PAMANTASAN NG CABUYAO |ENT101 1

Assessment of
Entrepreneurial Opportunities Week 9

LEARNING OUTCOMES

At the end of the lesson, the students should be able to:

• Explain the challenge of new venture start-ups

• Study certain factors that underlie venture success
• Analyze the traditional venture evaluation process and
highlight the contemporary venture evaluation methods

RESOURCES NEEDED

For this lesson, you would need the following resources:

• ENT101-Lecture Materials-Week 9
• Links to videos
• Links to websites
• Reference materials

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Introduction

The number of new venture startups has been consistently high in the past two decades. According to a report
400,000 new firms have emerged in the US every year since 2010; that works out to approximately 1100 business
start-ups per day. In addition, the ideas for potential new businesses are also surfacing in record numbers; the
U.S Patent Office currently receives approximately 500,000 patent applications per year.

In the Philippines, 6.2% of the adult population are established business owners and 18.4% are engaged in early-stage
entrepreneurship (TEA). The country’s TEA rate is far higher than the average for Asia and Oceania (13%).

A study reported seven components of new venture motivation:

1. The need for approval
2. The need for independence
3. The need for personal development
4. Welfare considerations
5. Perceptions of health
6. Tax reduction and indirect benefits
7. Following role models

An opportunity assessment, evaluation, and commercialization for high-growth entrepreneurs.

High growth success depends on three key factors:

• characteristics of the entrepreneur – personal reasons for start-up

• the environment around the entrepreneur – risks, market size, resources availability
• the nature of the venture itself – differing scalability, growth potential, and performance.1

This complexity often makes assessment, evaluation, and ultimate commercialization of new ventures very
tricky to analyze in advance. But it is ‘do-able’ and this chapter reveals some of the tried and tested ways to
ensure an opportunity ends up as a commercialized product in the marketplace (see figure 9.1).

Figure 9. 1

An entrepreneur is someone who takes advantage of a profit opportunity. Entrepreneurs depend on a broad
range of sources of ideas, networks, and relationships to draw knowledge about future markets and
technologies. They are highly opportunistic and need to move quickly to realize the opportunity before it is
lost. The problem is that opportunities differ across markets and technologies.

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Therefore, the budding entrepreneur must understand how to assess new ideas and opportunities, how to
evaluate their business viability, and how to commercialize the resulting products and services into the
marketplace

How to Assess an Opportunity

Opportunity
- Comes more often from the creative process
- From intuition than from scientific analysis
- Something that an entrepreneur recognizes as solving a problem or adding value for people

Pitfalls in Selecting New Ventures

The first thing in choosing an opportunity is to analyze the pitfalls.
Here are six of the most important pitfalls commonly encountered in the process of selecting an
opportunity.

• Lack of objective evaluation: Many entrepreneurs lack objectivity. The way to avoid this pitfall is
to subject all ideas to rigorous study and investigation by outsiders.
• No real insight into the market: Many entrepreneurs do not realize the importance of developing a
marketing approach in laying the foundation for a new venture. Entrepreneurs must not only
forecast the life cycle of the new product but also recognize that introducing the product at the right
time is important to its success.
• Inadequate understanding of technical requirements: Failure to anticipate the technical
difficulties with developing or producing a product can sink a new venture. Entrepreneurs cannot be
too thorough when studying the project before initiating it.
• Poor financial understanding: A common difficulty with the development of a new product is an
overly optimistic estimate of the funds required to carry the project to completion. It is not unusual
for estimates to be less than half of what is eventually required.
• Lack of venture uniqueness: A new venture should be unique. Uniqueness is the special
characteristics and design concepts that should draw the customer to the venture and should provide
performance or service superior to competitive offerings. A product that is unique in a significant
way can gain the advantage of differentiation.
• Ignorance of legal issues: Business is subject to many legal requirements. One is the need to make
the workplace safe for employees. The second is to provide reliable and safe products and services. A
third is the necessity for patents, trademarks, and copyrights to protect one’s inventions and
products. When these legal issues are overlooked, major problems can result.

Critical Factors for New Venture Development

Several critical factors are important for new venture assessment (See Table 9.1).

3 Specific Phases:
• Pre-start-up begins with an idea for the venture and ends when the doors are opened for business.
• Startup- initiation of sales activity, and the delivery of products and services and ends when the
business is firmly established and beyond short-term threats to survival.
• Post-Start up-last until the venture is terminated or the surviving organizational entity is no longer
controlled by the entrepreneur.

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Table 9.1

During the pre-start-up and start-up phases, five factors are critical:

• the relative uniqueness of the venture - is further characterized by the length of time a non-routine
venture will remain non-routine.
Example: will new products, new technology, and new markets be required on a continuing basis?
• the relative investment size at start-up - capital investment required to start a new venture can vary
considerably

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• the expected growth of sales and/or profits as the venture moves through its start-up phase-
another critical factor; it is important to remember that most ventures fi t into one of the three
following classifications.
o A lifestyle venture appears to have independence, autonomy, and control as its primary driving
forces.
o In a small profitable venture, financial considerations play a major role
o In a high-growth venture, significant sales and profit growth are expected to the extent that it
may be possible to attract venture capital money and funds raised through public or private
placements.1

• the availability of products during the pre-start-up and start-up phases- essential to the success of
any venture
• the availability of customers during the pre-start-up and start-up phases.- the likelihood of venture
success is considerably better than otherwise

Why New Ventures Fail?

• Insufficient capital
• No business plan
• No managerial focus
• Inadequate records
• Lack of profit focus
• Cash fl ow
• Inadequate systems
• Failure to plan for taxation
• Inadequate resource management
• Break-even point:

The Traditional Venture Evaluation Process

A critical task in starting a new business is conducting a solid analysis of the feasibility of getting a product
/service off the ground. Entrepreneurs must put ideas through feasibility analysis to discover if their
proposals contain any fatal flaws.

Traditional Approaches to Venture Assistant:

• Profile analysis- enables the entrepreneur to judge the business’s potential, and allows entrepreneurs
to identify major strengths and weaknesses in the financial, marketing, organizational and human
resource factors needed for the venture to progress successfully
• Feasibility criteria approach - provides a means of analyzing the internal strengths and weaknesses
that exist in a new venture by focusing on the marketing and industry potential.

Entrepreneurs can gain insights into the viability of their venture using this list of
questions:
• Is it proprietary?
• Are the initial production costs realistic?
• Are the initial marketing costs realistic?
• Does the product have the potential for very high margins?

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• Is the time required to get to market and to reach the break-even point realistic?
• Is the potential market large?
• Is the product the first of a growing family?
• Does an initial customer exist?
• Are the development costs and calendar times realistic?
• Is this a growing industry?
• Can the product and the need for it be understood by the financial community?

If the new venture meets fewer than six of these acceptance criteria questions, it typically lacks feasibility for
funding. If the new venture meets seven or more of the acceptance criteria, it may stand a good chance of
being funded.

Comprehensive feasibility approach

A more comprehensive and systematic feasibility analysis, the comprehensive feasibility approach,
incorporates external factors in addition to those in the feasibility criteria approach questions

Figure 9.2 presents a breakdown of the factors involved in a comprehensive feasibility study of a new
venture – technical, market, financial, organizational, and competitive.

Although all five of the areas presented in Figure 9.2 are important, two merit special attention: technical and
market

Figure 9.2

Technical Feasibility

The evaluation of a new venture idea should start with identifying the technical feasibility. This analysis
includes an assessment of the technical requirements for producing a product or service that will satisfy the
expectations of potential customers.

The most important of these are:

• functional design of the product and attractiveness in appearance
• flexibility, permitting ready modification of the external features of the product to meet customer demands
or technological and competitive changes
• durability of the materials from which the product is made
• reliability, ensuring performance as expected under normal operating conditions
• product safety, posing no potential dangers under normal operating conditions
• reasonable utility – an acceptable rate of obsolescence

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• ease and low cost of maintenance

• standardization through the elimination of unnecessary variety among potentially interchangeable parts
• ease of processing or manufacture
• ease in handling and use.

The results of this investigation provide a basis for deciding whether a new venture is feasible from a
technical viewpoint

Marketability

Assembling and analyzing relevant information about the marketability of a new venture is vital for judging its
potential success.

Three major areas in this type of analysis are:

• investigating the full market potential and identifying customers (or users) for the goods or service
• analyzing the extent to which the enterprise might exploit this potential market
• using market analysis to determine the opportunities and risks associated with the venture.

To address these areas, a variety of informational sources must be found and used.

For a market feasibility analysis, general sources would include:

• general economic trends – various economic indicators such as new orders, housing starts, inventories and
consumer spending
• market data – customers, customer demand patterns (for example, seasonal variations in demand,
governmental regulations affecting demand)
• pricing data – range of prices for the same, complementary and substitute products; base prices; and
discount structures
• competitive data – major competitors and their competitive strength.

The Contemporary Methodologies for Venture Evaluation

The following sections highlight some of the more contemporary methodologies being utilized for concepts
assessment and new venture evaluation.

The Design Methodology. Design is now a hot topic in the business world. This method can be a vital
source of assessment for entrepreneurs and their early-stage venture concepts.
• Design and Learn. Design is a learning process that shapes and converts ideas into form, whether is
a plan of action, experience or physical thing.

Converting Ideas into Form:

Learning from qualitative research

Learning from prototyping
Learning from Feedback

• Design and development. Utilizes skills we all possess but are generally ignored due to more
conventional problem-solving practices.

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Design Centered Entrepreneurship. Researchers Michael Goldsby, Donald Kuratko, Matthew Marvel and
Thomas Nelson have introduced the concept of design-centered entrepreneurship.

4 Action Stages of Developing an Opportunity:

1. Ideation. Involves taking action and learning that culminates in a venture concept for further
development.
2. Prototyping. Addresses the technical issues of the concept and ensures that a feasible product or
service can be made and delivered.
3. Market Engagement. Refines the concept for the customer as well as contributes to the acquisition
of knowledge or learning from early users.
4. Business Model. Completes the development of the opportunity by identifying the varying
components of the model that will need to be in place for the concept to be financially viable.

The Lean Start-Up Methodology. It provides a scientific approach to creating early venture concepts and
delivers a desired product to consumers’ hands faster.

• Originates from the Japanese concept of lean manufacturing

• Begins with the premise that every new venture is a grand experiment
• Developed in 2011 by Eric Ries
• Hypothesis-driven entrepreneurs must work to gather and incorporate customer feedback early and
often.

LEAN START-UP TERMINOLOGY:

Minimum Viable Product (MVP).

- the goal of producing MVP is to get started learning as soon as possible.
- enables a full turn on the feedback loop with a minimum of effort

The 3 A’s of Metrics :

• Actionable
• Accessible
• Auditable

Pivot – designed to test a new fundamental hypothesis about a product.

Build Measured Learn Feedback Loop- ensuring you are measuring the correct thing.

Validated Learning. Defined a process in which a person learns by trying out an initial idea and to validate
the effect.

SUMMARY
Opportunity assessment means determining whether an idea has commercialisable value. The entrepreneur
needs both vertical and lateral thinking to make this judgment. Several pitfalls may occur in the selection of a
new venture: lack of an objective evaluation of the venture, lack of insight into the market, inadequate

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understanding of technical requirements, poor financial understanding, lack of venture uniqueness, and failure
to be aware of legal issues.

Assessment is more rigorous than evaluation. Some major reasons new ventures fail are inadequate
knowledge of the market, faulty product performance, ineffective marketing and sales effort, inadequate
awareness of competitive pressures, rapid product obsolescence, poor timing, and undercapitalization. In
drawing together these and other reasons, recent research reveals three major categories of causes for failure:
product/market problems, financial difficulties and managerial problems. In addition, entrepreneurs face
internal and external problems

REFERENCES
http://gem-consortium.ns-client.xyz/economy-
profiles/philippines/policy#:~:text=Entrepreneurship%3A%20an%20emerging%20career%20path%20for%20Filipinos&text=In%20the%20Philip
pines%2C%206.2%25%20of,Asia%20and%20Oceania%20(13%25)%20.

Kuratko D.F (2020). Entrepreneurship: Theory, Process, Practice (11th ed) Cengage Learning
Howard, F, Kuratko, D.F., & Hodgets, R.M. (2006) Entreprenuership: Theoru, Process, Practice, Asia Pacific Edition. Thomson

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