Notes- Entrepreneurship Process

Entrepreneurship Process:

The process of pursuing a new venture is embodied in the entrepreneurial process, which involves more than just problem solving in a typical management position. An entrepreneur must find, evaluate, and develop an opportunity by overcoming the forces that resist the creation of something new.

Entrepreneurial process can be defined as the process through which a new venture is created by an entrepreneur. This process involves finding, evaluating, and developing an opportunity by overcoming the strong forces that resist the creation of something new.

Steps in entrepreneurial process

The process has four distinct phases:

(1) Identification and evaluation of the opportunity,

(2) Development of the business plan,

(3) Determination of the required resources, and

(4) Management of the resulting enterprise.

Although these phases proceed progressively, no one stage is dealt with in isolation or is totally completed before work on other phases occurs. For example, to successfully identify and evaluate an opportunity (phase 1), an entrepreneur must have in mind the type of business desired (phase 4).

Phase-1:           Identify and evaluate opportunity: opportunity identification is the process by which an entrepreneur comes up with the opportunity for a new venture. Opportunity identification and evaluation is a very difficult task. Most good business opportunities do not suddenly appear, but rather result from an entrepreneur’s alertness to possibilities or, in some cases, the establishment of mechanisms that identify potential opportunities.

Different Aspects of this step relates to -

·      Creativity and Business Idea generation

·      Recognition of entrepreneurial opportunity

·      Assessment of entrepreneurial opportunity (in terms of real and perceived value, risk and return

·      Evaluating entrepreneurial opportunity (in terms of personal & entrepreneurial skills and competencies, prevailing and future circumstances and competitive environment)

Opportunity Evaluation Process

Most good business opportunities result from an entrepreneur being alert to possibilities. Some sources are often fruitful, including consumers and business associates. Channel members of the distribution system-retailers, wholesalers or manufacturer’s reps-are also helpful. Technically-oriented individuals often identify business opportunities when working on other projects.

Whether the opportunity is identified by using input from consumers, business associates, channel members, or technical people, each opportunity must be carefully screened and evaluated. This evaluation of the opportunity is perhaps the most critical element of the entrepreneurial process, as it allows the entrepreneur to assess whether the specific product or service has the returns needed compared to the resources required.

·            This evaluation process involves looking at-

·            The creation and length of the opportunity,

·            Its real and perceived value,

·            Its risks and returns,

·            It’s fit with the personal skills and goals of the entrepreneur, and

·            Its uniqueness or differential advantage in its competitive environment.

It is important to understand the cause of the opportunity, as the resulting opportunity may have a different market size and time dimension. The market size and the length of the window of opportunity are the primarily bases for determining risks and rewards. The risks reflect the market, competition, technology, and amount of capital involved. The amount of capital forms the basis for the return and rewards. The return and reward of the present opportunity needs to be viewed in light of any possible subsequent opportunities as well. The opportunity must fit the personal skills and goals of the entrepreneur. The entrepreneur must be able to put forth the necessary time and effort required for the venture to succeed. One must believe in the opportunity enough to make the necessary sacrifices. The methodology for evaluating risks and rewards, frequently indicates that an opportunity offers neither a financial nor a personal reward commensurate with the risks involved.

Opportunity assessment plan

Opportunity analysis, or what is frequently called an opportunity assessment plan, is one method for evaluating an opportunity. It is not a business plan. Compared to a business plan, it should be shorter; focus on the opportunity, not the entire venture; and provide the basis for making the decision of whether or not to act on the opportunity.

An opportunity assessment plan includes the following: a description of the product or service, an assessment of the opportunity, an assessment of the entrepreneur and the team, specifications of all the activities and resources needed to translate the opportunity into a viable business venture, and the source of capital to finance the initial venture as well as its growth. The assessment of the opportunity requires answering the following questions:

·            What market need does it fill?

·            What personal observations have you experienced or recorded with regard to that market need?

·            What social condition underlies this market need?

·            What market research data can be marshaled to describe this market need?

·            What patents might be available to fulfill this need?

·            What competition exists in this market? How would you describe the behavior of this competition?

·            What does the international market look like?

·            What does the international competition look like?

·            Where is the money to be made in this activity?

Phase-2:           Develop Business Plan:  A business plan is the written description of the future direction of the business. It helps entrepreneur in Putting Ideas together and Preparing B-Plan Draft.

A good business plan must be developed in order to exploit the defined opportunity. This is a very time-consuming phase of the entrepreneurial process. An entrepreneur usually has not prepared a business plan before and does not have the resources available to do a good job. A good business plan is essential to developing the opportunity and determining the resources required, obtaining those resources, and successfully managing the resulting venture.

·                     B-plan Format

            (a)        Title Page

            (b)        Table of Contents

            (c)        Introductory Page (Name and address of business, and promoters, Nature of                                    Business, Statement of financing needs)

            (d)        Executive summary

            (e)        Description of Industry- Industry Analysis ( Future outlook and trends, Competitors’                       analysis, Market segmentation, Industry and market forecast)

            (f)         Description of Business (Product(s), Service(s), Size of business, Office equipments                         and personnel, Background of entrepreneurs)

            (g)        Functional/Operational Plans

·      Production plan (Manufacturing Process, Physical Plant (Layout and Location), Machinery and Equipments, Production inputs and output specification (Raw material, tools and consumables, suppliers)

·      Operational Plan (Descriptions of new business operations, Flow of orders for goods/services, Technology utilization)

·      Marketing Plan(“4-P” Description (Product, Pricing, Place and Promotion elements), Product Forecasting, Controls)

·      Organizational Plan (Form of ownership, Organizational structure Design, Job Design & Descriptions (Roles & responsibilities of members of organization), Manpower plan, Management-Team background)

·      Financial Plan (Statement of financing needs & Capital structuring, Source of financing details, Statement of application of funds, Statement of financing working capital needs, Cash Budget, Proforma Income statement and Balance Sheet, Cash & funds flow projections, Break-even analysis)

            (h)        Assessment of Risk and Uncertainty

·      Identification of Risk-aspects

·      Evaluate weakness of business

·      SWOT analysis

·      Contingency Plan

            (i)         Appendix (Backup material)

·         Letters

·         Market research Data

·         Leases or contracts

·         Price lists from suppliers

3.         Determination of Resource Requirement

·         Determine existing resources

·         Identify Resource Gaps and available Suppliers

·         Develop access to and procure needed resources

4.         Manage the enterprise

·         Develop Management Style

·         Understand key variables for success

·         Identify problems and Potential problems

·         Implement control systems

·         Develop growth strategy

Phase 3:           Determine the Resources Required.

Assessing the resources needed starts with an appraisal of the entrepreneur’s present resources. Any resources that are critical must be distinguished from those that are just helpful. Care must be taken not to underestimate the amount and variety of resources needed. The entrepreneur should also assess the downside risks associated with insufficient or inappropriate resources.

The next step in the entrepreneurial process is acquiring the needed resources in a timely manner while giving up as little control as possible. An entrepreneur should strive to maintain as large an ownership position as possible, particularly in the start-up stage. As the business develops, more funds will probably be needed to finance the growth of the venture, requiring more ownership to be relinquished. The entrepreneur also needs to identify alternative sup-pliers of these resources along with their needs and desires. By understanding resource supplier needs, the entrepreneur can structure a deal that enables the resources to be acquired at the lowest possible cost and with the least loss of control.

Phase 4:           Manage the Enterprise.

After resources are acquired, the entrepreneur must use them to implement the business plan. The operational problems of the growing enterprise must also be examined. This involves implementing a management style and structure, as well as determining the key variables for success. A control system must be established, so that any problem areas can be quickly identified and resolved. Some entrepreneurs have difficulty managing and growing the venture they created.