ‘occur’

to the individual.

➢ These have to be actively searched/ scouted for or created.

➢ Hence, the start up process for a new venture creation begins with

scouting for opportunities.

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 Idea generation
Where can you find an idea?

Reality observations
Trend observations
• Your working environment
• Political changes
• Your daily life environment
• Economic changes
• Your hobbies and interest
• Sociocultural changes
• Visiting of events or other places
• Technological changes
or even countries
• Environmental changes
• Nature
• Legal changes

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 Entrepreneurial Opportunities

➢There are three approaches to identify opportunities

▪ Observing trends
▪ Solving a problem
▪ Finding gaps in the market place

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 First Approach: Observing Trends
• The first approach in identifying opportunities is to

observe trends and study how they create opportunities

for entrepreneurs to pursue.

• Economic and social factors, political action, technology

advances and regulatory conditions are the most

important trends to monitor.
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• you may scan the environment the international and macro economic environment and

conducting/using industrial/consumer surveys and identifying appropriate business ideas.

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Second Approach: Solving a Problem
Sometimes identifying
opportunities simply
involves noticing a problem
and finding a way to
solve it.
Some business ideas are clearly
initiated to solve a problem.
These problems can be
identified through observing
trends and through more simple
means, such as intuition,
coincidence, or chance.
For example, Symantec Corp.
created Norton antivirus
software to guard computers
against viruses.
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Second Approach: Solving a
Problem
Businesses Created to Solve a Problem

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 Third Approach: Finding Gaps in the Marketplace
Gaps in the Marketplace
 A third approach to identifying opportunities is to find a gap in the
marketplace.
 This involves the ability to recognize a need that is not being met in a
customer’s life.
 A gap in the marketplace is often created when a product or service is
needed by a specific group of people.

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 OPPORTUNITY SCOUTING
➢The entrepreneurial process begins with
identifying an opportunity and evaluating it
through an initial screening process.

➢ If it appears reasonable a detailed business

plan can be made. If not it can be discarded

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 OPPORTUNITY SCOUTING
➢However, in the context of entrepreneurship,
opportunities besides existing in the environment in
the form of needs and problems of people around
might have to be ‘created.’
➢ Thus, the entrepreneurs meet not only the existing

needs; they create the new needs as well

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 created opportunities.
➢Credit cards, FM radio are some examples of needs
which were created either out of demographic changes
e.g. Hectic work schedules, frequent corporate traveling
created the need for fast banking services and hence the
ATM.
➢credit card, debit card and telephone banking came in

trend
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 OPPORTUNITY SCOUTING
.
Scanning the
Sensing
environment
opportunity
Search for
Business Idea

Initial
Discard screening
Feasibility
Analysis
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 Setting a Business Enterprise

I. The process of Business Development

(Entrepreneurial cycle)
II. What is basic business idea and Idea generation
III. Steps in business setting
IV. Conducting Feasibility study and Developing a
Business Plan
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 The process of Business Development

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 What is basic business idea?
 It is logical to think of a goal for the unit in long run rather than to look for
the immediate tomorrow. This long-term thinking is called basic business
idea

 Businessmen/businesswomen should think of long-term goal and the profit

when they start a business.

 The basic business idea, which is at the top of the hierarchy, is to meet the
broadest needs of the customers, and has the long life perhaps from 5-50
years.
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  The basic business idea facilitates choice of product under an
overall plan.
 Thus, entrepreneur may think of being in the entertainment film,
in automobiles, in medicines, in services, in industries, etc.

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 The product line is relatively narrow and has a shorter life. The
product line consists of different families of product.
 A unit with a basic business idea for example packaging can
manufacture any of the following groups of the products:
• Glass bottles,
• Plastic packages,
• Metal packages,
• Aluminum packages,
• Paper or wood packages.
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 The product range includes different size of the product with in the
product line, in the examples given above different size of glass
bottles can be manufactured for varied applications.

 The product is one item of the product range having different

specifications like
• size,
• material used and
• weight, etc.

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 In a dynamic business scheme, one has to carefully assess
and evaluate the basic business idea and the business
opportunities in terms of
Its ability to generate quick returns
Its ability to permit quick changes in the
products/services
Its ability to achieve the founders long term
goals
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 To be a successful entrepreneur, one major determinant factor is
the choice of a good business idea. To select the best business idea, the
following general steps needs to be pursued.

a.Identify your problem

b.Define your objectives
c.Identify, develop and analyze the possible alternative
d.Select the best alternative in light of the specific criteria set to the
better fulfillment of the objective.

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 What project an entrepreneur should have?
 A project is a complex of economic activities in which the key players commit
scarce/limited resources in the expectation that the benefits gained will exceed these
resources.

 Also, a project, broadly defined, in a way of using resources: a decision between

undertaking and not undertaking a project is a choice between attentive ways of using
resources.

 The project should have to consider the SWOT and should be designed accordingly.

 The SWOT approach compels individuals to think or reason out systematically and
analytically the important factors strengths, weakness, opportunities, and threats.

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 Strength: is an inherent capacity, which an organization can
use to gain strategic advantage over its competitors.
 Weakness: is an inherent limitation or constraint, which
creates a strategic disadvantage
 Opportunity: refers to any factor that offer promise or
potential for moving closer or more quickly towards the
firms goal
 Threat: is any factor that may limit or impede the business
in the pursuit of its goals
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 SWOT example

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 FEASIBILITY STUDY
➢ Feasibility literally means whether some idea will work or not.

It knows before hand

➢ whether there exists sufficient market/demand for the proposed

product/service,

➢ what would be the investment requirements and where to get the

funding from, and

➢ wherefrom the necessary technical know-how to convert the idea

into a tangible product may be available, and so on.

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 Feasibility Analysis and Business Plan

➢ is the process of determining whether a business idea is viable

➢ is the preliminary evaluation of a business idea, conducted for the purpose

of determining whether the idea is worth pursuing.

➢ An investigative tool

➢ Serves as a filter, screening out ideas that lack the potential for building a

successful business before an entrepreneur commits the necessary

resources to building a business plan.

➢ Not the same as a business plan.

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 Market analysis
➢A market, is the arena for interaction among buyers

and sellers.
➢From seller’s point of view/ entrepreneur, the objective

of market analysis is primarily concerned with the

aggregate demand of the proposed product/service in
future and
➢the market share expected to be captured.
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 ...Market analysis
➢ You have to carefully segment the market according to some criteria such as geographic

scope, demographic and psychological profile of the potential customers etc.

➢ It is a study of knowing who all comprise your customers, for this you require information

on:
 Consumer behaviour, intentions, motivations, attitudes, preferences andrequirements
 Distribution channels and marketing policies in use
 Administrative, technical and legal constraints impinging on the marketing of the
product
 Imports and Exports

 Competition

 Cost structure

 Elasticity of demand
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 Financial Analysis
 The objective of financial analysis is to ascertain:

 whether the proposed project will be financially viable in the sense

whether the proposed project will satisfy the return expectations of
those who provide the capital.
 While conducting a financial appraisal certain aspects has to be looked into
like:
 Investment required and total cost of project
 Means of financing
 Cash flows of the project
 Break- even point
 Projected profitability
 Investment worthiness judged in terms of various criteria of merit
 Projected financial position
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 TECHNICAL ANALYSIS
➢ The issues involved in the assessment of technical analysis of the proposed project may

be classified into those related to inputs, throughputs and outputs.

➢ Input Analysis: Input analysis is mainly concerned with the identification, quantification

and evaluation of project inputs, that is, machinery and materials.

➢ You have to ensure that the right kind and quality of inputs would be available at the right

time and cost throughout the life of the project.

➢ You have to enter into long-term contracts with the potential suppliers; in many cases

➢ you have to cultivate your supply sources

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➢ Throughput Analysis: It refers to the production/operations that you would

perform on the inputs to add value.

➢ Usually, the inputs received would undergo a process of transformation in several

stages of manufacture.

➢ Output Analysis: this involves product specification in terms of physical

features- colour, weight, length, breadth, height; functional features; chemical

material properties; as well as standards to be complied with such as BIS,
ISI,and ISO etc.

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 ECONOMIC ANALYSIS
 Economics is the study of costs- and- benefits.

 In regard to the feasibility of the study the entrepreneur is concerned

whether the capital cost as well as the cost of the product is justifiable vis-

à-vis the price at which it will sell at the market place.

 For example, technically, silver can be extracted from silver bromide, (a

chemical used for processing the X-ray and photo films); but, the cost of

extraction is so high that it would not be economically feasible to do so

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  This cost-benefit analysis goes into financial calculations for
profitability analysis that we discussed under financial analysis.

 It is also useful to distinguish between the economic and commercial

feasibility; whereas economic feasibility deals with the unit cost of

the product, commercial feasibility deals with whether enough units
would be sold on the market

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 Ecological Analysis
 In recent years, environmental concerns have assumed a great deal of significance

especially for projects, which have significant ecological implications like power
plants and irrigation schemes, and for environment polluting industries (like bulk
drugs, chemicals and leather processing).

The concerns that are usually addressed include the following:

 What is the likely damage caused by the project to the environment?

 What is the cost of restoration measures required to ensure that the damage to the

environment is contained within acceptable limits?

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 Business Plan
 The feasibility analysis of the chosen 3-4 project ideas would help you to
settle on the one where you would like to commit yourself in order to
exert your time, money and energies.
 Now, is the time to decide in advance on how you intend to go about
everything related to the launch of your business and its subsequent
operations?
 The difference between the feasibility report and business plan
essentially lies in ‘action orientation.’
 Hence , a business plan is a blue print of entrepreneurial intentions.

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 ...
 It is a written document that serves as a road map in the entrepreneur’s
journey from start-up to project implementation’.
 will serve as the road map for effective venturing
 It describes all the relevant elements involved in starting a new business
enterprise
 It is often an integration of functional plans such as marketing, finance,
manufacturing and human resources.
 Potential investors, financing organizations and suppliers are interested
in a business plan, as it can prove helpful in taking decisions.

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 A business plan is a document used to detail plans for start-up or
existing business. This document is used to describe business goals and
strategies as well as provide a blue print of financing and marketing
plans.
 Essentially it provides detail information about where a company is
going and how it will get there. Many experts consider such a plan
critical to the sucess of a business.
 Often a business plan is required when seeking a business loan or
investment capital.
 Investors and loan officials need to know what a business owner hopes
to accompalish and the steps he or she plans to take to meet goals.
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 ...
 A Business plan helps those in the position to loan money
determine whether or not a business is likely to succeede based
on the information provided by the owner or owners.

 A business plan is not just useful for obtaining financing . A

carefully considered plan can serve as a road map to sucess for
the business owner.
 It can help all involved stay focused on the task while striving to
achieve goals.
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 ...
 While preparing a business plan it is vital to put maximum effort in to
researching every aspect of your venture .
 You will need to include detail information about everything from the
basics of your product or service to how you intend to manage daily
operations.
 If you paln to seek outside financing , you will need to make your
business plan both informative and captivating.
 By doing so you will be able to keep loan officers or investors interested
long enough to read the bulk of your plan and hoefully , decide to provide
the financing you need.

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 ..
 The business plan should provide a detailed infromation of
your business, including the products or services you plan
to offer as well as expected expenidtures and profit.
 It should also outline the key functional areas of the
business operations, management, finace, marketing.
 The actual length of a business plan is normally detemined
by the scope and details as well as the size of the
prospective busines.
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 ....
 Business plan is important due to the following reasons:
(i) It helps the entrepreneur to decide where he wants to go.
(ii) It helps him to determine the viability of the venture.
(iii) It provides guidance to the entrepreneur in planning
realistic goals and targets, in organizing and even in
identifying possible roadblocks.
(iv) It is a pre-requisite to obtain finance.

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 The Business Plan
Describes
the direction the company is following ;
 what its goals are;
 where it wants to go; and
 how it is going to get there.
 Is a selling document.
 It is a detailed blue print for building a given company.

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 In other words
 It helps set objectives and yardsticks against which to monitor
performance.
 Serve as a vehicle to attract external finance.
 It entails taking long-term views of the business and its
environment.
 to better understand competition.
 To better understand your customers.
 To understand and forecast your company’s staffing needs.

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 ...
Business plan needs to answer three-
straight forward questions:

1.Where are we now?

2.Where do we intend going?
3.How do we get there?
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 Business Plan components

There are many different business plan formats.

The format may vary depending on the type of
the business, the purpose of the plan and the
readership
The following are part of the business plan:

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 ..Business plan components

 1. Cover Page /Introductory page

 2. Executive Summary
 3. Company overview/ profile
 4. Marketing plan
 5. Operational Plan
 6. Financial plan
 7. Appendix

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Cover page /introductory page
Introductory Page
 (a) Name and address of business
 (b) Name(s) and address (es) of principals
 (c) Nature of business
 (d) Statement of financing needed
 (e) Statement of confidentiality of report

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Executive Summary
 Executive Summary – one or two pages summarizing the complete business plan

 It is a concise summary of the business opportunity, however it covers all

important components of the plan.
 is prepared after the total plan is written.
 It must grab your reader, and seduce him/her to read further

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...Executive summary
 Identify the company, its background, structure and location
 Describe what the company does, and the market it serves
 Describe the market potential for the company’s products and services, market
trends, etc
 Outline the backgrounds and experience of the top management team
 Describe the funding required, the purposes for which it will be used, the collateral
available (if for a lender), and the expected outcomes

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Company overview

 Brief Company Introduction

 Mission statement
 Location, size, history
 Market and products
 Overview of company capabilities
 Objectives

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Description of venture (Products/Services )
 Products / Services
 What does it do?
 Uniqueness
 Size of business

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Production Plan
 Establish a plan to move into the production phase in a
timely manner
 This includes
 Manufacturing process
 Physical plant
 Machinery and equipment
 Names of suppliers of raw materials
 Suppliers
 are they reliable?
 What are their delivery times?
 What are the terms and conditions?
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...
 Human Resources:
 Forces you to do a skill inventory of yourself and develop a plan to fill in the gaps
with the expertise of staff.

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Marketing Plan

 (a) Pricing
 (b) Distribution
 (c) Production
 (d) Product forecasts
 (e) Controls

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Financial Plan
 (a)Pro forma income statement
 (b) Cash flow projection
 (c) Pro forma balance sheet/financial position
 (d) Break-even analysis
 (e) Sources and application of funds

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Appendix (contains backup material)
 a) Letters
 (b) Market research data
 (c) Leases or contracts
 (d) Price lists from suppliers

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summary
 In case you decide to set up a small – scale industry, it is desirable that have to
initially make a project feasibility study which examines various aspects of the
venture like marketing, finance, technology, legal, ecological etc. Next the
entrepreneur has to prepare a business plan. Depending on the type of project,
location and investment involved, the entrepreneur has to proceed to take further
steps in establishing the unit, about which you will learn more about in the next
couple of lessons.

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Questions
1. What are the important features of a project feasibility study?
2. What factors are to be kept in mind while deciding on product/service?
3. Describe the different stages involved in setting up a small-scale enterprises?
4. Describe the various forms of business organization.
5. What is the difference between feasibility study and a business plan?

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