MODULE 1

Lesson 1: The Entrepreneurial Mindset

   LESSON 1.1: WHAT IS AN ENTREPRENEUR?

Individuals have different dreams and goals that they want to achieve in their life. Some want
to be a successful doctor, model, lawyer, pilot, or even entrepreneur. In this modern time, we
have successful entrepreneurs, such as Steve Jobs of Apple, Bill Gates of Microsoft, and Marc
Zuckerberg as a co-founder of the well-known social media application, Facebook. In addition,
locally, we have Lucio Tan of Philippine Airlines and Asia Brewery, Socorro Ramos of National
Bookstore, and Alfredo Yao as the Zest-O Corporation President. Many of these well-known
people have faced many trials before they have become successful in their businesses. Some of
them do not have any degree in the business field. Some of them have also faced the harsh
reality of life and cannot even afford to buy anything, but today, they have become rich and are
now able to travel around the world. However, what is an entrepreneur? What are the basic
characteristics that we should have in founding a business?

In this lesson, we will be enlightened on the nature of business and entrepreneur.

WHAT IS AN ENTREPRENEUR?

The word “entrepreneur” comes from the French word entreprendre, which means, “to
undertake.” It is a reference to individuals who have initiated the establishment of a business
enterprise.

According to Schumpeter, entrepreneurs are individuals who have generated

substantial value and profits from innovations in a very short period of time. These individuals
are also willing to absorb huge risks using enormous amounts of capital in their business
ventures (Quickmba.com). There are two kinds of entrepreneurs existing. These are mega
entrepreneurs and micro entrepreneurs.

   LESSON 1.2: ENTREPRENEURIAL PROCESS

            According to Drucker, personal traits and elements can have a great impact on
entrepreneurs, not only as an external environment, but also on how these traits can be of
great help in achieving the goals of the enterprise. As an entrepreneur, we always think of how
to survive, achieve our goals, and stay on top. Every day or every minute is truly precious in the
eyes and life of an entrepreneur because even one small mistake can fully affect the outcomes
and success of it.

            Before opening a business, an entrepreneur should have proper plans that need to be
implemented and need to have a unique strategy to be different from others to make it
recognizable or somewhat noticeable for all. There are processes that are needed to be
followed to become fully aware of all the opportunities in realizing the best business idea. It is
known as entrepreneurial process and it involves different stages, including: (a) discovery; (b)
development of concept; (c) organizing resources, (d) implementation; and (e) reaping the
returns.

DISCOVERY – It refers to recognizing a business idea or detecting opportunities

that could make money for entrepreneurs. In this stage, entrepreneurs start to observe and to
conduct researches about the proposed business idea. It is a great help in starting a business
idea because it gives practicality and, at the same time, innovative ideas to the entrepreneurs
which products and resources he/she should be targeting. It helps entrepreneurs to have fresh
ideas and concrete plans in considering the success of the business idea.

DEVELOPMENT OF CONCEPT – The development of a business concept gives

more details on how the general business idea can be realized. We need to understand that
every idea needs to be developed for this to be successful or useful. In this stage, an
entrepreneur considers the factors in engaging business ideas. The entrepreneur should be fully
aware of how to properly organized and managed the business idea. The entrepreneur should
be at least prepared for future activities that need to surpass and about the services.

ORGANIZING RESOURCES – Describes the process of identifying, sourcing, and

financing human, nonhuman, and other resources needed for conducting a business. In
business, entrepreneurs need to have resources, also known as “connection.” Once the
entrepreneurs start to pursue the business idea, he/she needs a strong foundation to build it.
Entrepreneurs must have a plan on who or where the resources should be affiliated to.
Resources can be of great help in determining the funds and incomes of the business in the
future.

IMPLEMENTATION – Process of carrying out the business plan. Since everything is planned and

organized in this stage, the entrepreneur is ready to operate in all aspects. He/she is ready to
establish and to start everything in the business. The business is not only an idea but also a
long-time growth of a business. It is not only about planning anymore but an execution.

REAPING THE RETURNS – Pertains to strategies related to the expansions of

the business firm. In this stage, the entrepreneurs and the business, itself, tend to change from
time to time. To be successful in business, a variety of strategies should be implemented.

   LESSON 1.3: CHARACTERISTICS OF AN ENTREPRENEUR 

            To be a successful entrepreneur, one must have the characteristics to perform well.
Having traits in business can be a great help or can be a disadvantage, especially in handling the
situations that may happen in the process of a business. In this part, we will learn how
characteristics may affect the performance of entrepreneurs based on two criteria.

1.    Entrepreneurial Traits and Creation of Value-Added 

In this criterion, entrepreneurs' characteristics will differ based on the locations or regions he or
she developed. It may vary based on how the countries developed the business enterprise and
it affects the amount of value added or profits the enterprise made by the business. It may vary
in level of education, employment status, wealth, and risk appetite.
LEVEL OF EDUCATION – Studies have shown that being an entrepreneur, having a formal
education is a must which means, having many and great opportunities in the business world
can be offered to those entrepreneurs who take up management and have a degree. We are
aware that business is presented by inventions, innovations, and technological developments,
which is a great help to seize the opportunities that may lead to the success of everyone.

EMPLOYMENT STATUS – Many entrepreneurs seek experiences from well-known companies

for them to be able to be fully aware on how to formally start a business. Being an employee
first can be a great help for them to discover the risks of starting a business. Being able to work
in a company can help them to gain ideas and to turn these ideas and opportunities into
success.

ENTREPRENEUR’S WEALTH – This is one of the big factors that need to consider in starting a
business. Many entrepreneurs get their funds from their families or their previous works.
Entrepreneurs should be aware that business is not a “one-time pay only” policy. It needs to be
secure also for transactions and services and have credits from banks that will help them
especially in facing a crisis.

RISK APPETITE – Every entrepreneur should be open to risks. Risks always happen in business
and it is a great factor to threaten the survival and stability of the business in the future. For a
business enterprise to be successful, it will face many risks and the entrepreneurs should
propose and think of innovative ideas for them to survive it. Entrepreneurs should be risk-
takers.
 

2.    Entrepreneurial Traits and Entrepreneurial Intentions

·         In this criterion, we will test the ability of entrepreneurs on how their business ideas will
be transformed into a business. In line with this, the entrepreneurs should know the intentions
and how to attain the goals need for the opportunities and business to succeed.

DEMOGRAPHICS – Refers to the gender, marital status, age, and employment status of
individuals who are likely to form entrepreneurial intentions. Knowing the demographics of
entrepreneurs can indicate the activities and propose intentions because it helps to determine
the factors especially in targeting the goals and limiting the excessive wrongdoings in business.

PERSONAL TRAITS – Having positive personal traits towards starting a business may attract the
purest intentions of entrepreneurs. Loving the business and accepting the challenges in facing
this may be a great help for the business to be successful. Self-confidence, determination, and
enthusiasm are necessary for this part.

PSYCHOLOGICAL TRAITS – Entrepreneurs should have a clear mindset and goals needed to
achieve. In this aspect, entrepreneurs should have innovations and clarity in obtaining the
objectives in the business. He/she should be risk-takers and psychologically ready in terms of
starting a business and may be able to face it thoroughly.

 
SOCIAL TIES – Being an entrepreneur, one should know how to socialize and build connections
with others. His/her ability to speak confidently in front of other people attracts social ties and
connections, which may be a great help in promoting and stabilizing the business. It is also
important to build networks for expansion and future purposes.

ENTREPRENEURIAL DECISION-MAKING

            In this section, we will learn how an entrepreneur should think and act in pursuing a
business. Having a successful business is a difficult thing to maintain since many people aspire
to be one. Innovative ideas must fully adapt to the trends from time to time and this is the
biggest challenge that anyone can face. Decision-making is an important part of a business
because it will help, not only the entrepreneur to be successful, but also the business itself. One
mistake in a decision can fully affect the whole plan and its progress.

            Decision-making is one of the things that entrepreneurs should acknowledge and know
how to address because it can result in business advantages or disadvantages. The types of
mental processes that we will cover include the following: (a) critical thinking; (b) creative
thinking; and (c) strategic thinking.

CRITICAL THINKING – Refers to the systematic and rational way of providing an answer to a
question. It focuses more on how to critically provide factual statements or answers about
inquiries in business. It follows a specific and distinct process before providing answers. It is
based on data that are proposed. It is also rational because it connects the relationship of
variables present in the business. It also covers the explanation of what the business is doing
and how it will be stable and survive in the midst of challenges.
CREATIVE THINKING – Different from critical thinking, the focus of this mental process is to
discover and to give innovative ideas about the business. People often ask questions because it
may lead to discovery and changes, which could greatly help in pursuing and having a stable
perspective in business. It is not one-sided because it tackles different perspectives. It is an
advantage in formulating and introducing new products and systems in operations.

STRATEGIC THINKING – It involves the assessment of the current situations that may be a guide
in formulating ideas and plans for the future. It quite resembles the first two mental processes
because it uses a logical method to answer the inquiries but it also helps to develop and to
grow. Besides, strategic thinking focuses on how to grow a business in the world of trendy
things.

RISKS, COGNITIVE ADAPTABILITY, AND ENTREPRENEURIAL DECISIONS

            In pursuing a business, difficulties and challenges are very common. Being an
entrepreneur, one must face this because this helps, not only the expansion and development
of the business, but also the professional growth of the entrepreneur. Entrepreneurs should be
open-minded, can work under pressure, and lastly, can be flexible during these times. One of
the challenges that businesses are facing is risks.

RISKS – Refer to uncertain situations and developments that can increase the probability of loss
or business failure. It may really affect the whole business and its services, as well as
productivity. It is generally categorized into two: INTERNAL RISKS, which pertain to the dangers
coming from the management of resources of a business enterprise that may affect the
operations; and EXTERNAL RISKS, which are threats coming from various environments outside
the business firm.

 
COGNITIVE ADAPTABILITY – Refers to the ability of individuals to be involved in the process of
producing several ways of decision-making based on the identification and management of
changes in their environment. It means that entrepreneurs should be able to adapt and to be
flexible in maintaining the business ideas fresh and trendy. It focuses also on making decisions
that may lead to growth and progression. Always remember that decisions should undergo
careful analysis, deep reflection, and intuitive thoughts.

Lesson 2: Generating Ideas: Harnessing Logic and Creativity

Engaging in small businesses has been seen as the best way to create more jobs and thus create
more employment in a country. But to bring a business to reality, it requires entrepreneurial
processes- starting from the desire to put one up to its implementation. Starting a business
requires an enterprising mind. An entrepreneur must possess a mind that notices business
opportunities and has the guts to exploit them.

In this lesson, we will discuss the various methods of generating ideas for new ventures. We will
also discover how creativity, critical thinking, and problem-solving matter and how these lead to
inspire the introduction of new products and services in the market.

 LESSON 2.1: SOURCES OF IDEAS FOR ENTREPRENEURIAL VENTURES

According to Harley Firestone, an American businessman, and the founder of the Firestone Tire
and Rubber Company, “If you have ideas, you have the main asset you need, and there isn't any
limit to what you can do with your business and your life. Ideas are any man's greatest asset.” A
lot of practicing entrepreneurs and business coaches have identified a list of sources from
which people can find business ideas. These are categorized into four major sources: (a) from
the product, (b) from the process, (c) from the person, and (d) from relationships.

Entrepreneurs may grow their business ideas from the products and services that are already
available in the market. By differentiating or adjustment of their sizes, shapes, color, materials,
or contents, entrepreneurs may have introduced new products and services. Dissatisfaction
from an availed item or service of entrepreneurs may also lead to the creation of new ones. It is
an idea popularized by Karl Ulrich called annoyance-driven innovation in which the
disappointment or insufficiency in the quality of products or services, leads them to create their
own to provide or produce for others with the qualities they wished before. Think of the
inconveniences that you have experienced. From those experiences, a potential entrepreneur
may give birth to a new one.

Examples:

1.       Waiting for bus or jeepney lead to Grab/Uber/Angkas

2.       Crowded canteens and fast-food chains lead to ready to go meals in convenience stores.

3.       High electricity consumption of refrigerators and air conditioners lead to the release of
inverted versions.

4.       E-payment/e-money was developed for faster transactions.

Business ideas may also arise from the process of production and distribution. In this source,
entrepreneurs may revive traditional production. For example, baking bread in pugons
and retailing products to make it more affordable for general patronage. While in the case of
business ideas sourced from persons, the individual mostly relies on his/her interests, hobbies,
skills, and dreams. Personal interest widely contributes to sustaining the initiative in starting a
new business. For example, tattoo artists who put up a tattoo shop are fond of this art, cacti
and indoor plants sellers are plantitos and plantitas (respectively refers to proud plant parents)
loves plants, same with fashion designers who love to dress up. To make it short, one’s interest
matters in business ideas.

Likewise, prior employment can be a source of business ideas. The training and experience they
have geared them up to the establishment of their own ventures. For instance, a restaurant
established by a formerly employed chef, a tutorial center by a former teacher, and a clothing
line founded by a resigned factory dressmaker. Friends, relatives, classmates, and the likes can
also be sources of business ideas and partners. People who mostly share habits and interests
end up becoming business partners. The neighborhood can also provide ideas on what to
produce. For example, canteens next to factories, pharmacies next to hospitals, printing shops
next to universities, laundry shops near dorms, or water refilling stations in residential areas.
LESSON 2.2: METHODS FOR GENERATING NEW IDEAS

A.  GENERATING BUSINESS IDEAS THROUGH LOGICAL THINKING

Logical thinking is the process in which one uses reasoning consistently to conclude. It is both
systematic and rationale for it calls for structure, for facts, and for chains of reasoning that
make sense (Plessis,2012). In generating new business ideas, logical thinking uses different
methods such as statistical analysis, market analysis, SWOT analysis, and Delphi technique.

 Statistical Analysis - a systematic analysis of data gathered from a survey of individuals.

Technically, it can give information about the population being studied and can also be
used in testing hypotheses on the difference of values of certain variables. In the field of
business, it can describe the trend in demand and identify the key socioeconomic
variables that significantly influence the demand.
 Market Analysis - provides information about industries, customers, competitors, and
other market variables. It helps to determine the relationship between supply and
demand for a specific product or service which is beneficial from where to base
decisions about possible marketing strategies. Market information, insight into existing
customers, identifying potential customers, customer needs, customer behavior
patterns, and identify business opportunities are some of the data that market analysis
can provide.
 Strength, Weakness, Opportunity, and Threat (SWOT) Analysis - this process is
undertaken to describe the condition of competition in a certain industry. As it identifies
the strengths and weaknesses, and the threats and opportunities in firms, it helps in the
decision making whether to pursue a business or not.
 Delphi Technique - a systematic way of generating ideas from a select group of
individuals using various rounds of consultation. During the first round, the group would
be asked to submit their responses to a question. After treating the data from the first
round, the leading response will be given back to the responses to the next round, then
return it. Anonymous responses are aggregated and shared with the group after each
round until the final 2 or 3 answers are determined. For example, what are the
emerging products and services in the next 3 years?
B.    GENERATING BUSINESS IDEAS THROUGH CREATIVE THINKING

Creativity involves doing these things in ways that are, on the one hand, novel and on the other,
effective in achieving the desired result. The result may range from abstract actions such as
communication of a feeling, arousal of esthetic admiration, provocation of a new way of looking
at something, development of new understandings of experience or existence, to concrete
results such as the making of works of great beauty or imagination, the design and construction
of improved or novel devices, machines, buildings or structures, improved processes or
systems, more efficient operation of something, even enhancement of profits (Cropley, 2011).
Furthermore, according to psychologist Csikszentmihalyi, people who perceive the world with a
fresh perspective, have insightful ideas, and make important personal discoveries.  Here are
some of the methods in identifying business ideas:

 Brainstorming – a relaxed and informal approach to problem-solving and idea

development. Though unstructured, there’s someone who always stands as a facilitator
to entertains the participants' ideas. And at the end of the agreed time of discussion,
ideas are synthesized to come up with a conclusion or solution.
  Problem Inventory Analysis – it elicits ideas from participants and directed to identify
all possible problems encountered with a specific product or service. After enumerating
those problems, participants are tasked to suggest or provide alternative solutions.
 Free Associated Method - the process involves a word or phrase relating to the problem
being written down, then another and another, with each new word attempting to add a
new idea to the ongoing thought processes, finally creating a chain of ideas ending with
the new product idea merging.
 Checklist Method - a new idea is developed through a list of related issues or
suggestions. The entrepreneur uses a list of questions or statements to guide the
direction of developing entirely new ideas or focusing on specific idea areas.

Lesson 2 (PART 2) : Generating Business Ideas Through Trends in Business

Environment

 GENERATING BUSINESS IDEAS THROUGH TRENDS IN BUSINESS ENVIRONMENT

 Both logical and creative thinking are systematic ways of generating business ideas.
However, there are still other sources of business ideas – business environment.
According to an article by CFI Education (2015), an entrepreneur can get ideas from the
bargaining powers of its competitors and supplier, wide-scale changes in government
economic-related policies, sociodemographic changes, and technological changes. For
example, selling products and services at a lower price to attract more customers,
identifying the needs of people since consumers' movement is limited, and considering
the trend in gadgets or devices. 
 Another idea is to make your product or service unique from the available in the market.
Changing its content, size, shape, materials, or having a very impressive packaging may
lead to the attraction of consumers. 
 In fact, suppliers may input the potential entrepreneurs. For instance, the unavailability
or increase in the price of raw material may push the market to opt for alternatives.
Government regulations can also provide ideas for new products and services. For
example, the NO PLASTIC POLICY urged the creation of a market for ecological bags,
paper bags, and the likes. While the sociodemographic changes also lead to new
businesses such as space saver furniture for small homes or units like the trending loft,
or even hotels and restaurants for pet owners.

 Examples of different business ideas that have responded to the trending needs of its
environment

 CREATIVITY: A NEW WAY OF LOOKING THINGS

 Amabile and Khaire (2008) sees creativity as the heart of the business. Creativity by
definition is the ability to create something novel and appropriate, essential to the
entrepreneurship that gets new businesses started and that sustains the best companies
after they have reached global scale but until now it hasn’t been at the top of the
management agenda. 
 Scholars have synthesized factors that can influence creativity. See pages 23-28 of your
textbook for further discussion.
 1. problem-solving factors
 2. motivational factors
 3. situational factors
  4. organizational factors

CREATIVE PROBLEM SOLVING:

Lesson 3: Recognizing, Assessing and Exploiting Business Opportunities

 LESSON 3.1: OPPORTUNITY RECOGNITION PROCESS

Before we proceed with the process of recognizing opportunities for entrepreneurial ventures,
we need to define the concept of opportunity. According to the Cambridge Dictionary,
an opportunity is "a situation or occasion that makes it possible to do something that you want
to do." There are three elements to this simple definition. First, you want to do something. In
this case, you want to establish your own business enterprise. Second, there are conditions for
the realization of your objective. Third, you must make decisions or take action on these
conditions to realize your objective. From a business perspective, an opportunity is "an
exploitable set of circumstances with uncertain outcome requiring a commitment of resources
and involving exposure to risk" (www.businessdictionary.com). This definition, not only fulfills
the three elements discussed above, but also provides specific features of a business
opportunity. It should be pointed out that an opportunity will not automatically lead to a
realization of your objective. An opportunity can only be considered as a.possibility of realizing
your objective since there are elements of uncertainties in its realization. Hence, an
entrepreneur must take action to achieve his/her objectives. This decision will require
resources, including time from the individual and his acceptance of the risks because of
uncertainties.
                                

Opportunity recognition often entails phrases that potential entrepreneurs take before
introducing a product or service to the market. The five stages of opportunity recognition,
according to Hills, Shrader, and Lumpkin are summarized as follows:

R Precondition. This is a preparatory stage during which the individuals assess their knowledge
of the market. Their prior knowledge of the market is extensively shaped by their educational
background. Aside from formal training, personal experiences, including travel and previous
employment, can also provide the individual with valuable information on the market that he
wants to enter.

R Conception. This is the gestation phase, during which entrepreneurial intentions and ideas
are generated using logic and creative thinking, or both. As discussed previously, creativity is
the capacity of the mind to reprocess and recreate new ideas by connecting ideas from existing
products or services. For example, connecting ideas on the various ways of preparing bread can
lead to a creative idea.

R Visioning. This third stage provides the individual a hunch that can serve as an opportunity
for business. This comes about as ideas become clearer and how the logic of connections leads
the individual to a new idea. In our previous example on connecting ideas, the preparation of
bread can lead us to an idea of toasted siopao, which takes off from the classic steamed siopao.

R Assessment. This stage involves the evaluation on whether the idea can be realized or not.
Aside from the resources needed and technology to be used, the paramount question to the
individual is whether the idea can really be actualized. In our stated example, the relevant
question at this stage is whether can we really toast siopao?
R Realization. The last phase suggests the production of a prototype. This is the stage when the
mental construct or idea is now felt in its tangible form. Therefore, the idea of toasted siopao is
produced by baking the dough, instead of steaming the traditional siopao.

LESSON 3.2: FACTORS IN OPPORTUNITY RECOGNITION

A framework on recognizing opportunities crafted by Hisrich, Peters, and Shepherd, provided

some of the key factors in opportunity recognition. According to them, successful recognition of
business opportunities is influenced by three major factors: (a) market awareness; (b)
entrepreneurial readiness; and (c) connections.

Market awareness (prior knowledge of the market) refers to personal exposure to the market
and its components, including customers and suppliers. Information on the market, in turn, can
be acquired from formal training. Tools in the market analysis are usually learned from business
training programs and business education. Environmental scanning, for example, can provide
information about the market, customer needs, and emerging product lines.

Beyond the formal training, the experience can be a major source of understanding the market.
Your dissatisfaction with a particular product can be part of your personal experience that can
push you to improve on the product. In the same manner, your work experience can also
provide a wealth of knowledge about the market and its prospects.

Entrepreneurial readiness (entrepreneurial alertness), on the other hand, refers to a variety of

features of an individual to start a business venture. It covers all types of resources that the
individual possesses, including financial, physical, and human resources. Aside from the
resources that the individual can potentially commit to the implementation of his potential
enterprise, readiness also includes the ability of the individual to take risks and manage
uncertainties once the enterprise is operational. Entrepreneurial readiness, not only has a
direct impact on opportunity recognition, but it also has an indirect effect as it interacts with
previous knowledge on the market.

The last factor is the connections (networks). Business-opportunity recognition is heightened

when the individual has a diversity of networks. Families and friends as well as business
associates can bring about opportunities that we can pursue.
 LESSON 3.3: OPPORTUNITY ASSESSMENT

Once an idea has been generated and an opportunity has been recognized from it, there is a
need to assess whether this opportunity is feasible to implement. Opportunity assessment
refers to the process of evaluating the likelihood that the opportunity can be realized. Several
studies found the following elements in opportunity assessment: product, profitability, capital
requirements, risks, and commitment.

                 

E Product or Service. A business opportunity is primarily the potential of introducing a new

product or service to the market. This new product or service can be a result of various creative
ways of differentiating an existing product or service. Given these considerations, the following
questions need to be answered as part of the assessment process: What is the unique feature
of the product or service? Why will the consumers purchase this commodity? What needs or
wants does the product or service trying to fill? What is the competitive edge of this commodity
compared with existing products or services?

E Market Opportunity. This element refers to the assessment of the appraisal of the char
process characteristics of the market. The included assessment process is the competitive
environment in the market. Is it easy to enter the market? If there are barriers to entry, can
they be overcome? How strong is the bargaining power of existing players in the market? How
different is the product or service that you want to introduce compared to the existing products
and services in the market? What segment of the market is your product or service targeting?

E Costing and Pricing. A product which may be considered valuable by consumers may not be
affordable. Thus, the cost of production as well as the unit price of the commodity is very
important in the assessment phase. Although there is a market for expensive goods and
services, the market, however, is very limited. In such a case, the product should be highly
differentiated, like Louis Vuitton bags, that it can create a snob effect on a select group of
consumers. On the other hand, consumer goods catering to the general public must be priced
appropriately because they have a lot of substitutes that serve as competitors. The price of a
product or service would depend on the cost of raw materials and other factors of production.
Cheap and reliable raw materials and the employment of inexpensive unskilled laborers can
make your product competitively priced.

E Profitability. Part of the assessment process is the extent of profitability of a product or

service. An important motivation for venturing into business is to earn a profit. Thus, a
nonprofitable business enterprise, no matter how creative the business idea is, is not worth
pursuing. Profitability is based on how the market will receive your product and the cost of
producing it. There are business ventures that are very profitable but will require huge capital
and long gestation periods. A starting entrepreneur with limited resources may not be able to
pursue this option even if the rate of profit is very high. On the other hand, there are projects
with limited resource requirements and give earnings immediately but their returns are not as
attractive.

E Resource Requirements. In any business venture, you will need inputs in the production
process. There are two types of inputs used in production: a) intermediate inputs; and b) factor
inputs. Intermediate inputs are also called raw materials that need further processing. Aside
from the cost, the concerns on raw materials include their availability, accessibility, and
reliability. Factor inputs, on the other hand, are called the processing inputs which include
labor, capital, and technology. Since factor outputs will remain with the firm for some time,
unlike raw materials that have to be acquired regularly, the main concerns on factor inputs are
on their productivity and costs.

 
E Risks. Any business enterprise will face risks in the course of its operations. Risks are
uncertain situations that can increase the probability of loss or failure of a business venture.
Risks can come from within (internal risks) and from outside (external risks). Internal risks,
which emanate from the management of resources, can be prepared and controlled. While
external risks, which arise from various environments affecting business, can be managed. If the
potential business venture will just face normal business risks, the business venture can be
pursued. However, a very risky business venture is not suitable for beginning entrepreneurs.

E Entrepreneurial commitment. The last element in the process of entrepreneurial assessment

relates to the commitment of the individual to pursue the realization of its business idea. The
commitment may include the motivations of the individual, his/her skills experiences,
resources, and the amount of time he/she can devote to the operation of the business. The
seriousness of the individual can define his commitment and can proceed with
the introduction of a product or service.

LESSON 3.4 OPPORTUNITY PATHWAYS

Once the opportunity has been identified, the individual can subject it to an assessment as
described above, proceed with its implementation, or put the business idea on hold. If the
decision is to proceed, the individual has two options to follow or pathways in transforming the
opportunity into a business venture. These two opportunity pathways are called the rational
approach and the intuitive approach.

The rational approach is also called the traditional approach. It uses systematic procedures in
proceeding with the implementation of a business opportunity. Many Filipino entrepreneurs
who use this approach may start with questions on what is possible (Ano ang puwede?), then
assess to identify the best alternative (Ano ang pinakamainam?) From the answers to these
questions, he/she can conclude by trying it approach (Masubukan nga). As a rational approach,
the traditional pathway employs a routine in the entrepreneurial process. It starts with the
generation of entrepreneurial intent, visualization of an idea, recognition of an opportunity,
assessment of the opportunity, and finally seizing the opportunity.

The traditional approach is usually applicable for business ideas that require substantial initial
investments or those that are undertaken by what we refer to as Schumpeterian
entrepreneurs. There is a need to utilize a systematic process (from the planning stage to the
implementation phase) in these types of commercial enterprise because a business failure can
mean a waste of huge resources. Since this approach is rational and systematic, it implies that
entrepreneurship can be learned. There are steps to be followed that eventually will lead to
the introduction of the product and service in the market.

The alternative pathway is called the intuitive approach. It starts with the recognition of an
opportunity and proceeds directly to the grabbing of the opportunity after sensing that it can
be done. Rather than using a systematic process, this alternative approach relies primarily on
the intuition of the individual, which is informed by his prior knowledge and previous work and
life experiences. The individual has an immediate hunch or feels that an opportunity can be
realized. A Filipino entrepreneur may think the opportunity has prospects (mukhang puwede);
he then decides to try it (masubukan nga) without going through a detailed assessment phase.
Another entrepreneur may spot an opportunity from the need for the product (kung kailangan
ko, kailangan din ito ng iba); he then decides to try it (masubukan nga).

For business ideas that do not require substantial initial investments or those undertaken by
microentrepreneurs, the intuitive approach may be appropriate.

Although pursuing an opportunity pathway using the intuitive approach can be risky,
microentrepreneurs can absorb the risks since their investment is not that substantial. In
addition, microentrepreneurs can apply cognitive adaptability in their decisions if something
unexpected emerges. Because of the use of limited resources, micro-entrepreneurs can be
more flexible in their decisions in adjusting to current realities and environment.

LESSON 3.5 PROJECT PLANNING AND DEVELOPMENT PROCESS

This section summarizes the development process of a product from its

inception, introduction in the market, and final decline. Hisrich, Peters, and Shepherd, identified
the various stages that a product or service undergoes in its product life. It takes two main
phases: a) precommercialization phase; and b) the commercialization phase.
     

ê Idea stage. This refers to the formation of business ideas. It starts with an entrepreneurial
intent and proceeds with the development of a business idea using logic and creativity.

ê Concept stage. The refinement of ideas and visualization of an idea that can serve as a
business opportunity is called the concept stage. The initial customer evaluation also happens
during this stage. A feasibility study or market study is undertaken to determine if there is a
demand for the product or service.

ê Product development stage. After the visualization of the idea, the business idea is
concretized with the production of a prototype.

ê Test marketing stage. In this phase, the product or service is introduced to the market after a
series of evaluation and feedback from potential customers.

Once the precommercialization phase has ended, the commercialization phase follows. This
phase is also referred to as the product life cycle. According to the Vernon, product life cycle
hypothesis, any product has life, and similar to any living organism, it has its birth and its
consequent death. Thus, a product is introduced to the market as an innovative product and
exits the market with the emergence of other newer innovative products. The various stages of
the product life cycle are summarized as follows:

è Introduction. With positive feedback after a series of market testing, the product is formally
introduced to the market. At this stage, the entrepreneur has to devote resources and time for
the marketing of the product. Hopefully, the innovativeness of the product, its uniqueness, and
the human want it tries to answer can stimulate demand.
è Growth. With a successful marketing campaign, the product is recognized by the market. This
market recognition is translated into a decision to purchase the product. There is growth if
there are repeat purchases or sustained demand from the initial and subsequent buyers. Aside
from the marketing cost, the entrepreneur should make sure that the raw materials, as well as
the factor inputs, are readily available to produce the product and to ensure supply for the
growing market.

è Maturity. At this stage, the product is widely accepted with the emergence of brand loyalty
and patronage from its target market. The product is an established brand and in a particular
market with a significant market share. To remain competitive, the entrepreneur must engage
in innovative activities to improve and to further differentiate the product.

è Decline. Once the market for the product has been saturated and innovation possibilities for
it have been fully explored, the product might start to lose its market power. The decline
becomes real when competitive products with newer innovations and creative differentiations
are introduced and get accepted by the market.

https://www.coursehero.com/file/51880738/Chapter-3docx/

https://www.business-opportunities.biz/2015/09/24/5-types-business-opportunities/ 

http://repository.up.ac.za/bitstream/handle/2263/24173/Complete.pdf?sequence=

https://fusionmx.babson.edu/entrep/fer/papers99/X/X_A/X_A.html

http://www1.se.cuhk.edu.hk/~seem3600/lecture/Chap004.ppt
MODULE 2
Lesson 4: The Business Plan

    

 LESSON 4.1: BUSINESS PLAN

Prepared by the entrepreneur, a business plan is a document that describes the various
external and internal elements involved in starting a business or in expanding an existing
venture, amidst a dynamic business environment. It integrates the different functional plans,
such as marketing, manufacturing, finance, and human resource management, taking into
consideration the overall strategy of the business. During the first few years of business
operations, the business plan serves as a guide for short-term and medium-term decision-
making and managerial action. Like a road map, it directs the entrepreneur to his/her desired
destination. It answers the following questions: Where am I now? Where am I going? How will I
get there?

         
Business Plan explains what the business is and how it will be operated. Having a good business
plan will help cooperatives minimize the risks of failure. It can also be used by cooperatives in
applying for support from development programs.

A business plan should be reviewed and updated regularly to reflect changes in the business
environment and the status of the cooperative. In this session, you will familiarize yourselves
with the structure of the business plan.

LESSON 4.2: IMPORTANCE OF THE BUSINESS PLAN 

Business plans are important because of the following reasons: (a) it helps determine whether a
proposed or an existing business venture is viable given its target market; (b) it guides the
entrepreneur in mobilizing the resources needed by the business; and (c) it serves as a tool in
helping get financing for the business.

The business plan may be read by different people, including employees, suppliers, customers,
bankers, and potential investors. Therefore, the business plan must be written to meet the
information needs of these different stakeholders.
 Value of the Business Plan to Selected Users

The User of Business Plan Why the Business Plan is Important to this User
  o      serves as a road map for managing the
business
 
o       identifies the resources needed to
  operate and to grow the business

ENTREPRENEUR o      allows the entrepreneur to anticipate

potential business risks
  o      allows the lender to assess whether the
entrepreneur will be able to meet debt and
  interest payments

  o      provides information about collateral or

tangible assets that can be secured for the loan
LENDER
  o      allows the investor to gauge whether
projected returns are acceptable
 
o      provides information about the character
  of the entrepreneur and the capability of the
venture's management team
INVESTOR

LESSON 4.3: INFORMATION NEEDED FOR THE MAJOR SECTIONS OF THE

BUSINESS PLAN

Many business owners avoid preparing a business plan because the task seems too difficult or
time consuming. The process would be easier, though, if the entrepreneur knows where to get
the information needed for the business plan’s major sections. (see table below)

Some information can be retrieved from public sources, such as national government agencies,
city or municipal offices, and industry associates. Many of this information can be accessed
through the internet.
 

Information Needs for Major Sections of the Business Plan 

Market Information Needs Operations Information Needs Financial Information Needs

ü  General Environment Trends ü  Location ü  Rental rates

ü  Specific Industry Trends ü  Manufacturing or service ü  Cost of equipment

operations
ü  Local Market Conditions ü  Cost of utilities
ü  Equipment and/or furniture
ü  Market potential required ü  Personal costs

ü  Demographic profile of the ü  Space requirements ü  Distribution costs

target market
ü  Labor requirements ü  Cost of insurance

ü  Raw materials needed and ü  Registration and license fees

potential suppliers

ü  Utilities
 

Market Information

A critical piece of information for any aspiring entrepreneur is the potential market for his/her
product or service. To determine the size of the market, however, the entrepreneur must be
clear on who his primary and secondary markets are. What are their demographic
characteristics? For example, is the product meant to address the needs of highly-educated
women with high-income levels living in suburban areas? Or is it likely to be bought by less-
educated women belonging to a lower-income class and living in dense urban areas? By coming
up with a well-defined target market, the entrepreneur will be able to project the size of the
market and the estimated frequency of purchase, allowing him to set reasonable market goals
and objectives.

It is also important for the entrepreneur to gather information about the general business
environment and about the industry in particular because these could affect, directly or
indirectly, the demand for the product or service.
If the entrepreneur, for example, wants to set up a hostel in one of the upcoming tourist
destinations somewhere in Panay Island, he might want include in his business plan tourist-
arrival figures in the region over a five-year period to determine whether there has been an
increase in tourism activity in the area. He can also determine the share of his province, say of
the overall number of tourists in the region. It might also be useful to include information about
the number of establishments providing accommodations to tourists over the same period.
Together, these pieces of information provide a general picture of the supply and demand for
tourist accommodations in the area.

These supply-and-demand figures become more compelling if presented in the context of a

healthy local economy, rapid infrastructure development, a business-friendly local government,
an increase in the number of middle-income households that have money to spend on travel
and leisure, and increasing demand for tourism activities centered on heritage and culture.
Thus, information about the general business context must also be included in the business
plan.

Information About Operations

Whether the business venture will be viable also depends largely on the cost of sourcing and
manufacturing of the product or of providing the service. Going back to the entrepreneur who
plans to open a hostel, he/she will need information on the following:

o      Location. Where will the hostel be built? How far is it from the airport or seaport? How far
is it from restaurants, hospitals, churches, and major tourist destinations in the area? Is it
accessible to public transportation?

o      Service operations. Will the entrepreneur provides rooms only or will it be a bed and
breakfast operation? Will it provide other services (e.g., laundry, airport transfer, local tours)?

o      Equipment and/or furniture required. Given the number of rooms, how many beds,
furniture, furnishings, air conditioning units or electric fans, toilet bowls, bathroom fixtures, etc.
must be purchased? How much will each of these costs?

o      Space requirements. What will be the total amount of space needed for the rooms, the
lobby, the kitchen, and the dining area? Will there be space set aside for a small garden or a
parking area?

o      Labor requirements. What particular skills are needed for the operations? How many
employees are needed to adequately support the operations? Will the employees handle
multiple jobs, or will there be dedicated staff for receiving guests, housekeeping, and doing
kitchen chores? Where and how will these employees be sourced? For each of the required
skills, what are the wage rates in the area?
o      Raw materials needed and potential suppliers.  What raw materials supplies are needed
(soup, tissue paper) for the rooms, and what ingredients are needed by the kitchen staff for the
guests' meals? The suppliers' names, addresses, and contact information, as well as the cost of
the supplies, must be indicated.

o      Utilities. Assuming an average occupancy rate, what is the estimated electricity and water
consumption of the hostel? What are the current and projected rates for these utilities?

Financial Information

The financial section of the business plan will require the entrepreneur to include a list of all
sources of revenue and a list of all possible expenditures for the first year of operations. The
budget must include a forecast of sales revenue, which can be prepared using assumptions
about the potential market capital expenditures, direct operating expenses, and cash required
for non-expense items.

Going back to the hostel business, the entrepreneur can determine his/her capital expenditures
by getting estimates from potential contractors and by soliciting quotations from furniture and
fixture suppliers. For personnel costs, he can use the regional minimum wage as a basis or he
can check salary rates offered by companies advertising in local newspapers. For utilities, he can
simply check the published rates of utility companies in the area. For insurance costs, he can
ask an insurance agent. For business permits and licenses, the city or municipal office should be
able to provide the required fees.

LESSON 4.4: MAJOR SECTIONS OF A BUSINESS PLAN

After the executive summary, the sections are presented following a certain logic. For example,
the environmental analysis precedes the description of the business because the opportunities
that arise from the environmental scan provides the rationale for the business idea. Besides,
the financial plan is presented toward the end because sources and uses of funds will depend
on the operating requirements of the business, which are described under the sections on
production, operations, and marketing. In some instances, though, the order of presentation
might differ depending on what the entrepreneur is trying to communicate in the plan. The
major sections of the business plan and their typical content are summarized in the table
below.

 
 Typical Content of Major Sections of the Business Plan

Major Sections Typical Content

Introductory Page §  Business name and address

§  Names and addresses of business

owner/entrepreneurs

§  Nature of the business

§  Statement of financing needed

§  Statement of confidentiality of the report

(optional)
Executive Summary §  Highlights of the business plan summarized
in two or three pages
Environmental and Industry §  Conditions of the general environment in
sociocultural, technological, economic, and
Analysis politico-legal conditions

§  Conditions of the specific environment (i.e.,

supply and demand conditions, competition)
Description of the Business §  Products and/or services

§  Size of the business

§  Mission statement and core values

§  Location of the business and its major

physical assets

§  Background of business
owners/entrepreneurs
Production Plan §  Manufacturing process

§  Physical plant

§  Machinery and equipment

§  Suppliers of raw materials

§  Future capital equipment needs

Operations Plan §  Description of the company's operations

§  Flow of orders for goods and services

Marketing Plan §  Pricing

§  Distribution

§  Promotion

§  Sales forecasts
Organizational Plan §  Form of ownership

§  Principal shareholders or partners

§  Organizational chart/lines of authority

§  Background of the management team

§  Roles and responsibilities of the

management team
Financial Plan §  Assumptions

§  Pro forma balance sheet

§  Proforma income statement

§  Cash flow projections

§  Sources and uses of funds

§  Breakeven analysis
Assessment of Risk §  Potential risks internal or external

§  Strategies for preventing or minimizing risks

§  Response to risks should they occur

Timetable/Milestones §  Formal registration of the business

§  Completion of product or service design

§  Completion of prototypes

§  Hiring of initial personnel

 §  Reaching agreements with suppliers and
distributors

§  Actual production

§  Initial orders, sales, and deliveries

Appendices §  Market research data

§  Detailed financial projections

§  Curriculum vitae of the management team

§  Price lists from suppliers

§  Profile of competitors
 

LESSON 4.5: WHY DO SOME BUSINESS PLAN FAIL?

Not all business plans will result in a successful business

undertaking. The chances of failure, though, are higher if the business plan is
poorly prepared. Potential investors are likely to reject a business plan that
has the following problems:

o   Document is sloppy and looks unprofessional.

o   Executive summary is not coherent and is too long

o   Unclear on why people would want to buy the product or service

o   Unclear on whether the product can be readily produced

o   Sales and financial projections are unreasonably optimistic

o   Inadequate description of the qualifications and experience of the

management team

o   Inadequate assessment of the potential threats to the business

 
 LESSON 4.6: PRESENTATION OF BUSINESS PLAN

Making a business plan presentation to potential investors is stressful for all entrepreneurs.
Even if they are confident and they are prepared, they still worry that they will not be able to
express the important parts/information/ideas about their business. Some guidelines that will
help the entrepreneur when making the presentation are as follows:

1.    Tell a compelling story. Remember that the goal is to persuade and not
to overwhelm your audience with facts and figures. Avoid tables and
charts that are complex and that are difficult to make sense of. Select the pieces of information
that will best support your major points, and avoid highly-technical language, as much as
possible.

2.    Exhibit confidence and professionalism. This can be achieved by preparing

well and rehearsing the presentation several times so that you will be
able to commit key points to memory and to present in a relaxed and
natural manner.

3.    Cover the basics. Make sure that you set up your audio-visual equipment ahead of time so
that you do not waste time trying to figure out how
to show your slide presentation. In case of the equipment malfunctions,
be ready with several printed copies of your presentation that can be
distributed to your audience.

4.    Adopt a cooperative attitude when answering questions. Do not be surprised if certain

members of the audience ask tough and pointed questions. You are, after all, asking potential
lenders or investors to provide a substantial amount of money for your proposed venture. If
you show impatience or annoyance in answering their questions, this could signal a lack of
emotional maturity on your part, which might not sit well with your audience. Try to answer the
question as best as you can, no matter how tough.

There’s nothing quite as exciting — or terrifying! — as starting your own business. With so
many unknowns ahead of you, one area that is worth your focus and attention is your elevator
pitch as an entrepreneur. This short, yet effective speech should be the most stellar speech that
you can give to promote your company, your expertise, and your purpose within your industry.

The best way to visualize it is to picture your No. 1 dream mentor or investor who you admire.
If you were stuck in an elevator with them and only had a hot second to get them on board with
your company, what would you say? Though everyone will approach their entrepreneur-
themed elevator speech differently, most include the following:

ü  Your name.

ü  A brief history of your background. Don’t go overboard here! You want to keep it light while
positioning yourself as a leader.

ü  Your company and what they do, make, or offer. Again, it’s better to air on the brief side than
to give too many details.

ü  How your brand is different. To break through the noise, you need to stand out — and this
sentence is where you do it. Consider using data and/or accolades here.

ü  Your goal with the conversation. Not all elevator pitches serve the same purpose; sometimes
you’re hoping to bring on a new hire, other times you’re attracting an investor or
client. Regardless, the pitch should end with the proposed next steps.

This outline is a solid way to begin brainstorming your entrepreneurial elevator speech.
Consider practicing in front of the mirror or with a friend or partner to brush up on your skills.

Examples of Elevator Pitch

1. To Gain Costumers

            “I’m Megan Moran, and I am the owner and wardrobe stylist at The Style Foundry. We
are a full-service wardrobe styling business that helps you take the stress out of getting dressed
through our styling services. A typical customer cycle starts with a Closet Cleanse, where I clean
out your closet, tell you what to keep and get rid of, take pictures of all of the yeses, and then
upload them to an app/website where I mix and match them into over 100 different outfits
from what you already own. From there, I can really see what’s missing and what you need. We
can tackle that by personal shopping, which is done in-person at your favorite stores or ones I
suggest; virtual shopping, which is done online (I send you my finds, you buy what you like, and
then when all of the items arrive at your house, I come in for a fitting); or through our mobile
boutique, which we can pull up in your driveway and fill with our pieces that best fit your style
and shopping list. It’s the best of online and boutique shopping.”

2. To Attract Investors
            “Has this ever happened to you? You’re rushing to get the kids out the door in the
morning so you can get them to school on time and not be late for an important meeting — and
then you realize that you can’t find your car keys. This happens all the time to me. In fact, did
you know that the average suburban professional misplaces their keys more than five times per
month? That’s more than 600 million times per year! Using Bluetooth technology, I’ve created a
lowcost key fob that helps people find their keys and other lost items in record time, making it
easier to get out the door on busy mornings. We’ve got a working prototype and now we’re
looking to raise funds to go into large-scale production. We’ve got some new team members on
board with extensive manufacturing experience and supply chain expertise, so we’re hoping to
get to market in the next six months.”

Lesson 5: Introduction, Executive Summary, Environmental Analysis and Description of the

Business

LESSON 5.1: INTRODUCTION

The introduction presents the general perspective of the business. it may consists of one to two
pages. It includes, among others, the following sections:

(a) Proposed name of the business

(b) Address of the business
(c) Name of the owner or owners

(d) Description of the business

(e) Location of the business

Proposed Name of the Business

The formulation and drafting of the proposed business name is not as simple as it sounds. It is a
delicate and important entrepreneurial task. Remember that the name of the business may
exist in the market for many years. Careful and in-depth planning is of prime importance. The
proposed business name must

1. reflect the business identify and image,

2. promote the philosophical values and culture that the business values the most,
3. profess the brand identity of the product, and
4. attract or influence the target consumers.
At least three suggested trade names must be submitted to the Department of Trade
and Industry for approval and registration.

Address of the Business

It is important that the address of the business is correctly written because all
business correspondence are mailed to the business address. Raw materials and other
manufacturing supplies are also shipped by the seller to the designated business address.

Nowadays, it is also necessary for the business to have an email address to facilitate electronic
communication between the business and the customers, suppliers, creditors, and other
significant parties.

Name of the Owner

The name of the owner must be properly stated. In a sole proprietorship, there is only
one owner. In case the venture is a partnership, the names of the partners, including the extent
of their liabilities, must be indicated. For example, if a partner's contribution takes the form of
a service, a description like industrial partner or limited partner must be properly mentioned.

For business ventures that will operate as a corporate entity, the names, nationalities, and
addresses of the incorporators must be given. Incorporators are persons who originally formed
the corporation.

Description of the Business

A brief description of the business must include information about the type of product
or service that the business intends to produce or provide. It may include a brief information
about the ultimate mission, vision, and objectives of the business. The other products or
services that the business plans to produce or provide must also be mentioned in the
description of the business.

Location of the Business

There are no rigid rules in the selection of the business location since several variables affect
the selection of the business location. The basic entrepreneurial consideration is to place the
proposed business in a strategic location that will assure competitive advantage.

What is the difference between the sections Address of the Business and Location of the
Business?

The former simply states the exact business address. No additional description is provided to
highlight the exact business address. The latter indicates the reason/s for the selection of the
location. In case the processing plant is not within the vicinity of the business, its exact location
must also be described.

The following factors should be considered when deciding on the location of the
proposed business:

1. Proximity to the target consumers

2. Distance from the sources of raw materials, labor, and utilities
3. Availability and cost of transportation
4. Peace and order situation
5. Presence of direct competitors
6. The geographic and climatic conditions

LESSON 5.2: EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

Although the executive summary is commonly the last section to be written after all  other
major parts have been completed, it is the next major part of the business plan after
the  introduction. It points out the overall highlights of the business plan as well as a bird's-
eye view of its sections. However, the executive summary must not, in any manner, provide
a summary of the different major sections of the business plan. It must be written in
simple language that can be easily understood and at the same time attract the attention and
influence the decision of the reader.

(a) Vision, mission, goals, and objectives of the business

(b) Business and product position

Vision, Mission, Goals, and Objectives

At the very outset, the business plan must depict the fundamental characteristics,
nature, philosophical values, identity, and image of the business. These important concerns are
embodied in the vision, mission, goals, and objectives (VMGO) of the business. The VMGO must
be clearly stated and easily understood. They must be reviewed and revisited at least every
three years to determine whether they are still reasonable and achievable in view of the rapid
changes in the business community.

Business and Product Position

The business and product position will help determine how the business defines its course and
the process of accumulating wealth. It tells the size of the market and the target market share
of the business and product. The business and product position must be able to convince the
readers that the proposed business has a competitive advantage in the market. 

LESSON 5.3: ENVIRONMENTAL ANALYSIS

The next major part or section of the business plan after the executive summary is the
environmental analysis. It is a strategic tool that helps determine the external and internal
factors affecting the performance of the business. These factors may be political, economic,
social, or technological in nature. The environmental analysis section is considered the heart of
the business plan.

Since the business that you intend to open in this entrepreneurial course is considered small in
terms of capitalization, the industry analysis will focus mainly on the consumers and
competitors. The presence of the consumers, after all, is the ultimate reason for the existence
of any business endeavor.

In today's competitive business environment, an environmental analysis is already a necessity.

It is perceived as the basic element for business survival. It may consist of global analysis,
societal analysis, and industry analysis. 

Global Analysis

The environmental analysis section may begin with a description of the global business
situation to provide enough knowledge about the global perspective or horizon of the business.
A common mistake in this section is describing a business entity that operates in the global
environment because a global analysis evaluates the business trend in the worldwide market.
As a future entrepreneur, you should not devote the whole section of the global analysis by
simply describing the business trends, for example, in the whole Asian region, in European
communities, or even in mainland USA. Remember that it is not the business trend that has the
most significant bearing on the global analysis but rather the possible business opportunities or
ideas that the global business trend offers.

The trend in the global market is the result of what happened in the past, while a possible
business idea is the expected event that may happen in the future. Investors are more
interested in what will happen in the future. The global trend simply acts as an indicator of any
favorable sign for a business idea. However, there is a direct relationship between these two
concepts. Once the world market is properly described, the business opportunities that the
global trend provides must also be described. The reader, therefore, must be convinced that it
is worth to exploit the business idea or opportunity based on the global business trend. 

Societal Analysis

After describing and possibly convincing the reader of the bright business prospect in the world
market, the next step is to present the societal analysis and determine the different variables
affecting the societal environment. These variables include

1. political forces,
2. economic forces, 
3. socioeconomic forces,
4. technological forces,
5. ecological forces, and
6. legal forces.

Most business plans fail to mention the probable levels of effects of the various forces to the
proposed business, and the frequency of occurrence of the environmental factors. They simply
describe the different variables or forces. A mere description of the various environmental
factors does not provide any brilliant idea to the reader. The societal analysis must tell how the
environmental forces affect the proposed business and how great their effects are.

Assuming that you consider the interest rate and disposable income as economic variables that
may affect on the proposed new business, the description of the analysis may appear as
follows: 

Economic environment. The prevailing interest rate given by most commercial and industrial
banks ranges between 10 and 12 percent and is expected to increase to 15 percent within a
two-year period because of the new monetary policy of the Bangko Sentral ng Filipinas (BSP).
The move of the BSP has a substantial or very high effect on the financial operation of
businesses that have high financial leverage. However, since the start-up capital requirements
of the new business will be funded solely by the owners, the interest rate may appear to have a
low effect on the proposed business.

The disposable income of Filipino consumers, according to the latest data released by the
National Economic Development Authority and the National Statistics Office, has substantially
increased which has been attributed mainly to the new salary rates of all employees, both
public and private, coupled with the high remittances of overseas contract workers. It is
expected that the remittances will continue to increase at the rate of 10 percent for the next 6
to 8 years. This present trend on the disposable income may appear to have a very high
favorable effect on the operations of new businesses. 
Industry Analysis

The third level of environmental analysis is the industry analysis. The industry analysis basically
involves three important related tasks as follows:

1. Conducting a critical evaluation of the forces in the industry that affect the proposed
business
2. Evaluating the probable position of the business in the industry
3. Determining the most appropriate strategy that may be adopted by the proposed business 

Conducting a Critical Evaluation

Conducting a critical evaluation is the most delicate, tedious, and difficult task in industry
analysis. There are some business plans that do not even show any indications that a critical
analysis has been conducted, but rather, the evaluation appears to be a mere play of words.
Nevertheless, not all forces in the industry, even in the societal analysis, must be analyzed and
described. Only those forces that are deemed to have substantial effects, either positive or
negative, to the proposed business must be critically analyzed and properly described.

The industry analysis in all instances must not fail to evaluate and describe the target
consumers and the competitors. Data and information on these two important forces in the
industry are usually the results of research work. Research work on the target consumers
applies the concepts of market segmentation, market targeting, and market positioning to
determine the total demand of the industry. Research work on the competitors identifies the
total expected supply. The gap between the consumer demand and the competitor supply
represents the unsatisfied demand.

The unsatisfied demand may be considered the market share of the proposed business under
the following conditions:

1. The proposed business has the capability to produce the product.

2. There are no expected new entrants to the industry other than the proposed business.

The industry analysis needs substantial work in the process of establishing the projected
demand and supply.

The demand and supply analysis, also called the consumer and competitor analysis, is the
backbone or the foundation of all other analyses. Where there are no consumers or buyers of
the product, the business will never be created. The presence of the consumers is the ultimate
reason for the existence of any business endeavor.

The entrepreneur must choose the scanning tools that best suit his/ her business venture. 
Evaluating the Business Position 

After conducting a critical analysis of the factors in the industry environment that primarily
affect the proposed business, the next step is to evaluate the possible business position in the
industry. This deals with market share and growth. Entrepreneurs may use a perceptual map,
also called positioning map, to help them understand their position against their competitors
in the market. It shows how the consumers respond to their products and services.

The sample perceptual map shows a comparison among competing products in the market.

Determining the Most Appropriate Business Strategy

The last important task in the industry analysis is to describe the most appropriate strategy that
may be adopted by the business. The strategy is highly influenced by the analysis of the
business strengths, weaknesses, opportunities, and threats. The reason for the selection of the
strategy must likewise be clearly indicated. 

LESSON 5.4: BUSINESS DESCRIPTION

The business description section presents the nature and form of the business to be
undertaken, and may cover two to three pages. As to nature, the business may be a
merchandising, service, manufacturing, or a hybrid. The description must include the innovative
features of the business. As to form, it may either be a sole proprietorship, a partnership, or
corporation. The reason/ s for the selection of the form must also be indicated.

In case the study is about an already existing business, the present status of the business must
be provided, including the intended innovation. 

In addition, the business description also includes the following information:

1. Product or service that it plans to produce or serve
2. Various plant and office equipment
3. Size of the proposed business
4. Future parties with whom contracts may be necessary
5. Personnel requirement
6. Administrative operation