Peer ee eee tae kuea cure uc At the end of this module, I can: . 1. Identify the market problem to be solved or the market to be met. 2. Propose solutions in terms of products and services that will meet the need using techniques on seeking, screening, and seizing opportunities. a, Analyze the market need. b. Determine the possible products or services that will meet the need. ¢. Seren the proposed solutions based on viability, profitability, and customer requirements. 4d, Select the best product or service that will meet the market need. ee ummm ‘As the saying goes, the most difficult part of every task is where and how you start. The same is true with entrepreneurship. You may have all the resources needed to operate a new venture, but it will never be easy to start one. This module will discuss the proper and efficient ways of starting a business. You will be introduced to the entrepreneurial process, which starts with identifying and evaluating the opportunity. The heart of this module is the seanning of the marketing environment where you can formulate a product or service solution applying the techniques of seeking, screening, and seizing opportunities. As a result, you will deal with | analyzing the need of the market, think of the potential set of products or services that will meet the need, assess the feasibility of the solution, and select the best product or service that will address the need. ‘The Entrepreneurial Process The entrepreneurial process is a step-by-step (procedure in establishing any kind of business that an entrepreneur has to undergo. It is composed of four aspects. 1. Opportunity spotting and assessment. This is the beginning of the process and is con- sidered the most difficult, Entrepreneurs at this point take note of interesting trends in their environment. Consumers are reliable sources of opportunity information because market needs originate from them. Other major sources of opportunity are the glaring problems in the environment, problems encountered by co-entrepreneurs, new trends, processes, and developments in the environment, Other minor sources are feedback from distribution or business partners such as retailers, wholesalers, manufacturers, and tech- nical people that the entrepreneur is working with. The entrepreneur's toughest job is to carefully assess the opportunity through estimation of opportunity length, capitalization required, threats, profitability, and calculation of real and perceived value. Entrepreneurs should also assess if the opportunity is aligned with their personal goals and attributes. Last, entrepreneurs should already think in advance how they will position the product or service in the market and showcase its unique selling proposition. This module will focus mainly on opportunity spotting and assessment, which represent the entrepreneur's stimulus in starting @ new venture. Developing a Business Plan Ce201 Developing a business plan. Entrepreneurs should formulate a business plan when they have already spotted and assessed the opportunities for a market. A business plan is a comprehensive paper that details the marketing, operational, human resource, financial, strategic direction, and tactics of the business, The business plan will be the core guide and direction of the entrepreneur in calculating the resources needed, assessing how to obtain these resources efficiently, and running the business sustainably. Determining the capital needed. A big idea can never be translated into reality if the entrepreneut’s resources are limited. Therefore, it is mandatory in the entrepreneurial process to calculate the resources needed to establish the business and compare this against the entrepreneur's current resources. Caution must be applied in computing the complete set of resources needed and include only those items that are considered as the real needs in venture creation. Allowance must be considered as well because there will be times that resources will be inadequate or unsuitable. Running the business. This is the part where the entrepreneur should use the resources allocated for the new venture. The business plan prepared in step 2 should already have been implemented. All aspects of the business plan should be critically observed from operations, marketing and sales, human resources, finance, and strategy implementation. The entrepreneur should have a control and monitoring system to serve as a check and balance of the formulated plans. Table 2.1 summarizes the components and steps in the entrepreneurial process (Histich, 10). ‘Table 2.1. Components and steps in the entrepreneurial process Opportunity Spotting Developing a Determining the Running the and Assessment Business Plan Capital Needed |) Business Evaluate the * Come up with a * Calculate the #%”"] + Practice leadership identified opportunity | business description | .intrinsicand extrinsic | as a way of life . 2 | and analysis {capital Aeeded 10, & obae Conceptualize * Perform industry |» Calculate the + Recognize critical and measure the analysis ~ existing capital ‘success factors ‘opportunity failien 4 Co) cuaant vind af Mee Herc Identity the + Come up with the >? « Calculate the + Identity existing Perceived value of | marketing plan cry). difference between | and foreseeable the opportunityto | j=.) thu] the needed capital | problems and issues the company and | "4% Pin4 uel yndtul® and the existing the customers vcs. Seb capital. Choose the Hens id ‘most cost-efficient us ly A suppliers or service of kr 6 providers |) Entrepreneurship Se pr co nui ofisa jal, ide yt0 rial this the will ave and ich, * Do cost-benefit Prepare the * Develop contact + Employ risk- analysis of the ‘operations plan and relationship mitigating controls ‘opportunity including | including the with suppliers and and monitoring risk analysis organizational plan | service providers systems * Match the + Come up with the * Devise an ‘opportunity with the | financial plan ‘expansion! ‘entrepreneur's skills, sustainability and objectives strategy * Scan the strengths | + Identify strategies and weaknesses of | and tactics competitors. * Perform monitoring and control Scanning the Marketing Environment Scanning the marketing environment is the starting point of any new venture that involves understanding and knowing the intricacies of the macroenvironment, microenvironment, and internal environment. With this process of scanning the general environment, an entrepreneur can recognize various opportunities and at the same time understand thoroughly the arena where the future business will operate. The process of seeking, screening, and seizing is adapted to create the most suited product or service for an opportunity. The general rule is to find the opportunity first before coming up with a new product or service, not the other way around, This is one of the mistakes that budding entrepreneurs commit in starting a new venture. Find the opportunity first before coming up with a new product or service. Seeking, Screening, and Seizing ‘The 3S of opportunity spotting and assessment is the framework that most of the promising entrepreneurs use to finally come up with the ultimate product or service suited for a specific opportunity. An opportunity is an entrepreneur’s business idea that can potentially become a commercial product or service in the future. The entrepreneur serves as the catalyst of creating a value for the customers through the new or innovated product or service. As a reward, the entrepreneur ears profits when the customers are satisfied and delighted. SI: Seeking the Opportunity Opportunity seeking is the first step and is the most difficult process of all due to the number of options that the entrepreneur will have to choose from. It involves the development of new ideas from various sources as follows: Developing a Business Plan1 Macroenvironmental Sources a. STEEPLED. This is a mnemonic for sociocultural, technological, economic, environmental, political, legal, ethical, and demographic factors, This represents the general environment where the entrepreneur can identify business opportunities from and where the future business is about to operate. Any external factor or a combination of external factors from these eight environmental forces can have a direct effect in opportunity generation and business sustainability. These will be discussed further in later sections. b, Industry. This is the source of current trend on what is happening in the industry where the future business will belong to. For example, the entrepreneur should be fully acclimated ‘on what is happening with the rice industry if he or she wants to establish a rice retailing business ©. New discovery or knowledge. These are new trends that can be the core business model of a new venture. For example, the influx of mobile applications necessitates businesses to have this platform as one of their transaction channels. 4, Futuristic opportunities. These are projected new opportunities that can possibly affect the new business while it is running. For example, sari-sari stores in the future will be able to incorporate financial transactions such as accepting bills payment and process remittances. Micromarket a. Consumer preferences, interests, and perception. These are the current needs and wants of potential customers that should be discovered right away by a budding entrepreneur. This way, he or she will be able to take a chance of the opportunity. A need is recognized when a customer believes that there is a difference between his or her current situation versus his or her desired condition. A want, on the other hand, is recognized when a customer believes that there is a specific product or service that can perfectly suit the need. b. Competitors. Recognizing and understanding potential competitors will aid the entrepreneur to develop a product or service that is unique and will surely stand out » from the competition. The 4Ps of marketing (product, place, price, and promotion) will be competitively positioned if the entrepreneur is familiar with his or her competitors. c. Unexpected opportunities from customers. Oftentimes, the most brilliant ventures come from the most unexpected opportunities. It may happen in unlikely situations, unlikely places, and with unlikely people. Existing problems and bottlenecks often give rise to fan unexpected opportunity. What entrepreneurs usually do is be on top of the situation and change the market's perception of a product or service or build a new market. In the Philippines, there are a number of budding social entrepreneurs who tumed unnoticed products into superstar products that carry also the value of social responsibility 4. Talents, hobbies, skills, and expertise. Business opportunities do not just come from outside forces, but also from within the entrepreneur. The entrepreneur's talents, hobbies, skills, or expertise can be a source of business opportunity. For example, if the entrepreneur is an artist, why not sell his or her paintings? If he or she is a musician, why not put up a bar and perform there? If he or she is an expert in home interior design, why not make it a business? tod one newe. Irritants in the marketplace such as deterrents, problems, complaints, and delays. Generally, entrepreneurs see opportunities in situations where there isa recurring problem or sometimes when there is no more hope in solving the problem. When customers are already sick and tired of the same old issue or problem, that is when the opportunistic entrepreneur should come in and make a difference. £. Location, Often, entrepreneurs just have to look at their ecosystem and they will be able to spota business opportunity right away. For example, ifthe entrepreneur's location has many schools, then a restaurant, an eatery, or probably a computer shop might be a good business to establish. If the entrepreneur is in an island with an awesome beachfront, why not put up a hotel? peels mai Do an opportunity spotting and assessment activity in your own locality or barangay. Identify the potential opportunities from the macroenvironmental and microenvironmental sources. If there is really no opportunity in a particular source, indicate none. Follow the given example. ‘The number of OFW families | Remittance business, cellphone is increasing in Barangay Toad business Segismundo. —————— ‘Methods of Generating Ideas Recognizing and understanding the vast sources of opportunities is one difficult activity to do. Also, the methods of generating ideas may be overwhelming to undergo through. Either one or a combination of the methods given can be employed by the entrepreneur in generating new ideas. 1. Focused group discussion (FGD). In this method, a moderator handles a very open, free-flowing, and in-depth discussion with a group of people who can provide insightful ideas about a new product or service that will fill a market need. 2. Brainstorming. Similar to an FGD, brainstorming is an activity that allows the participants to share creative ideas using the following rules: (a) no destructive criticism or judgment is allowed, (b) wilder ideas are accepted, (c) more ideas are preferred, and (@) improvement of others” ideas is allowed. In short, brainstorming is a fun discussion with lenient rules. 3. Brainwriting or Internet brainstorming. This is exactly the same as brainstorming except that the channel used is not face-to-face, but in writing or online. The results of brainwriting or Internet brainstorming usually take longer, as the answers depend on the availability of the participants in answering the questionnaires online. Developing a Business Plan» 2a4. Problem inventory analysis. This method is similar to the FGD except that the participants are already given an inventory of product or service problems. The participants will just identify from the list given the compelling problem(s) of a potential product or service instead of generating the ideas from them. Pa Rc Re ea 1. List three opportunities in your locality from the first activity and discuss what ‘method of generating ideas will you use and why. 2, Prepare a set of idea-generating questionnaires with a minimum of five questions for the three opportunities you identified in your locality, $$$ Macroenvironmental Sources: Examples of Findings STEEPLED Analysis ‘The result of the STEEPLED scan will aid the entrepreneur in deciding what product or service to set up and whether this new venture will succeed or not. The focus of this scan is only on the macroenvironment. Again, not all factors can have an effect on the new venture. The important thing is for the entrepreneur to fully scan these factors so he or she can decide if there is a compelling business opportunity or an impending threat. 1. Socio-cultural factors. These factors represent a general view of a locality’s traditions, customs, beliefs, norms, and perceptions. These factors affect how a person of the locality behaves and reacts to marketing and selling activities. ‘The entrepreneur should take note of the following sociocultural factors: + Health consciousness + Education level + Attitudes toward imported goods and services + Attitudes toward the person’s lifestyle + Attitudes toward product quality and customer service + Attitudes toward saving and investing + Emphasis on safety + Buying habits + Religion and beliefs 2. Technological factors. These are composed of innovations of an existing technology or an invention of a new one mostly on applied science and engineering research areas. Entrepreneurs should always be up-to-date with the technological changes, as. these are catalysts in improving a product or service or replacing them entirely. ‘The entrepreneur should take note of the following technological factors: MED Bier+ Basic infrastructure level + Rate of technological change Spending on research and development Technology incentives Legislation regarding technology Communication infrastructure Access to newest technology Internet infrastructure and penetration . Economic factors. These factors play a vital role in the scanning of marketing environment because economic factors directly affect any business venture. These factors include income, expenses, and resources that can influence the cost of doing business and generating income. The entrepreneur should take note of the following economic factors: + Growth rates + Trade flows and patterns + Inflation rates + Level of consumers’ disposable income + Interest rates * Monetary policies = Exchange rates ™ + Fiscal policies + Unemployment trends + Price fluctuations * Labor costs * Stock market trends + Stages of business cycle |. Environmental or ecological factors. These factors should be given much importance in conducting a business especially when the world has already suffered severely from human-induced calamities. The scan of these factors will help the entrepreneur determine if the business he or she is entering into will comply with the environmental standards or will just be a hazard to people, animals, and nature. Moreover, the entrepreneur will know if the business venture will be suited with the weather conditions in his or her locality. ‘The entrepreneur should take note of the following environmental factors: + Weather + Climate change + Laws regulating environment pollution + Air and water pollution + Recycling + Waste management + Attitudes toward “green” or ecological products + Endangered species + Attitudes toward and support for renewable energy Developing a Business Pian) UE)a 5. Political factors. These factors are mostly induced by government policies and administrations, which can have a strong effect in the entrepreneur’s business, The entrepreneur should take note of the following political factors and examples: + Government stability and likely changes + Bureaucracy + Corruption level + Tax policy (rates and incentives) + Freedom of press + Rule of law + Government effectiveness * Political rights 6. Legal factors. Related with political factors, legal factors are government laws and regulations that can restrict or allow business activities. The entrepreneur should take note of the following legal factors and examples: + Anti-trust law * Discrimination law a + Copyright, patents / intellectual property fights + Consumer protection + Employment law + Health and safety law + Data protection law 7. Ethical factors. These are the factors that will serve as an entrepreneur's guide on how to be ethical in running the business, The entrepreneur should take note of the following ethical factors: + Ethical advertising and sales practices * Accepted accounting, management, and marketing standards + Attitude toward counterfeiting and breaking patents * Attitude toward development and well-being of employees 8. Demographic factors. These ate the characteristics of the people in the target market. ‘The entrepreneur should take note of the following demographic factors: + Population growth rate + Age distribution and life expectancy rates * Gender distribution + Social classes + Family size and structure + Minoritiesgg | Reflect Upon According to International Entrepreneurship (www.intemationalentrepreneurship.com), the Philippines is a highly entrepreneurial country. The major driver for this entrepreneurial spirit is. the prevalence of poverty. The highest percentage of businessmen in the Philippines belongs to the small and medium enterprises (SMEs) and microenterprises, which account for 99% of, all business establishments. 4. What do you think are the challenges that a Filipino entrepreneur faces? . 2. Despite the entrepreneurial spirit ofthe Filipinos, why do you think that many Filipinos remain poor and that the disparity between the rich and the poor is still very high? According to Unlad Kabayan (a social entrepreneurship nongovernment organization), social entrepreneurship is a venture that targets two major objectives: (1) to solve a societal problem and (2) to earn a profit. A community of social entrepreneurs is able to recognize problems in the community, and then identify resources that can help address the problem. Many of the poorest provinces in the Philippines are in rural areas, made up of fishermen and farmers. They are normally susceptible to market prices and natural disasters. Using social entrepreneurial principles, community members are able to access other sources of income, so the community is less susceptible to factors outside its control. Members ofa social entrepreneurial community are ableto maximize the opportunities presented to them. Their work helps their communities and their people get more jobs, ; increase sources of income, and improve livelihoods while reducing the environmental impact of their activities. Social entrepreneurs contribute to community development through improving the conditions of the community and not just individuals, Social entrepreneurs do this through sustainable grassroots methods. ‘Source: htp:Mww.uniadkabayan.org!social-entrepreneurship html (last accessed on 22 October 2016) Guide Questions: 1. Look at your community and find one social entrepreneur. 2. Discuss why you think he or she is classified as a social entrepreneur. What societal problem does he or she solve? 3. Find out if the social business enterprise is profitable, Developing a Business Plan vet52.~ Sereening the Opportunity By now you already feel overwhelmed with how vast $1 (opportunity seeking) is, but you don’t have to worry that much. This concept has been inculcated to you to see the universe of opportunities an entrepreneur can derive from the macroenvironmental and microenvironmental sources. The key here is in the effective choosing or careful diligence. Entrepreneurs should start with the big picture. This is the best way in ensuring that the entrepreneur has scanned the best potential business to venture into, Once the compelling opportunities are identified, S2 will be the next crucial step. Opportunity sereening is the process of cautiously selecting the best opportunity. The selection will depend on the entrepreneur's internal intent, i., the main objective that the business will accomplish in the entrepreneur's life, and the external intent, which will address the compelling needs of the target market. The entrepreneur sfiould apply due diligence and independent judgment in selecting the opportunities that have @ potential and eliminate those that are not within the scope of the entrepreneur’s risk appetite. Risk apperite refers to the entrepreneur's tolerance of business risks. Time must be considered by the entrepreneur in screening the opportunities at hand, as it is considered one of the most critical resources of an entrepreneur. Time should only be devoted to worthwhile opportunities. Therefore, entrepreneurs must always be sharp-eyed for real opportunities. They must be able to intelligently say no to low-compelling opportunities and proceed with sensible ones. The crafting of a business plan starts only when entrepreneurs already said no to many opportunities and said yes to one forceful opportunity, to which they will devote their time and resources, Detailed here are the most important elements that are always present in a compelling opportunity. The entrepreneur should say no to an opportunity if it does not contain any of these business opportunity elements: 1. Has superior value to customers 2. Solves a compelling problem, issue, a need, or a want 3. Is a potential cash cow 4, Matches with the entrepreneur's skills, resources, and risk appetite The Opportunity Attractiveness Test The Opportunity Attractiveness Test. (OAT) (Youngleson, 2009) aims to assist entrepreneurs in ensuring that the opportunity that they will venture into is an attractive and feasible prospect. This is not the “be all” in the road to entrepreneurial success but a framework to measure how compelling an opportunity is. This test is designed to detail each entrepreneurial aspect into small chunks to come up with a sound entrepreneurial decision, The entrepreneur must answer this test realistically and avoid overestimation or underestimation. Alll the risks must be accounted and assessed first. BBY Ceivepreneurstin The entrepreneur should know why and when to say no to an opportunity. Thes finan busir the t direc agair the e oppo all bu aneq can 4 sumn wronyou . tal pou! e and the hand, ly be ed for nities neurs they elling ny of y and first. These can come from different aspects of the business such as operations, market, economy, and finance. These risks must be estimated and measured to determine the impact to the potential business. ‘The answers in this test will be the guiding principles of the entrepreneur in writing the business plan. The components of the OAT will be used to channel the entrepreneur’s direction in data gathering. It is vital that this test must be carefully reviewed over and over again before finally going to the last step of seizing the opportunity. At the end of this test, the entrepreneur should be able to at least decipher the relative attractiveness of the business opportunity. Ultimately, the decision lies in the risk appetite of the entrepreneur, Because each venture is unique, some components of this test might not be applicable to all businesses. Iti the job of the entrepreneur to discern which among these components can put an equitable weight to components that are relevant to the potential venture. The entrepreneur can also customize this test to better suit the screening requirements of the new venture. In summary, with the four business opportunity elements and this OAT, the entrepreneur can’t go wrong in his or her new venture. The key is effective diligence, 1. The “concept” and the “strategy.” The entrepreneur should think of the reason for the business’ existence. He or she can do this through crafting a brief vision statement. A vision statement is simply defined as what the business should do in the future. The entrepreneur should also devise a value creation proposition, i.e. the value that the product or service will offer to the target customers or the satisfaction of the needs or ‘wants of the target customers. This proposition should be compelling enough to influence the behavior of the target customers. Influencing the behavior means enticing the target customers to pay an above average or a premium price on the product or service. The entrepreneur should also understand the importance of the timing of the business. He or she should ask: is it really necessary to establish the business now? Last, the entrepreneur needs to devise a differentiator or a positioning strategy—what difference will the new business inculcate to the target customers as compared with the rest? Is this compelling enough to influence the behavior of potential customers? 2. Opportunity metrics. These are considered as the opportunity’s critical success factors. These factors will approximately determine the attractiveness of the new venture depending on the total scores that it will generate and the risk appetite of the entrepreneur. Table 2.2a-g consists of the basic metrics necessary in starting up a business. The answers, however, require extensive research, so the entrepreneur must be careful in answering this metrics table. Moreover, the entrepreneur can extend the scoring system depending on the complexity of the industry and the venture itself. In this example, the entrepreneur can put 5 as the highest score and 1 as the lowest score. Again, the weight of each factor should be determined by the entrepreneur. Developing a Business Pan 2‘Table 2.2a. Opportunity metrics for market potential Industry or Market | Highest Potential | LowestPotential | Attractiveness Score res Potential Description Description ow 1, Market need + Easily identifiable + Unclear market a market + Revenue just one- ‘ + Potential recurring time or seasonal 7 revenue from the + Market unstable i market ' + Market-driven a ‘a. Customers ‘Accessible ‘Already stuck with d competitors 1 b. Payback period Within one year or less | Three years or more t c. Value to Significant Insignificant § customers ‘ d. Product * Durable or long + Perishable : shelf-life + “Me too” t + New or innovative + Unreasonably priced + Value for money : e. Service Highly demanded ‘Seasonal 7 2. Market structure | Emerging Declining or stagnant 3. Market size + Established and + Unknown; clear undetermined ‘ + Big enough forthe | - Small 7 entrepreneur F 4 Growth rate Faster and acceptable | Slow and S growth rate unacceptable growth ' rate = 5. Market capacity Fully capacitated Undercapacitated 6. Market share + Easier and faster + Difficult and slow Table market penetration market penetration + High potential + Low potential in maximization: ‘in maximization of market share of market share a percentage (e.g, percentage (e.g., 5% 4 20% or more) or less) 2e 7. Cost leadership Cost-efficient Too costly Total (Weight): 3 ‘Table 2.2b. Opportunity metrics for financial feasibility Financial Feasibility | Highest Potential | Lowest Potential | Attractiveness Score Description Description = 1. Net income Robust Fragile; inconsistent 2, Retum on High and faster retums | Low retums (e.g., 20% investment (20% ormore in | orless in 5 years) 1 year) reneurship3. Capitalization Reasonable capitalization required Unreasonable capitalization required 4. Internal Rate of Return (IRR) = annual return that makes the initial investment turn into future cash flows High and consistent IRR (eg., 20% or more) Low and inconsistent IRR (@.g., 20% or less) ——| 5. Free cash flow Highly positive (e.g., | + Low ornot enough = represents 30% of gross sales/ to cover capital | the liquidity ofa} revenue or more) ‘expenditures i business after + Low in liquidity =| allocation of capital expenditures | a Sales growth | High Low b. Asset intensity | Low High (assetsisales) = ‘c. Working capital} Low High = ‘d. Research and | Low High development | and other capital ! expenditures fe. Gross income | High(e.g., 30% or —_| Low(e.g., 30% or more) less) 6. Capital recovery | Fast (e.g..2years or | Too slow (e.g., 5 period less) years) Total (Weight) : Table 2.2c. Opportunity metrics for exit strategies or harvest options Exit Strategy or Highest Potential | Lowest Potential | Attractiveness Score Harvest Options Description Description 1. Value added High strategic value | Low strategic value potential 2. Exit strategies Many envisioned options, €.g., merger, acquisition, or strategic alliance Limited or no exit strategies 3. Capital valuation + Reasonable capital valuation * Unfavorable capital valuation + Credit crisis Total (Weight):Table 2.2d. Opportunity metrics for competitive advantage 2 ‘Competitive Highest Potent Lowest Potential | Attractivene: ‘Advantage Description Description 1. Fixed and variable | Costefficient Costly 3 costs 2. Control over prices, | Strong Weak & distribution, and 7 costs 3. Barriers to entry | Difficult to enter No barrier(s) at all or easy to enter ‘a. Legal and Exclusivity None or unsecured proprietary protection ’b. Response and | Competition is not yet |» Tough competition lead time aggressive *+ Unable to gain competitive advantage ©. Networks ‘Accessible and close | Limited access and relationship requires intensive relationship building fe Total (Weight): 10. Table 2.2e. Opportunity metrics for management team rr Management Team | HighestPotential | Lowest Potential | Attractiveness Score . Description Description = 1. Entrepreneurial | Fully dedicated, Undecided and just us lineup driven, andunited _| testing the waters a3 2. Industry and Highly skilled and ‘Weak background — technical experienced inthe | and experience in the experience industry chosen industry chosen i 3. Integrity and Highest degree of Questionable and | concern to the new | integrity and concem | unsure venture 4. Intellectual honesty | Willing to understand | Unwilling to what they don't know | understand what they don't know Total (Weight): — fotal (Weight): i Table 2.2f. Opportunity metrics for strategic differentiation ex Strategic Highest Potential | Lowest Potential | Attractiveness Score + Differentiation Description Description f 1, Degree of fit High Low