MODULE 5

USE ENTREPRENEURSHIP
TECHNIQUES TO IDENTIFY
BUSINESS OPPORTUNITIES IN
BUSINESS ENVIRONMENT

12/15/2024 1
 Use entrepreneurship techniques
to identify business opportunities
in business environment
This module covers the following;
a) Define business opportunity
b) Explain the characteristics of business
opportunity
c) Explain techniques for identifying the
business opportunities
d) Explain challenges in selecting business
opportunities
e) Describe debit and equity source of fund
f) Discover business opportunities in Tanzania 2
12/15/2024
 A. Define business opportunity

• A business opportunity, in the simplest terms, is a

packaged business investment that allows the buyer to
begin a business. (Technically, all franchises are
business opportunities, but not all business
opportunities are franchises.) Unlike a franchise,
however, the business opportunity seller typically
exercises no control over the buyer's business
operations. In fact, in most business opportunity
programs, there's no continuing relationship between
the seller and the buyer after the sale is made

12/15/2024 3
 B. CHARACTERISTICS OF BUSINESS OPPORTUNITY

Explain characteristics of business

opportunity:
• Passionate: A good business opportunity is one that
aligns with the individual’s passion. The founder’s
motivation is a key determinant of the success of a
start-up. A passionate founder has an internal
motivation towards building a bright future for the
business. As a result, such a leader creates a clear
vision and mission statements and uses them to
motivate stakeholders towards organizational goals.
12/15/2024 4
 characteristics of business
opportunity cont..
• Low capital requirement: A good business
opportunity should be cheap to finance. Access to
capital is a major impediment to entrepreneurship
implying that entrepreneurs should focus on ideas
that are cheap to finance. Entrepreneurs exploit
financing methods such as loans, venture capitalists
and contributions from friends and family among
others. Capital suppliers are reluctant to finance new
businesses with huge capital requirements.

12/15/2024 5
 characteristics of business
opportunity cont..
•Matches individual skills/ skill: Individual’s capabilities are a key
determinant of the fitness of a business proposal. A good business
proposal aligns with the entrepreneur’s skills that ensure
conversance with the intricacies of the business process.
•You need to have the experience required to tap into that particular
business opportunity e.g. if you want to start a bakery but don’t
know a thing about baking then that’s not a viable business
opportunity. It is therefore important that you have the required skill
i.e. experience and expertise, for the business you would like to start.
12/15/2024 6
 characteristics of business
opportunity cont..
• Reflect environmental realities: A business
opportunity should be relevant to the prevailing
environment. The business environment is dynamic,
and entrepreneurs should understand how changes
in the environment affect customer needs and
business operations. An entrepreneur should have a
deep understanding of the environmental trends to
ascertain the opportunity’s long-term viability.

12/15/2024 7
 characteristics of business
opportunity cont..
•Demand: The first thing that one ought to take into account before
planning to start a business is to ask themselves where there’s a
significant demand for the particular product or services they
intend to launch i.e. is there a gap in the market? If the answer
is NO then that idea isn’t a viable business opportunity. It would
also be profitable to target a specific niche as this increases the
chances of you becoming a dominant player for that specific niche.

• Availability Of Resources
You should have all the resources needed to take advantage of that
particular business opportunity as well as a time frame for
implementing it lest someone else beats you to it.
12/15/2024 8
 characteristics of business
opportunity cont..
Return on investment /Healthy Profit Margin
If the business opportunity you have in mind has the
potential of bearing fruits within a set period of time and
which can cover the capital that was used in addition to
bearing profits then there’s a high chance that you’ve got a
winner but if it only requires more and more capital to be
injected in with minimal or no possibility of having any
returns any time soon then you ought to tread carefully.
•Does the business have a good profit margin that will
ensure the business remains profitable even as it meets the
gap in the market? If the answer is NO and you’re not in it
for charity then that idea isn’t a viable business
opportunity.
12/15/2024 9
 characteristics of business
opportunity cont..
•Customer Retention
It’s said that customers are the lifeblood of any
business but if you can’t retain your customers then
your business won’t last very long. You therefore need
to put in place mechanisms that will ensure you
prolong your customers stay with you i.e. that they will
keep buying from you for as long as possible.

12/15/2024 10
 characteristics of business
opportunity cont..
•Scalability/ Growth
Can the business grow gradually within a given period of time
and can it adapt to the changing times i.e. is it flexible enough?
If the answer is NO then that idea isn’t a viable business
opportunity.

•Growing a business is one of the principal goals of an

entrepreneur. It is therefore paramount to ensure the scalability
of an opportunity before committing resources. A good
business opportunity’s growth regarding profitability, revenue,
size, and other yardsticks of evaluating growth are verifiable
12/15/2024 11
C. Explain techniques of identifying the business opportunities

1. Listen to your potential clients and past

leads
• When you’re targeting potential customers listen
to their needs, wants, challenges and frustrations
with your industry. Have they used similar
products and services before? What did they like
and dislike? Why did they come to you? What are
their objections to your products or services?
• This will help you to find opportunities to develop
more tailored products and services, hone your
target market and identify and overcome common
objections
12/15/2024 12
 Explain techniques of identifying
the business opportunities cont…
2. Listen to your customers
• When you’re talking to your customers listen
to what they saying about your industry,
products and services. What are their
frequently asked questions? Experiences?
Frustrations? Feedback and complaints?
• This valuable customer information will help
you identify key business opportunities to
expand and develop your current products
and services.

12/15/2024 13
 Explain techniques of identifying
the business opportunities cont…
3. Look at your competitors
• Do a little competitive analysis (don’t let it
lead to competitive paralysis though) to see
what other startups are doing, and more
importantly, not doing? Where are they falling
down? What are they doing right? What makes
customers go to them over you?
• Analysing your competitors will help you
identify key business opportunities to expand
your market reach and develop your products
and services.
12/15/2024 14
 Explain techniques of identifying
the business opportunities cont…
4. Look at industry trends and
insights
• Subscribe to industry publications,
join relevant associations, set Google
alerts for key industry terms and
news and follow other industry
experts on social media.
• Absorb yourself in your industry and
continually educate yourself on the
latest techniques and trends.
12/15/2024 15
 D. Challenges in selecting business opportunities

• Explain challenges in selecting

business opportunities

12/15/2024 16
 Challenges in selecting business opportunities cont..

1. Developing the Vision and Business Idea

• Developing a business idea is usually the first challenge faced
by every entrepreneur when starting a business from scratch.
Finding the right business opportunity or creatively developing
an idea is certainly not an easy task. I call “Envisioning the
idea” the first true task of an entrepreneur. As an
entrepreneur, you must possess the ability to see what others
cannot see. While others see problems, you must see
opportunities.
• But seeing opportunities is just the beginning. The main
business challenge is going to be your ability to forge that
opportunity into a business idea. I see this as a business
challenge because the process of transforming problems into
business opportunities is like trying to turn lead into gold. I call
it the entrepreneurial process of “Creating Value out of
nothing”; a process that brings innovative products into
existence.
12/15/2024
Below is an illustration of how the process goes. 17
Challenges in selecting business
opportunities cont..
2. Assembling a Business Team
• The second business challenge you will
face in the course of starting your
business from scratch is assembling the
right business management team. When I
talk about a team, I am not talking about
regular employees. I am talking about a
“strategic round table business team”
that will meet regularly to brainstorm on
ways to grow your business.
12/15/2024 18
Challenges in selecting business
opportunities cont..
3. inability of selecting the right
business and doing it in the proper
manner e.g. ethically.

12/15/2024 19
Challenges in selecting business
opportunities cont..
4. Planning ahead
The plan that made sense for you a year
ago isn't necessarily right for you now.
Market conditions continually change, so
you need to revisit and update your
business plan regularly. See the page in this
guide on keeping up with the market.

12/15/2024 20
Challenges in selecting business
opportunities cont..
5. Problem solving
New businesses often run in perpetual crisis
mode. Every day brings new challenges that
urgently need resolving and management
spends most of their time troubleshooting.

12/15/2024 21
Challenges in selecting business
opportunities cont..
6. The right systems
All businesses produce and rely on large
volumes of information - financial records,
interactions with customers and other
business contacts, employee details,
regulatory requirements and so on. It's too
much to keep track of - let alone use
effectively - without the right systems.

12/15/2024 22
 SOURCES OF CAPITAL FOR
ENTREPRENEURS
Introduction
• Every entrepreneur planning a new venture confronts the
dilemma of where to find startup and business running
capital. Choosing the right sources of capital for a business
can just be as important as choosing the right form of
ownership, so entrepreneurs must weigh their options
carefully before committing to particular funding source.
• Entrepreneurs must understand which sources of funding
are best suited to the various stages of a company’s
growth and then taking time to learn how those sources
work are essential to success.
12/15/2024 23
 Categories of funds for entrepreneurs
• Normally there are two main categories of funds to
entrepreneurs. These are:
1. Equity financing
2. Debt financing
• Both debt and equity financing are important ways for
businesses to obtain capital to fund their operations. Deciding
which to use or emphasize, depends on the long-term goals
of the business and the amount of control managers wish to
maintain.
• Ideally, experts suggest that businesses use both debt and
equity (i.e debt-to-equity ratio) financing in a commercially
acceptable ratio.
12/15/2024 24
 1: EQUITY FINANCING
• Equity financing involves the sale of some of the ownership in
the venture.
• Equity financing takes the form of money obtained from
investors in exchange for an ownership share in the business.
Such funds may come from savings, friends and family
members of the business owner, wealthy "angel" investors, or
venture capital firms.
• Sources of Equity Financing include:
a) Personal savings
b) Friends and family members
c) Angels
d) Venture capital companies
12/15/2024 25
 Equity financing cont …………
a) Personal Savings
• The first place an entrepreneur should look for
start up money is in their own pockets.
• Investors expect the entrepreneur to put
some of her own capital into the business
before investing theirs. If an entrepreneur is
not willing to risk his own money, potential
investors are not likely to risk their money in
the business either.
12/15/2024 26
 Equity financing cont …………
b) Friends and Family Members
• After emptying their pockets, most
entrepreneurs look for friends and family
members who might be willing to invest in a
business venture. Because of their relationship
with the founder these people are most likely
to invest.

12/15/2024 27
 Equity financing cont …………
c) Angels
• Angels – are private investors who emerging
entrepreneurial companies with their own money.
• Angles invest in businesses for more than purely
economic reasons (because they have a personal
interest in the industry) and they are willing to put
money into companies in the earliest stages, long
before venture capital firms and institutional
investors jump in.

12/15/2024 28
 Equity financing cont …………
d) Corporate Venture Capital
• Large corporations have gotten into the
business of financing small companies e.g. 30%
of all venture capital investments come from
corporations.
• When evaluating potential investments,
venture capitalists look for the following
features: Competent management, Competitive
frame, Growth industry & viable exit strategy
12/15/2024 29
 Advantages of Equity financing
• No repayment. The business is not obligated to
repay the money.
• Immunity. Equity finance protects the business
during the time of economic downturn since
investor share profit and loss.
• Better performance. The presence of the ever-
watching of investors keeps the management
performing at its best.
• Equity expands borrowing power
• Equity spreads the risk of failure
12/15/2024 30
 Disadvantages of Equity financing
• An excessive reliance on equity financing may indicate that a
business is not using its capital in the most productive manner.
This means that an entrepreneur must give up some
ownership in the company to outside investors.
• Loss of decision-making power. This is due to the interference
of shareholders in decision-making. Eg. Electing the director
board requires the approval of shareholders.
• Is called risk capital because investors assume the risk of losing
their money if the business fails
• Dilutes ownership and independence
• Raising equity finance is demanding, costly and time-
consuming
12/15/2024 31
 2: DEBT FINANCING
• Debt financing takes the form of loans that must be
repaid over time, usually with interest. Businesses can
borrow money over the short term (less than one year)
or long term (more than one year) but must be repaid
with interest.
• Sources of Debt Capital
a) Commercial banks
b) Trade credit
c) Commercial finance companies
d) Saving and loan associations
e) Credit unions
12/15/2024 32
 2: DEBT FINANCING Cont..
a) Commercial banks
• About 29 commercial banks, 8 registered regional unit banks
and 5 registered financial institutions operate in Tanzania
today. Normally Commercial bank makes a large number of
intermediate term loans (i.e. for one to five years) and long
term loan (for more than five years). In most cases, the
banks need to know about the 4C’s mentioned below:
• Collateral
• Capacity of the business
• Condition of the business and
• Character of the loan applicant
12/15/2024 33
 DEBT FINANCING Cont..
• b) Trade credit is credit given by suppliers who
sell goods on account. This credit is reflected
on the entrepreneur’s balance sheet as
accounts payable, and in most cases it must be
paid in 30 to 90 days. Suppliers typically offer
this credit as a way of attracting new
customers.

12/15/2024 34
 DEBT FINANCING Cont..
• c) Finance companies are asset based lenders
that lend money against assets such as
receivables, inventory, and equipment. The
advantage of dealing with a commercial finance
company is that it often will make loans that
banks will not. The interest rate varies from 2 to 6
percent over that charged by a bank. New
ventures that are unable to raise money from
banks and factors often turn to finance
companies.
12/15/2024 35
 Advantages of debt financing
• No surrendering of ownership
• More borrowing allows for greater return on
equity
• During periods of low interest rates, the
opportunity cost is justified since the cost of
borrowing is low.
• No loss of ownership control with debt
financing
• Easier to obtain than equity capital
12/15/2024 36
 Disadvantages of debt financing
• Regular (monthly) interest payments are
required.
• Continual cash flow problems can be increased
because of payback responsibilities.
• Increased paperwork requirements and lender
monitoring
• Total risk on part of the owner
• Heavy use of debt can inhibit growth and
development of a venture.
12/15/2024 37
E. Identifying business opportunities
in Tanzania

• Class discussion on business opportunities in

Tanzania.

12/15/2024 38