1

ENTREPRENEURSHIP
MODULE 2: ENTREPRENEURIAL PROCESS

STEPS IN THE ENTREPRENEURIAL PROCESS

Entrepreneurs are not dreamers. They understand the importance of evaluating ideas and of
moving from idea to business reality. This involves a process that balances the entrepreneur’s
optimism with objectivity. The entrepreneurial process involves the following stages:
1. Idea generation
2. Opportunity identification
3. Developing a business concept
4. Resource identification and acquisition
5. Implementing the concept and managing the venture
7. Harvesting the business venture

IDEA GENERATION
An idea can be described as a thought or a conception in the mind. It arises as a result of mental
understanding, awareness or activity and provides a suggestion for a possible course of action.
For entrepreneurs, the idea may come from the job or circumstances they are in, a problem or
need that confronts them or something that came out of a discussion. For others, it may be
necessary to take a structured approach to finding an idea. Techniques for generating ideas
include.
 Brainstorming - Brainstorming can be defined as a group problem-solving technique where
the members contribute ideas spontaneously. It involves generating a large number of ideas
and then selecting the best one. To brainstorm effectively, you should create a relaxed and
open environment encourage participation from all team members and avoid criticism of
ideas.
 Focus Group - consists of a group of individuals, preferably potential or existing consumers,
who are invited to participate in an in-depth discussion on ways to improve the organization’s
offerings or processes related to those offerings. It can also be used for a new initiative. It has
more structure than the brainstorming method and is led by a facilitator/researcher who
guides the discussion on a specific issue. The focus group is asked to provide information
about personal likes, dislikes, perceptions, beliefs or attitudes as they relate to the subject.
 Checklist - this is defined as using a series of related questions and/or statements to aid in the
development of a new idea or ideas.
 Problem Inventory Analysis - this is somewhat similar to focus group. Customers are given a
list of problems and are instructed to discuss them. The results are then gathered and
 2

evaluated to ensure that they reflect specific related issues. The entrepreneur hopes to come
up with a new product idea in the end.
 Scenario Planning/Thinking/Analysis – This process tries to anticipate the various possible
outcomes to a particular situation. It is designed to deal with major changes or uncertainties
in the firm’s environment. Scenario planning is organized in the form of a workshop, where
a group of experts, industry leaders and high-level managers try to develop scenarios as to
what might occur and the impact it may have on the business or the industry. The purpose of
this method is to bring a wide range of perspectives ‘to the table’ in order to develop
scenarios other than widely accepted predictions about the industry.
 Collective Notebook – A statement for a problem is written down in several small notebooks.
Each participant is given a notebook and asked to make a daily record of ideas and possible
solutions. By the end of the week many ideas and solutions would have been recorded, after
which a co-ordinator is expected to collect and arrange the ideas in the order of frequency.
The summary then becomes the topic for a focus group discussion.
 Reverse Brainstorming – This procedure is similar to the brainstorming method. However,
individuals are allowed to criticize the different ideas on the attempt to identify possible
problems associated with each of them and then find their solutions. It is a way of arriving at
new ideas while looking at the negative aspects of the problems involved.
 Delphi Method – This is a structured method. A group of experts are selected by a facilitator
to examine and explore a specific issue or topic. Each expert is given a questionnaire with
the instruction to comment on each question based on his/her personal opinion or research
previously conducted. The experts are not aware of each other. There are more than one
round of questioning. At the end of each round, the questionnaires are collected, grouped and
copies of the information are made. An evaluation is then done and shared with participants.
The rounds go on until a consensus on the issues is reached.
 Gordon Method – This method seeks to develop new ideas when individuals are unaware of
the problem. The entrepreneur engages individuals in a discussion by mentioning a general
concept that is related to the problem under study. The group responds by expressing
numerous ideas. The quality of ideas will depend on the competency of the group. This can
eventually result in the development of a concept. In the end the facilitator reveals the
problem and the participants are asked to make suggestions for the implementation or
refinement of the final solution.
 Free Association – By writing down words or phrases associated with the problem, a thought
process, a chain or word association is created which ultimately culminates in the
development of new ideas.
 Force Field Analysis: This technique is used to identify the forces that drive and restrain a
proposed change. It enables a change practitioner to visually map and analyse the driving
and resisting forces behind a project or initiative. It involves creating a table with three
columns: the center column lists the problem to be addressed, while the left and right
columns list the driving forces (those that work in the direction of the change)and restraining
forces (those that tend to support the status quo), respectively. Each force is scored on a
scale, and the scores are added up to determine the overall force for and against the change.
 TRIZ: TRIZ, is a Russian acronym for the Theory of Inventive Problem Solving, is a problem-solving
methodology that aims to find innovative solutions to complex problems. It involves using a set of
tools and techniques to analyze the problem, identify contradictions, and generate creative solutions.
 3

 Rapid Prototyping: Rapid prototyping is a process used to quickly create a physical model or
prototype of a product or design. It involves using computer-aided design (CAD) software to
create a 3D model of the design, which is then printed using a 3D printer. Rapid prototyping
allows designers to quickly test and refine their designs, and can help to identify potential
issues before the final product is produced.

Screening of Ideas
Any of the above strategies might yield a number of potential business ideas. Entrepreneurs
understand that ideas must be evaluated as not every idea could be a successful business. Hence,
the next step is screening the ideas and selecting those that are worth exploring. Every new idea
should result in the customers benefiting from its introduction and usage, but the entrepreneur
should determine whether the market will be willing to pay the price for the product. If the idea
involves introducing a product that is new, the entrepreneur must look closely at the resources
that will be required to develop the idea – financial, technical, research and development. If
there are changes made to an existing product, especially one which is made by a competitor, the
entrepreneur must consider whether it will be profitable to enter such a market, and what level of
marketing would be required to create a significant impact for the proposed business.

Difference between an Idea and an Opportunity

In entrepreneurship, an idea refers to a concept or a thought that has the potential to solve a
problem or meet a need. Ideas can come from various sources such as personal
experiences, market trends, customer feedback or other idea generating techniques such as
brainstorming and focus groups. While an idea is the starting point of the entrepreneurial
journey, it is not enough to guarantee success on its own.
Opportunity, on the other hand, refers to a chance to turn an idea into a viable business. An
opportunity is a gap in the market that an entrepreneur can fill with their unique solution.

OPPORTUNITY IDENTIFICATION

Sources of Opportunities

 Changing demographics – demographics can be defined as ‘a statistical view of a

population, generally including age, gender, income, schooling, occupation and so on’.
In the Caribbean, incomes are rising, literacy rates are increasing, more women are
entering the workforce and the population is generally getting older. With these wide and
varied changes, there are increasing opportunities for entrepreneurial ventures in the areas
of education, women-related businesses, child care and child support services, health and
health care services especially for older patients, and health and lifestyle services based
on the growth in fitness and nutritional needs.

 Emerging markets – The pace at which the business world is changing has offered
entrepreneurs opportunities in many non-traditional areas. There are emerging markets in
the Caribbean and there are others that are outside of the Caribbean. These markets are
 4

re-organising and re-defining themselves so as to be competitive in the global economy.

For example, plans for a Logistic Hub in Jamaica are unfolding. This hub will require
many career types. Entrepreneurs can tap into the opportunities that this presents.
Attention is also given to the emerging economies of India and Africa.
 New Technologies – The advent of computers and the Internet has led to many
entrepreneurial opportunities. Cable television, music industry, communication
technology and smart phones are a few areas in which a large number of entrepreneurial
ideas have been created. A person with entrepreneurial interest looks at the possibility of
business opportunities in any new discovery or advancement in technology.
 Regulatory changes – Regulatory changes may come in the form of tax breaks, entirely
new tax regimes, introduction of new regulations etc. History has proved that business
opportunities tend to be heightened during periods of regulatory changes. Entrepreneurs
will seek to capitalise on any opportunity that may come as a result of change.
 Social changes – social changes refer to adjustments to the normal order of society.
Examples of social change range from the simple – more people voting, recycling; to the
complex – reduced domestic violence, lower student drop-out rates and social inclusion
of the poor. These changes offer many opportunities to entrepreneurs/ For example, the
crime rates in Caribbean countries such as Trinidad and Tobago and Jamaica have been
worrying. This has led to the establishment of gated communities. Entrepreneurs who
have ventures into this area stand to benefit from increased gains.

Evaluation of Opportunities

There are many factors that must be investigated before an opportunity is taken. Below are some
issues that must be taken into consideration:

Market Issues
The entrepreneur needs to determine whether there is a need for the proposed product or service.
There are a number of factors/questions that can be used to evaluate the market namely:
 Does the market recognise that it has a real need for that new product or service? The
target market must be able to see that the product/service will provide an immediate
benefit.
 Is the target market well defined? The entrepreneur needs to determine who exactly will
purchase the product or require the service and the price they will be willing to pay.
 How will the target market be reached? Marketing efforts must be able to reach the
target market. These efforts include, but are not limited to, advertising, sales promotion,
telemarketing and personal selling.

Competitive Advantage
Introducing an innovative idea or product into the market place is no guarantee of financial and
entrepreneurial success. The entrepreneur need to evaluate the competitive advantage of the
situation in order to determine the viability and sustainability of the venture. If there are direct
competitors, they need to be known together with their strengths and weaknesses and their lokely
response to competition. It is important that customers see that their needs are solved by the
introduction of a new product/service at a price that they are willing to pay. If that is the case,
 5

the entrepreneur should explore the possibility of supplying the product as the lowest cost
producer, with the lowest marketing and distribution costs. This can provide a competitive
advantage.

Economic Issues
The entrepreneur needs to be able to say how the business is going to earn its income. The
following factors should be considered:
 How will the venture be funded and what will be the financial requirements needed to get
the operations going? Would debt financing be considered or would raising financing via
investment be an option?
 The Return on Investment (ROI) needed in order to make the proposed venture attractive
to potential investors.

Management Issues
People make the difference in the success of failure of any entrepreneurial venture. Ideally, the
entrepreneurial team should have the combination of business skills and technical and industry
expertise to make a success of the enterprise. It is important that relationships are established
and maintained with a host of different stakeholders – customers, suppliers, governmental and
private agencies, and networking associations.

THE BUSINESS CONCEPT

Definition
The business concept expresses an idea for a business that includes basic information such as the
nature of the product or service that is to be offered, demography of target customers and a
unique selling proposition that will give a business an advantage over its competitors.

Sources of Business Concepts

 New Products/Services – There are currently many needs of the market which at present
are not being met. It is the aim of the entrepreneur to understand these needs and find
solutions to them. The creation of laptops and tablets came out of the need to get rid of
bulky desktop computers.
 New Processes – A business concept may be for a new process that the business hopes to
introduce to improve efficiency and reduce wastage.
 New Markets – Business concepts are also derived form the development of new markets
which could be both local and overseas in terms of geographical location. Within the
Caribbean, the CARICOM Single Market and Economy (CSME) has allowed goods to be
traded duty free and without restriction throughout the region. The entrepreneur can take
full advantage of such an opportunity.
 New Organisational Structures – New types of organisational structures and forms have
developed over the past few decades enabling entrepreneurs to approach business from a
different perspective. Today’s companies are becoming less hierarchical, flatter, more
fluid and even more virtual.
 New Sales and Distributions Channels – Entrepreneurs may use sales and distribution
channels that are geared at improving the efficiency of bringing products to the market.
The internet has changed the way products are distributed to the end user. Manufacturers
 6

of smart phones have enabled end users to make purchases directly from their mobile
devices, a fact that entrepreneurs should keep in mind when considering the ease with
which their products can reach their final destinations.
 Mass Media - This can help entrepreneurs to identify trends, new products, and services
that are in demand. Entrepreneurs can also learn about the latest developments in their
industry and what your competitors are doing.
 Customer Feedback - Entrepreneurs can use customer feedback to identify areas where
their business can improve or to develop new products and services that meet customers’
needs.
 Hobbies/Interests – These can also be a great source of inspiration for business ideas. If
the entrepreneur has a hobby that they are passionate about, they may be able to turn it
into a business.

Steps in Developing a Business Concept from an Idea

1. Identify potential market.

2. Decide on target market - A target market is a group of people that have been
identified as the most likely potential customers for a product because of their shared
characteristics, such as age, income, and lifestyle
3. Identify customer segment within the market - Customer segmentation is the process of
dividing customers into groups based on shared characteristics such as demographics,
psychographics, and behaviour.
4. Identify segment characteristics.
5. Decide on target segments.
6. Identify customer needs or preferences.
7. Decide on marketing mix factors such as pricing.
8. Identify media, promotional and sales channels.
9. Develop a marketing plan

RESOURCE IDENTIFICATION AND ACQUISITION

Now that there seems to be the likelihood that the business is going to proceed, several types of
resources need to be assigned to ensure its viability and sustainability.

Determining the Required Resources

The required resources may be classified as follows:
 Human resources
 Financial resources
 Physical resources
Human Resources
Human resources include people’s skills, talents, knowledge and effort that are utilized both in
the production process and in the operation of all the other areas of the business. Having the
right people on board is very important to the success of a business. Human resources include:
 General Management – management is required to have the appropriate skills such as
planning and organizing, interpersonal and critical thinking skills. Ideally, they should be
 7

skilled at what they do, with well-honed technical and industry knowledge as well as
having the highest standards of integrity.
 Marketing and Sales Expertise – This is needed in determining the nature of the market in
which the product or service will be introduced. Marketing and sales department plans
and co-ordinates marketing activities, develops marketing strategies, identifies target
market and conducts market research. Having a thorough knowledge of the business’
products and services, competitors and target market is also important. The marketing
and sales manager should devise strategies to achieve the sales targets, manages
customers accounts and motivate the sales team.
 Technical Expertise – provides specific knowledge or expertise to an organisation in
areas such as Technology and Engineering. These persons are highly skilled and have
very creative minds.
 Financial Expertise – controls finances, prepares financial statements and develops plans
and strategies for long-term financial goals.

Financial Resources
Financial resources refer to the funds in the business that may be used for various types of
expenditure such as the purchasing of assets, payment of expenses and for the overall operation
of the business. Financial resources include cash, liquid securities(bonds, certificate of deposits)
and credit lines.

Physical Resources
Physical resources are tangible assets that are owned by the organisation. These include items
such as plant and production machinery, equipment, land, building, tools, raw materials and
office machinery. The types of physical resources that are chosen will have implications for the
quality and quantity of production and the efficiency of the operations of the business on a
whole.

Distribution Channels
In terms of the distribution channels, there has to be a well thought our approach which would be
based on the company’s internal resources and the competitor’s strategies. One consideration is
the direct selling approach in which the customer gets the products directly from the company
without the use of an intermediary. Another is the indirect approach using intermediaries in the
form of wholesalers and retailers as channels to sell the products.

Sources of Supply
When starting a business, it is most likely that entrepreneurs may have challenges finding
suitable suppliers simply because they are not yet well known in the business world.
Entrepreneurs will therefore have to put their negotiating skills into practice with a wide range of
suppliers in order to obtain special arrangements suitable to their entity. A good supplier is one
that supplies goods and services which meets or exceeds the entrepreneur’s expectations. The
supplier should provide high quality goods for consumers, at reasonable prices in a timely
manner. Potential suppliers may be identified through the following:
 trade magazines
 trade exhibitions
 trade associations
 8

 recommendations from long standing customers

 recommendations from other firms in the industry

Production Facilities
For businesses that are involved in production of goods, having appropriate production facilities
is crucial. The location identified must have the prerequisite legal/government approval to
operate on site. The proper amenities and infrastructure must also be put in place. The location
should also be close to the source of raw materials and the source of labour supply. The cost of
operating at the location, i.e., rent and other expenses, should be within the ability of the business
owner to pay.

Licences, Patents and Legal Protection

Licences, patent and legal protection all fall within the area of protecting the business in one
form or another. A business arrangement in which one company (licensee) gives another
company (licensor) permission to manufacture its product for a specific payment is defined as
licensing. The licensee pays royalties to the licensor based on a percentage of sales.
Patents are granted to investors, giving them the right or monopoly to use the item invented over
a specific number of years. This would have significant impact on the entrepreneur if there is
notable commercial viability of the product. Entrepreneurs also need to determine their rights
and obligations under the law so as to ensure that not only are they obeying the law but that they
are also protected from unscrupulous players within the system.

Acquiring Required Resources

Resources can be acquired through internal or external sources.
Internal Sources
 Personal equity - Equity consists of personal investment of the owner(s) of the venture.
In the case of a sole trader or a partnership, the owners invest their personal savings.
However, in the case of a company, shares are issued to shareholders who become part
owners of the company. This approach may be taken for a number of reasons such as a
preference for self-financing as opposed to debt financing. Some persons may have
sufficient funds of their own and, as such, choose to take the risk of financing the venture
themselves. Also knows as bootstrapping, it is the entrepreneur’s attempt to start and run
a business using his/her own financial resources

 Family and friends – family and friends may be willing to assist in financing because
they are familiar with the entrepreneur and would be more supportive of the venture.
Their terms and conditions of repayment tend to be more lenient and far cheaper than
financial institutions. The downside to this is the disruption of relations if the business
does not succeed.
External Sources
 9

 Debt financing – This refers to capital that is obtained in the form of loans and which
must be repaid. In the Caribbean, the major financial institutions, such as commercial
banks, credit unions, and privately owned funding agencies, are the main source of
funds. The funds, in the form of loans, have specific terms and conditions, i.e., loan
amount, interest rate, payment period, repayment amount, and are used to finance the
needs of the business, including working capital, purchase of land and building,
equipment and material needs. Security or collateral, usually personal and business
assets, is provided to cover the loan in the case of default or non-payment.
 Leveraging is the amount of debt or money borrowed by a business to finance the
purchase of its assets with the intention of increasing the business’s sales and earnings.
If there is significantly more debt than equity, then the business is said to be highly
leveraged.
 Outsourcing – this is the business practice of hiring a party outside a company to
perform services or create goods that were traditionally performed in-house by the
company’s own employees and staff. This may be cheaper and hence helps the business
to reduce costs. It also helps the business to focus on their core activities and allows it to
be more efficient.
 Angel Funding – angel investors are wealthy private investors focused on financing
small business ventures in exchange for equity. Unlike venture capital firm that uses an
investment fund, angels use their own net worth. Angels may also be more patient with
entrepreneurs and open to providing smaller dollar amounts for longer time periods.
However, they do want to see an exit strategy at some point where they can pocket their
profits, typically through a public offering or an acquisition. Angel funding is favoured
by the nascent entrepreneur who needs more financing than that provided by him/herself
and family and friends, but is too small to attract funds from venture capitalists and other
financial institutions.
 Venture capitalist – a venture capitalist usually provides a large amount of funding to
businesses and innovative investment opportunities which have the potential to yield a
high rate of return on the investment if such companies are successful. Venture
capitalists seek businesses that have a high growth potential and high profit potential.
They also want to see a clear exit strategy that should be executed in 3-5 years.
 Supplier financing - Supplier financing is a form of supply chain financing that allows
manufacturers and distributors to buy raw materials (or finished goods) in order to build
inventory or fulfil large orders. It works by partnering with a supply chain finance
company that extends trade credit and it acts as an intermediary between your company
and your suppliers. Whenever the company needs to buy raw materials (or finished
goods), they place a purchase order to the supply finance company rather than with the
suppliers. The finance company, in turn, places an order with your supplier. They also
handle the necessary payments. Once the supplier gets the purchase order, they produce
and deliver the goods to the company. The finance company then pays the supplier and
issues an invoice to you. The invoice from the supply chain finance company is payable
on net credit terms (usually 30 to 60 days).
 10

 Leasing – Leasing allows a business to obtain the use of fixed assets such as machinery,
equipment and motor vehicles, without purchasing them. The lease is a legally binding
agreement that outlines the terms of the contract. The lessee agrees to rent assets owned
by the lessor. The lessee makes regular payments for a specified number of years. The
lessor prepares the lease contract, which states the amount of the monthly payment,
security deposit and the length of time for the lease. The lessee is required to sign the
lease indicating that he or she has agreed to the terms of the lease.
 Contract labour – contract labour is that part of the labour force of an organisation that is
employed by a firm (the contractor) that is contracted by the organisation. The principal
employer pays the contractor the total salary plus all the fringe benefits at the end of the
agreed period. The contractor is responsible for paying his/her employees.
 Joint venture – Joint ventures occur when two or more parties enter into a strategic
alliance, pooling their resources with the aim of accomplishing specific business
activities, sharing markets, making new products and sharing profits, losses and costs.
The aim of this activity is to reduce risk, strengthen participating entities and gain a
competitive edge in the industry. A joint venture affords each party access to the
resources of the other participant(s) without having to spend excessive amounts of
capital. Each company is able to maintain its own identity and can easily return to
normal business operations once the joint venture is complete. Celebration Brands
Limited is a joint venture between Red Stripe and Pepsi Cola Jamaica, responsible for
the sale and distribution of beverages across the island.
 Partnerships – A partnership exists where two or more individuals manage and operate a
legally binding business. The partners pool their financial and non-financial resources
in their effort to raise capital. All parties in the operation are personally liable for the
debts of the business.
 Barter – Under the barter system, goods and services are exchanged for other goods and
services without the use of money. This method helps reduce operational cost.
 Gifts – This is the transfer of assets or valuables without any obligation to reciprocate.
These gifts help with the daily operation of the business and its expansion. Many
countries offer gifts or grants to small business owners as a means of stimulating
economic growth in the economy.
 Temporary Staff – these are individuals who are hired for a short period of time,
sometimes to meet an increased demand. For example, in the tourist industry, there is
usually an increase in demand in the winter season and therefore more workers are
needed during that time. The business is not obligated to offer fringe benefits to
temporary employees.

IMPLEMENTATION AND MANAGEMENT OF THE VENTURE

The following activities are in implementing and managing of a business venture:

 implementation of concept
 11

 monitoring of performance
 honouring of obligations to resource providers
 reinvestment in the business
 expansion of the business
 achievement of performance goals
Implementation of the Concept
Having obtained all the necessary resources, the entrepreneur is now ready to launch the venture.
In order for the concept to be implemented, a number of issues must be dealt with. The
implementation stage involves the following:
 development of policies, goals and objectives. Goals are broad aims that the organisation
seeks to accomplish. Objectives are specific targets that the organisation will pursue in
order to achieve the goals. Policies are specific guidelines, methods, procedures, rules
and practices that are established to support and encourage work towards stated goals.
 preparing the business plan
 establishing the marketing function – the entrepreneur needs to employ strategies that
will get the products and services to the target market in the most efficient manner taking
the 4Ps (price, place, product, promotion) into consideration.
 putting plans in place to ensure that the business will be financially viable. This involves
accessing the right amount of capital, managing and monitoring cash flow etc.
 establishing the production and operations function – this involves plans to optimise the
efficiency of the production processes.
 determining staffing requirements and recruitment procedures
Monitoring of Performance
After the business is established, it should be constantly monitored to ensure that its performing
according to plans. It should be borne in mind that a business is a dynamic entity and hence
plans are subject to changes. The entrepreneur should therefore put plans in place to detect
deviations from established plans and to adjust accordingly. In monitoring performance,
consideration needs to be given to finances – Is cash flow positive or negative? Are costs
maintained at a minimum? In addition, since the performance of all businesses relies on the
purchasing power of their clientele, there should be regular review of this critical base. Simply
asking the customers for a verbal or written feedback is an easy way of identifying areas of
improvement for the business. Monitoring may be done through the use of key performance
indicators and an analysis of the business’s strengths, weaknesses, opportunities and threats
(SWOT analysis)

Honouring of Obligations to Resource Providers

Entrepreneurs need to remember that providers of resources, both debt and equity, must be paid.
Debt capital must be repaid as stipulated in agreements. Equity shareholders must share in the
 12

profits of the business as it thrives. Payback ensures continued commitment on the part of
investors, attract new investors and build confidence of creditors in the business.
Reinvestment in the Business
Reinvesting happens when net profits — the income left over after all operating costs and
overheads are paid — are retained and invested in activities or expenses that aim to increase the
value of the business. This is referred to as ‘ploughing back of profits’. Businesses can reinvest
in a number of areas or for a number of reasons namely:
 Marketing and Advertising
 New Hires
 Capital Improvements
 External Acquisitions
 A Cash Buffer

https://www.fastcapital360.com/blog/how-to-reinvest-profits-into-your-business/- 6 Tips
for Reinvesting Profits Into Your Small Business

Expansion of the Business

The strength of the business, together with its internal culture, affects the growth of a business.
If there is a culture committed to development and growth, coupled with having the right
personnel onboard, then generally growth can be expected. There are also external factors that
stimulate growth. Government policies may create an enabling environment which would
encourage the enterprising entrepreneur to consider expanding the business.
An entrepreneur may be concerned with growing his business through the offering of new
products or product lines and/or attracting a larger target market. The Ansoff Matrix shows the
options that a firm may take in expanding its business.

PRODUCT/SERVICE
Existing New

Existing

MARKET
 13

Market Penetration Product Development

The company sells more The business develops a
of the existing products new product or service
in the current market to sell to current
where the company customers. The focus is
already has potential on extending the
relationships. business’s market share
Market Development Diversification
The company focuses on The business develops a
selling the existing new product/service and
products into a newly sell it to a new market.
developed market or in
another customer
segment.

A business can choose to expand horizontally or vertically. Horizontal integration is when a

business grows by acquiring a similar company in their industry at the same point of the supply
chain. Vertical integration is when a business expands by acquiring another company that
operates before or after them in the supply chain.
Activity: Discuss possible advantages of horizontal and vertical integration.

Achievement of Performance Goals

At the outset of the business, the entrepreneur should have had well defined goals and targets
which would be used to measure whether the venture is achieving success. It should be a regular
practice to take stock to determine the present status of the business, the desired direction it
should take and the means by which it could achieve the desired targets. Some of the areas to
look at include comparing targeted sales with actual performance, determining whether there is a
need to expand the markets or not and finding ways to increase sales. An assessment has to be
made to determine whether the business is operating efficiently with the optimum use of the
premises, operational processes, technology and personnel. Since cash is critical, financial issues
also need to be looked at. Steps should be taken to deal with areas that need attention.

HARVESTING THE VENTURE

 14

Harvesting, which is the final step in the entrepreneurial process, refers to the strategies and
options used by entrepreneurs to exit a business and recover their investment. Ideally, it should
be a planned process, part of the overall business plan. There are a number of common
harvesting strategies namely:
 Absorption of New Concept into Mainstream Operations – this strategy is used when a
particular aspect of a company's business is reduced or removed, since no additional
investment would increase earnings. This line of business is known as a ‘cash cow’ and,
as it earns extra cash or income for the business, the company will use the funds to
introduce a new concept or product line. At the same time, the mature line or brand is
allowed to become obsolete and is removed from the company’s range of products or
services. For example, a soft drink company may terminate investments in its established
carbonated products to reallocate funds to its new line of energy drinks.

 Licensing of Rights - this strategy involves the business owner (the licensor) selling to
individuals or companies (the licensees) the rights and permission to manufacture
trademarked, patented, copyrighted and other protected products through the use of
licensing agreements. Each agreement is different and is customized but must come with
protection clauses to secure the interests of the licensor, who benefits by deriving
valuable compensation, usually monetary, from granting the licensee authorization to the
rights of a licensed product. This can be a lucrative way to monetize intellectual property
without having to produce or market the product yourself. Licensing can also help companies
expand their reach and increase brand awareness. However, licensing agreements can be
complex and require careful negation to ensure that both parties benefit from the arrangement.

 Family Succession – The venture is transferred to an able family member of group of

family members. There should be a written succession plan highlighting how the
previous owner will exit and the details taking the new management structure and the role
of the successor. It should also include a training and educational plan to help the
successor(s) hone their skills to run the business effectively. Ideally, family members and
expert advisors should be involved in the process to ensure the creation of a sound
succession plan and buy-in from all the relevant stakeholders. Allowing family members
to be involved in the business, where they can be mentored, guided and allowed to
participate in the internal affairs of the business should result in a smoother transition
from the older to the newer generation. It also helps to ensure that tradition, culture and
values are preserved.

 Go Public (IPO) - an initial public offering (IPO) is the very first time a company sells its
stock to the public. The company owned by an entrepreneur is, by definition, a private
entity and is under no obligation to sell part or all of the business to anyone. With an IPO,
however, the status of the business changes from private to public. The advantages to the
entrepreneur are that:
 15

 it usually raises a lot of cash for the business and provides it with access to long
term capital and,
 with a successful IPO, the entrepreneur would have earned a healthy return on the
investment in the business.
 Liquidate (Shut down) Venture - liquidation of assets or shutting down a venture is an
example of an exit strategy which is the plan or method of business owner takes to leave
the venture. With liquidation, the business closes and all the assets are sold, outstanding
debts are settled and creditors and employees are paid. This option usually applies for a
business which no one else is interested in buying or if the nature of the business is 1
which needs the owner to be personally involved in it.
 Selling the Venture - this is another popular exit strategy. The business is usually
voluntarily sold by the owner to another individual or company, and involves the parties
working closely together to ensure a smooth transition concerning ownership.
Determining the sale price tends to be the challenging part, with both parties eventually
agreeing on a final sale price that is satisfactory to all.
 Management Buy-out (MBO) -this is the purchase of a company or business by all or
some of its existing management. Professional employees within an organization tend to
find this an attractive proposition since they look at the value of being business owners
rather than employees. For privately owned businesses, the sales price and terms must be
negotiated before any agreement is made and the business is transferred to the new
owners. An advantage of this strategy is that the business continues under the leadership
of persons who already know and understand the business.
 Mergers and acquisitions-mergers and acquisitions is a general term used when two or
more companies are consolidated to become one larger entity. With a merger, a new
company is formed as a result of the transaction while, in the case of an acquisition, the
process involves the purchase or buyout of the business in question. Unlike the merger
where a new company is formed, the acquisition does not result in the formation of a new
business. There is a general agreement among all parties involved in a merger to proceed
amicably, acquisitions, on the other hand, may not be enthusiastically supported by the
principals of the business to be purchased and may even involve a hostile takeover by the
purchasing company.
 Employee Share Ownership Plan - An Employee Stock Ownership Plan (ESOP) refers to
an employee benefit plan that gives the employees an ownership stake in the company.
The employer allocates a certain percentage of the company’s stock shares to each
eligible employee at no upfront cost.
16