Lesson 2

Recognize a Potential Market

In the previous lesson, you already know about the difference between businessman and entrepreneur.
Knowing all the entrepreneurial concepts will not assure a person of becoming a successful entrepreneur and
not all business people are entrepreneurs. Some says being an entrepreneur is a calling; a lot of qualities must
be possessed to be considered successful and sustainable. So, if you are given a great opportunity to venture
into the field of entrepreneurship, it may be a long process to undertake and the willingness to take a risk.
Also, you’re not only the one who’s in progress but at the same time, you’re helping for the development
growth of our economy.

Creation of an entrepreneurial ideas leads to the identification of entrepreneurial opportunities, which in turn
results in the opening of an entrepreneurial venture. The entrepreneurial process of creating a new venture is
presented in the diagram below. (Aduana, 2017)

Creation of entrepreneurial Ideas

Identification of entrepreneurial Opportunities

Opening of entrepreneurial Venture

Figure 1. The Entrepreneurial Process of Creating New Venture

Essentials in Entrepreneur’s Opportunity Seeking

These are the basic foundation that the entrepreneur must have in seeking opportunities:

Entrepreneurial mind frame. This allows the entrepreneur to see things in a very positive and optimistic
way in the midst of difficult situation. Being a risk - taker, an entrepreneur can find solution when problems
arise.

Entrepreneurial heart flame. Entrepreneur's driven passion, they are attracted to discover satisfaction in
the act and process of discovery. Passion is the great desire of an entrepreneur to achieve his/her goals.

Entrepreneurial gut game. This refers to the ability of the entrepreneur of being intuitive. This also known
as intuition. The gut game also means confidence in one’s self and the firm believes that everything you aspire
can be reached.

Sources of Opportunities

There are many ways to discover opportunities. Looking at the big picture some have noticed the emerging
trends and patterns for business opportunities. While others are trying to find out their target market. Some
are the following sources of opportunities:

1. Changes in the environment

Entrepreneurial ideas arise when changes happen in the external environment. A person with an
entrepreneurial drive views these changes positively.
External environment refers to the physical environment, societal environment, and industry environment
where the business operates.
1.1 The physical environment includes
a. Climate- the weather conditions.
b. Natural resources- such as minerals, forests, water, and fertile land that occur in nature and can be
used for economic gain.
c. Wildlife- includes all mammals, birds, reptiles, fish, etc., that live in the wild.

1.2 The Societal environment includes the various forces like

a. Political forces- includes all the laws, rules, and regulations that govern business practices as well as
the permits, approvals, and licenses necessary to operate the business.
b. Economic forces- such as income level and employment rate.
c. Sociocultural forces- customs, lifestyles and values that characterize a society.
d. Technological environment- New inventions and technology innovations.

1.3 The industry environment of the business includes:

a. Competitors
b. Customers
c. Creditors
d. Employees
e. Government
f. Suppliers

2. Technological discovery and advancement

A person with entrepreneurial interest sees possibility of business opportunities in any new discovery or
because of the use of latest technology.
For example, an individual with knowledge in repair and installation of a machine engine discovers that
additional engine parts that considerably reduce fuel consumption.

3. Government’s thrust, programs, and policies

The priorities, projects, programs, and policies of the government are also good sources of ideas.

For example, the use of firecrackers to celebrate New Year’s Eve is strictly prohibited. People without
entrepreneurial interest will view the ordinance as a plain restriction. However, for an entrepreneur, it is a
business opportunity to come up with a new product that will serve as a substitute for firecrackers.

4. People’s interest
The interest, hobbies, and preferences of people are rich source of entrepreneurial ideas. Like the increasing
number of Internet Café at present could be lead to the strong attachment of young people to computers.

5. Past experiences
The expertise and skills developed by a person who has worked in a particular field may lead to the opening of
related business enterprise.

For example an accountant who has learned the appropriate accounting and management skills and
techniques in a prominent accounting firm can start his/her business venture by opening his/her own
accounting firm.

Forces of Competition Model

It is also known as the “five forces of competition,” An industry environment is a competitive environment.
Regardless of what product or services you have, competition is always present.

Competition – it is the act or process of trying to get or win something. For example, the prices are lower
when there is a competition among the stores.

These are the five forces competing within the industry:

• Buyers
• Potential new entrants
• Rivalry among existing firms
• Substitute products
• Supplier

1.Buyers
The buyers are the one that pays cash in exchange to your goods and services. For example, the influenced
of the price or in the bargaining strategy. The buyer has a strong and magnified bargaining power. The threat
of its bargaining power will be less if the following factors notice:
a. There are several suppliers available in the market.
b. The buyer has the potential for backward integration.
c. The cost of switching the supplier cost is minimal.
d. The product represents a high percentage of the buyer’s cost.
e. The buyer purchases large portions of the seller’s product or services.

2. Potential New Entrants

A new entrant is defined as the one who enters something.
For example, the level of capital requirements, if the business requires huge capital, new entrants should
decline to join the business. This gives a threat to the business. This can be notice if there is the presence of
the following factors:
a. Substantial capital requirement.
b. Strict government policy.
c. Difficulty in accessing distribution channels.
d. Economies of scale.
e. High cost of product differentiation.
f. High switching cost

3. Rivalry among Existing Firms

Rivalry is a state or situation in which people or groups are competing with each other.

For example it depends on the Marketing strategy of your competitor, like giving freebies and special offers.
The intensity of rivalry among existing firms is characterized to the following factors:
a. Diversity of rivals.
b. Number of competing firms.
c. Characteristics of the products or services.
d. Increased capacity.
e. Amount of fixed costs.
f. Rate of industry growth.

4. Substitute Products
Substitute means anything that takes the place or function of another.
For example the consumers decide to use margarine as a substitute for butter. In case the price of butter
increases, preferably the consumer will gradually switch to margarine.

A substitute product can give a big threat in the industry environment if the following factors are notice:
a. Switching cost is low.
b. Preferences and tastes of the customers easily change.
c. Product differentiation is highly noticeable
d. The quality of substitute products dramatically improves.
e. The price of substitute product is substantially lower.

5. Suppliers
The Suppliers are the one that provide something that is needed or wanted.

For example if the supply and services being offered is unstable or keep. The intensity of the threat is strong
in this kind of the competitive force in the industry.

This can be notice if there is the presence of the following factors:

a. The supplier has the ability for forward integration.
b. Suppliers in the industry are few, but the sales volume is high.
c. Substitute products are not readily available in the market
d. The switching cost is very high.
e. The product or service is unique.

Definition of Terms

Opportunity seeking - Process of considering, evaluating, and pursuing market based activities that are
accepted to be beneficial for the business.
Entrepreneurial process - can be defined as the steps taken in order to begin a new enterprise. It is a step-by-
step method, one has to follow to set up a business.
Entrepreneurial ideas - an innovative concept that can be used for financial gain that is usually centered on a
product or service that can be offered for money.
Essentials of entrepreneur’s opportunity seeking - These are the basic foundation that the entrepreneur must
have in seeking opportunities, such as entrepreneurial mind frame, heart flame and gut game.
Sources of opportunity - can be attain by assessing and looking at changes in the environment; technological
discovery and advancement; government’s thrust, programs, and policies; people’s interest, and past
experiences.
External environment - refers to the physical environment, societal environment, and industry where the
business operates.
Government - refers to the local government (municipality, city, or provincial) or the national government and
its branches.
Competition – it is the act or process of trying to get or win something.
Substitute – anything that takes the place or function of another.
New entrants – the one who enters something.
Suppliers – are the one that provide something that is needed or wanted.
Buyers – are the one that pays cash in exchange to your goods and services.
Rivalry – is a state or situation in which people or groups are competing with each other.