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Chapter 2
Creating and Developing a
Business(Business planning)
 Introduction
At start-up, the entrepreneurship process is a course of action that
involves all functions, activities and actions associated with
identifying and evaluating perceived opportunities and the bringing
together of resources necessary for the successful formation of a new
firm to pursue and seize the said opportunities.
Once set up, the process of entrepreneurship becomes effectively a
cyclical progression of opportunity targeting and making strategic
decisions regarding the allocation of scarce resources in pursuit of
value adding opportunities
 Opportunity Identification and Evaluation
The initial stage in the entrepreneurial process is the identification and
refinement of a viable economic opportunity.
Opportunity recognition corresponds to the principal activities that
take place before a business is formed or structured.
The opportunity identification and evaluation process has five stages
 getting the idea/scanning the environment,
 identifying the opportunity,
 developing the opportunity,
 evaluating the opportunity and
 evaluating the team.

 I. Scanning the Environment/ Getting the Idea
While scanning the environment it may be provide you with idea and
business opportunities.
Idea is a thought or suggestion about a possible course of action.
opportunity is a favorable time or set of circumstances for doing
something.
A business opportunity is a gap left in a market by those who
currently serve it, giving a chance to others to add unrealized value by
performing differently from and better than competitors in order to
create new possibilities.
 Cont…
The difference between an idea and an opportunity is that an
opportunity is the possibility of occupying the market with a
specific innovative product that will satisfy a real need and for
which customers are willing to pay but idea is all about opinion
about anything we can have. Successful venturing may well rest
upon the ability of an individual to recognize or distinguish an
opportunity from an idea.
II. Opportunity Identification
Opportunity identification is ability to see, to discover and
exploit opportunities that others miss.
It is the process of seeking out better ways of competing.
It includes scanning the informational environment, being
able to capture, recognize and make effective use of abstract,
implicit and changing information from the changing external
environments.
Cont…
It is important for the entrepreneur to understand the
cause of the opportunity:-
technological change,
market shift,
government regulation, or
 competition?
Cont…
Opportunity identification is a very difficult task, as most
opportunities do not just appear but rather result from an
entrepreneur’s alertness to possibilities.
In developing countries, problems may be changed to
business opportunities.
III. Opportunity Development
Opportunity development is the process of combining
resources to pursue a market opportunity identified.
This involves systematic research to refine the idea to the
most promising high potential opportunity that can be
transformed into marketable items.
 IV. Opportunity Evaluation
Opportunity screening and evaluation is a critical element
of the entrepreneurial process.
A professional executed evaluation can tell whether the
specific product or service has the returns needed to justify
the investment and the risk to be taken.
Cont…
This evaluation process involves looking at the creation
and length of the opportunity, its real and perceived
value, its risks and returns, its fit with the personal
skills and goals of the entrepreneur, and its differential
advantage in its competitive environment.
Business factors and questions for opportunity evaluation

Business factor Questions for evaluation

Product or Description of the product or service, its differentiator,
Service purpose and the need it fills
What competitive advantage / benefits does the product
have?
What is the required customer care support for this
product/service?
Is the company able to produce product and supply required
aftercare support?
Market Where is the market demand? What is the target market?
Opportunity Industry characteristics (growth rates, change, entry barriers).
Cont…
What market share can the product reasonably
expect today? In 5 or 10 years?
Timing and length of the window of opportunity?
What competition exists in this market? Substitutes?
How big is their turnover?
How accessible are the desired distribution channels?

Costing and How much will it cost to develop the product and
Pricing commercialize it?
Where will the funds come from?
How do the pricing, costs and economies of scale
compare with competitors?
How easy is it to acquire equipment, skills and other
inputs required?
 Cont…
Profitability Where is the money to be made in this activity? What are the
gross margins?
Would the return on investment be acceptable? What is the
payback period?
What are the cash flow patterns and the source of working
capital?

Capital How much capital (people, operating expense and assets) is

Requirements required to start?
What are the long-term capital needs?
How much of the required capital is secured and where will the
rest come from?
What securities are available to guarantee the required funds?
Is there a list of potential funders? In case the funders withdraw
their capital?
Cont

Issues and What risks (real and perceived) are inherent

risks with the product/service?
Industry based risks e.g. is the market on a
decline?
Are there plans for surviving the death of the
lead entrepreneur?
Unreliable forecasts? Inadequate cash flow?
Inability to grow with the demand or cope with
shrinking sales?
Supplier and value chain management?
 V. Assessment of the Entrepreneurial Team
 It will not make a successful business unless it is developed by a team with
strong skills.
 Gartner et al (1999:230) advices that once the opportunity has been
evaluated, the next step is to ask pertinent questions about the people who
would run the company related to :-
Focus- Is the founder really an entrepreneur, bent on building a company?
 Does the entrepreneur (or his team) have some experience (work or
industry)?
 Do they really like this product/sector? Do they really want this?
 Can the team create products to suit that market need?
 How stressful is the opportunity for the team?
 Cont…
Selling- Does the team have the necessary selling and closing
skills?
Management- Who will work full time? Do your managers
represent competitive advantage?
◦ Does the team have the necessary management and technical
skills?
◦ If the required skills are not available, can they be acquired at
competitive rates
◦ How is their relationship with the entrepreneur, commitment and
motivation?
Cont …
Ownership
◦ Have the critical decisions about ownership and equity splits
been resolved?
◦ Are the members committed to these?
Does the owners have enough financial capital for
required own contributions?
Business Idea Development
A business idea is a concept which can be used for
commercial purposes.
A business idea is a short and precise description of
the basic operation of an intended business.
A business idea is the response of a person or an
organization to solving an identified problem or to
meeting perceived needs in the local environment.
Cont….
Finding a good idea is the first step in transforming the
entrepreneur‘s desire and creativity into a business
opportunity
Types of Business Idea
 Old Idea
 Old idea with modification
 New Idea
Business Idea Identification
Business idea will tell you:
Which need will your business fulfill for the customers
and what kind of customers will you attract?
What good or service will your business sell?
Who will your business sell to?
How is your business going to sell its goods or services?
How much will your business depend upon and impact
the environment?
 Methods for Generating Business Ideas
A. Learn from successful business owners
You should try to get the following information from them:
What kind of idea did these businesses start with?
Where did the ideas come from?
How did they develop their ideas into successful
businesses?
How does the business profit and fit into the local
environment?
Where did they get the money to start their business?
 Cont…
B. Draw From Experience
Your own Experience: about customer , product etc.
Other People’s Experience: potential customers
It is important to understand their experience trying to find goods
and services that are unavailable or not exactly what they need.
 their shopping experience
C. Survey Your Local Business Area
around your local community
Visit the closest industrial area, markets and shopping centers in
your area.
 Cont…
D. Scanning Your Environment
You can use your creativity to find more business ideas in
your area. Look at the list of existing local businesses.
It may be useful to think about business ideas by
considering all the resources and institutions in your area.
Natural resources,
Characteristics and skills of people in the local community,
Import substitution,
• Waste products, Publications,
Trade fairs and exhibitions
E. Brainstorming
F. Focus Group
G. Problem Inventory Analysis
H. Free Association
I. Forced Relationships
 Business Idea Screening
Idea screening is the process to spot good ideas and
eliminate poor one. There are three aproach ofidea
screening
Macro screening: is aimed screening down ideas to 10. And
the common criteria are:
Are my own competencies (see strength detector) sufficient?
Can I finance it to a large extent with my own equity?
Will people buy my product/service (i.e. is it needed and can
people afford it)?
 Cont…
Micro Screening: is aimed screening down ideas into 3. The
common criteria used for screening are:
Solvent demand
Availability of raw materials
Availability of personal skills
Availability of financial resources
Scoring the Suitability of Business Idea
 The Concept of Business planning
A business plan is
 a road map for starting and running a business.
 a formal statement of a set of business goals, which are believed to be
attainable, and the plan for reaching those goals.
 a document that describes the objectives of a business and which
steps should be taken to make the goals achievable, reducing risk and
uncertainty.
 a document that presents the basic idea for the venture and includes
descriptions of where you are now, where you want to go, and how
you intend to get there.
 A business plan is the blueprint of the step-by-step procedure that
would be followed to convert a business idea into a successful
business venture
 Cont’d…

It’s a document that convincingly demonstrates that your business can

sell enough of its product or service to make a satisfactory profit and
to be attractive to potential backers.”

For Gumpert, the business plan is essentially a selling document used

to convince key individuals, both inside and outside the firm, that the
venture has real potential.
 Cont’d…

For the entrepreneur starting a new venture, a business plan has three
basic objectives:
1. To identify the nature and the context of the business opportunity
—that is, why does such an opportunity exist?
2. To present the approach the entrepreneur plans to use to exploit
the opportunity
3. To recognize factors that will determine whether the venture will be
successful
 Business plan is useful for
 To determine the feasibility and potential outcomes venture,
considering marketing, financial and operational aspects;
 To clear the opportunities and establish the future outcomes of
the venture;
 To identify the necessary resources for starting the operations
of the new business;
 To develop ideas on how should the business be conducted
 To analyze future scenarios for the venture;
 Cont’d…
 To refine strategies and avoid mistakes;
 To assess the present stage of the company, and provide a
reference for future comparison;
 As a milestone for strategic planning, commercial decisions,
operational forecasts and budgeting the new decisions;
 Asa tool for negotiating with partners, suppliers and customers,
and also to contribute for obtaining banking credit access.
 Cont….
The objectives of a business plan are to:
Give directions to the vision formulated by entrepreneur.
Objectively evaluate the prospects of business.
Monitor the progress after implementing the plan.
Persuade others to join the business.
Seek loans from financial institutions
Visualize the concept in terms of market availability,
organizational, operational and financial feasibility.
Cont…
Guide the entrepreneur in the actual implementation of
the plan.
Identify the strengths and weakness of the plan.
Importance of feasibility study
Explore the viability of alternative business concepts
Assess the likelihood of transforming an idea into
successful business venture
Helps avoid unnecessary waste of resources.
Avoid launching a business that is likely to fail
 Developing a Business Plan
Business Planning Process
documenting the business plan is one of the early steps that
an entrepreneur should take.
the successful entrepreneur lays down a step-by-step plan
that she/he follows in starting a new business.
This business plan acts as a guiding tool to the entrepreneur
and is dynamic in nature – it needs continuous review and
updating so that the plan remains viable even in changing
business situations
 Steps of Business planning process
I. Preliminary Investigation-Before preparing the plan
entrepreneur should:
 Review available business plans (if any).
 Draw key business assumptions on which the plans will be
based (e.g. inflation, exchange rates, market growth,
competitive pressures, etc.).
 Scan the external environment and internal environment to
assess the strengths, weakness, opportunities and threats.
 Seek professional advice from a friend/relative or a person
who is already into similar business
 II. Opportunity Identification and Idea Generation
Opportunity identification and business idea generation is
the first stage of business planning process.
It involves generation of new concepts, ideas, products or
services to satisfy demand.
III. Environmental Scanning
• environmental scanning, which is carried out to analyze the
prospective strengths, weakness, opportunities and threats of
the business enterprise.
 IV. Feasibility Analysis
It is an analysis and evaluation of a proposed project to
determine if it
(1) is technically feasible,
(2) is feasible within the estimated cost, and
(3) will be profitable
V. Report Preparation
It is a written document that describes step-by- step, the
strategies involved in starting and running a business.
 Components of BP
Table of Contents
Listing of the key sections of the business
Section Heading
plan and where they can be found in the
Information Provided
document
Cover Page Executive Summary
Company Description
Company objectives, the
One- to three-page overview of the
Company name, logo,
nature of the business, its
significant points from each section,
tagline, contact primary product/ service, its
intended to motivate the reader to
information, copy current status (startup, buyout,
continue reading
or expansion) and history (if
Industry, Target Customer, and
number, date prepared,
applicable), and the legal form
Competitor Analysis
and disclaimer (if needed) of organization
Key characteristics of the industry
(including the different segments), your
potential customers, and the niche where
you plan to compete
 Components of BP
Operations and Development Plan
Product/Service Plan Operating or manufacturing methods, Financial Plan
Explanation of why people will buy the facilities (location, space, and equipment), Historical financial statements for
product or service, based on its quality-control methods, procedures to the last three to five years or as
unique features control inventory and operations, sources of available; and pro forma financial
Marketing Plan supply, and purchasing procedures statements for three to five years,
Marketing strategy, including the Management Team including income statements,
methods of identifying and attracting Description of the management team, outside balance sheets, cash flow
customers, selling approach, type of investors and/or directors, and plans for statements, and cash budgets
recruiting and training employees Appendix of Supporting Documents
sales force, distribution channels, types
Critical Risks Various supplementary materials
of sales promotions and advertising,
A section of the business plan that identifies and attachments to expand the
and credit and pricing policies
the potential risks that may be encountered reader’s understanding of the plan
 Group Assignment

Find out a good business idea based on a

real opportunity that you can identified
from the environment and prepare
business plan (30%)
Date of submission is on date of final exam.
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