Module 2: STARTING UP A SMALL BUSINESS

Identifying Business Opportunities

How Do Entrepreneurs Find Opportunities to Start New Businesses?

Schumpeter’s definition describes five basic ways that entrepreneurs find opportunities to create new
businesses:

 Using a new technology to produce a new product

 Using an existing technology to produce a new product
 Using an existing technology to produce an old product in a new way
 Finding a new supply of resources (that might enable the entrepreneur to produce a product more
economically)
 Developing a new market for an existing product

Entrepreneurs Creatively Exploit Changes in Our World

This is in alignment with Schumpeter’s definition of entrepreneurship but explicitly takes it a step further
— to take advantage of [Link] changes can be technological, like the explosion in computer
technology that led Bill Gates and Paul Allen to start [Link] changes faster than technology.
Not so many years ago, there were no bar codes and no electronic scanners, hardly anyone used e-mail,
and “smart phones” did not exist.

How Do Entrepreneurs Create Business Ideas?

 Listen. By listening to others, entrepreneurs get ideas about improving a business or creating a
new one. Create one business idea by listening. Describe how you got the idea.
 Observe. By constantly keeping their eyes and ears open, entrepreneurs get ideas about how to
help society, about what kind of businesses they could start, and about what consumers need.
Create a business idea by observing. Describe how you got the idea.
 Analyze. When entrepreneurs analyze a problem, they think about what product or service could
solve it. Create a business idea by thinking up a solution to a problem. Describe how you arrived
at the idea.

Peter Drucker defined an entrepreneur as someone who “always searches for change, responds to it, and
exploits it as an opportunity.” Entrepreneurs are always on the lookout for ways to create businesses
from the opportunity of change.
Where Others See Problems, Entrepreneurs Recognize Opportunities

An entrepreneur recognized that the problem in the society was actually an opportunity. Where there are
dissatisfied consumers, there are likely opportunities for entrepreneurs!

Train Your Mind to Recognize Business Opportunities. A further step is to let your creativity fly. Consider
developing your entrepreneurial instincts by asking yourself:

An Idea Is Not Necessarily an Opportunity

An opportunity is an idea that is based on what consumers need or want and are willing to buy sufficiently
often at a high enough price to sustain a business. Timmons’s definition of a business opportunity includes
these four characteristics:

 It is attractive to customers because it creates or adds value for its customers.

 It will work in the business environment.
 It can be executed in a defined window of opportunity.
 It can be implemented with the right team to make it durable.

The Five Roots of Opportunity in the Marketplace

Entrepreneurs can exploit “five roots of opportunity.”

 Problems your business can solve

 Changes in laws, situations, or trends
 Inventions of new products or services
 Competitive advantage in price, location, quality, reputation, reliability, speed, or other attributes
of importance to customers
 Technological advances that entrepreneurs take from the laboratory to the marketplace
Integrating Internal and External Opportunities

Opportunities fall into two classes:

 An internal opportunity is one that comes from inside you—from a personal hobby, interest, or
even a passion—or inside your organization.
 An external opportunity, in contrast, is generated by an outside circumstance.

Given this, entrepreneurs need to create a strategy. A strategy is a plan for how an organization or
individual plans to proceed with business operations and outperform that of its competitors. Michael
Porter (1998) mentions the following strategic actions to win over competitions in the market.

Paths to Small Business Ownership (Business Entry Options)

The table below show some business entry options. There are pros and cons to each approach, and it is
worthwhile to give thought to each option.

Securing Franchise Rights

 Franchise a business that markets a product or service developed by a franchisor, typically in the
manner specified by that franchisor.

Buying an Existing Business

 Acquisition a business purchase.

 Due diligence the exercise of reasonable care in the evaluation of a business opportunity.
Licensing Technology

 One way to potentially shorten the product-development cycle and to access innovative
technology is to identify and license that technology — that is, to enter into a contract to use it
without purchasing the rights to own it.

Developing Business Ideas

Source of Business Ideas

 Work Experience
 A Similar Business Hobby or Personal Interest
 Chance Happening or Serendipity
 Family and Friends
 Education and Expertise
 Idea Sites
 Technology Transfer and Licensing (ideas from Universities and Government)

The Entrepreneurial Process

The entrepreneurial process is a methodical way of starting a new venture which involves four steps. The
entrepreneur realizes, evaluates, and develops an opportunity by defeating forces of resistance (Dhenak,
2010).Barringer and Ireland, (2010) as cited by Lopes-Rivas (2016) mentioned that there are four phases
in the entrepreneurial process which include identifying and evaluating and opportunity, developing a
business plan, ascertaining resource needs, and managing the resulting enterprise.

Step 1 — Opportunity Identification

Stage one of the entrepreneurial process deals with opportunity identification. An opportunity by
definition is a favorable set of circumstances which creates a need for a new product, business, or service
(Barringer & Ireland, 2010). Opportunity identification is the process by which the entrepreneur comes
up with a prospective idea for a new venture. Identifying the opportunity is not simple. Identification takes
research, exploration, and evaluation of current needs, demands, and trends from consumers and others
(Dhenak, 2010).With researching and surveying, the product or service can develop. The organization or
individual can now innovate what is lacking as long as the market exists for the opportunity to present
itself. If the market is mature the window of opportunity is closed (Barringer & Ireland, 2010). Qualities
through innovation add value to a product, service, or business. The qualities are attractiveness,
durability, timeliness, and fixation to the product (Barringer & Ireland, 2010). These four conditions are
what the consumer and end user want. Evaluating the opportunity through observing environmental
forces, social forces, technology advances, and political or regulatory changes are attributes to thriving in
any industry (Dhenak, 2010). From an individual perspective, opportunity identification and evaluation is
the most important element because it identifies general trends, needs, and risks that involve the original
idea which the entrepreneurial process can improve.
Step 2 — Developing a Business Plan

The second stage is developing a business plan. Business plan development is an integral piece for
submitting a proposal for an entrepreneurial or intrapreneurial business (Harjai, 2012). The organization
or entrepreneur develops a description of the future direction of the business. A good business plan must
be in place that displays a distinct opportunity (Harjai, 2012). The process in business plan formulation
can be the most time-consuming stage for the individual entrepreneur or organization (Harjai, 2012). An
example of this is researching and doing a feasibility analysis for business plan formulation (Barringer &
Ireland, 2010). Testing the viability of the idea gives the ability to change the thought process from idea
to a business plan. Business plan development is part of strategic thinking and planning and works well
with organizational activities. On an individual basis, the sole entrepreneur must rely on brainstorming in
smaller focus groups. From a corporate perspective, business planning is the essential element to the
entrepreneurial process.

Step 3 — Allocating Resources

The third stage is determining and allocating resources. Ascertaining resource needs is a requirement to
opportunity and business plan implementation (Dhenak, 2010). Assessing the risks in association with
insufficient or inappropriate resources must be set apart from useful ones (Harjai, 2012). The question
that needs an answer here is: Can the organization or individual propositioning the venture be capable of
obtaining sufficient resources to move forward (Barringer & Ireland, 2010)? The entrepreneurial process
calls for securing financial and non-financial resources as well as intellectual proprietary protection where
it applies (Barringer & Ireland, 2010). Financial resources include start-up costs, the financial performance
of like business, and economic attractiveness (Barringer & Ireland, 2010). Non-financial resources include
skill sets and labor pools for potential employees (Barringer & Ireland, 2010). In the health care setting,
for example, the skill set for nurses is different from radiology technicians. Organizations and individuals
performing a resource assessment must be aware of the community the business exists in and whether
or not this is a major factor. Resource allocation and availability are important to corporations because
sustainability and profit depend on proper planning and understanding the physical internal and external
environments. For the individual gaining funding from investors and loans and knowing where to cut cost
in execution and implementation is the most important issue with resource determination and allocation
(Barringer & Ireland, 2010). An example from an individual perspective is making a product via a
manufacturer that already exists as opposed to manufacturing the product themselves (Barringer &
Ireland, 2010).

Step 4 — Managing the Enterprise

The fourth stage is managing the enterprise. Once resources are secure with the entrepreneurial process
business plan implementation can take place. Managing the company means examining operational issues
that will occur when implementation begins and throughout the entire business plan cycle (Barringer &
Ireland, 2010). The management process involves implementing structure and business style while
determining variables for success (Harjai, 2012). Establishing a control system to identify and resolve any
problem areas will help the management process. Lack of experience can give the individual entrepreneur
issues with business growth and administration (Harjai, 2012). Organizations understand the business
development, growth, and sustainability better than individuals in many cases because resources are
easier to be had and utilize as well as methods with strategic management and system development cycles
(Harjai, 2012). Individuals fare better in the entrepreneurial process improving on existing ideas that have
a strong consumer focus and demand.