Chapter Two: Business Development Process

(Setting a Business Enterprise)

2.1 Business Idea Development Process (Entrepreneurial cycle)

2.2 Basic business idea
2.3 Idea generation and Opportunity Recognition
2.4 Conducting Feasibility study
2.5 Developing a Business Plan
2.6 Steps in business setting/business dev’t process

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 The process of Business Idea Development

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  Regarding to the first step;
 it is just to practice & develop skills & characteristics of an entrepreneur.
(discussed in ch-1)
 More over, it is identifying personal interest and assessing
personal potentials
 It can be done via previous experiences and trainings

 On the second step, to examine opportunities and identify problems,

it needs to scan the environment
 you may scan the environment the international and macro economic
environment and conducting/using industrial/consumer surveys and
identifying appropriate business ideas.

 Basically after opportunities identified, business idea will be generated

and evaluated.
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 Lets see each step onwards
 Opportunity identification & recognition
 The entrepreneurial process includes all the functions,
activities, and actions that are part of perceiving
opportunities and creating organizations to pursue them.
 An opportunity is a favorable set of circumstances that

creates a need for a new product or service.

 Clearly, except in very rare cases, opportunities just do

not ‘occur’ to the individual.

 These have to be actively searched/ scouted for or

created.

 Hence, the start up process for a new venture creation

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begins with scouting for opportunities.
 Opportunity identification & recognition…

approaches to identify opportunities

1. Observing Trends

• The first approach in identifying opportunities is to

observe trends and study how they create opportunities

for entrepreneurs to pursue.

• Economic and social factors, political action, technology

advances and regulatory conditions are the most

important trends to monitor.

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 Opportunity identification & recognition…

2. Solving a Problem:

Sometimes identifying These problems can be

opportunities simply identified through observing
involves noticing a problem trends and through more simple
and finding a way to means, such as intuition,
solve it. coincidence, or chance.

For example, Symantec Corp.

Some business ideas are clearly created Norton antivirus
initiated to solve a problem. software to guard computers
against viruses.

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 Opportunity identification & recognition…

3. Finding Gaps in the Marketplace:

 This involves the ability to recognize a need that is not being met in a

customer’s life.

 A gap in the marketplace is often created when a product or service is

needed by a specific group of people.

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 Opportunity identification & recognition…

 The entrepreneurial process begins with identifying an

opportunity and evaluating it through an initial screening

process.

 If it appears reasonable a detailed business plan can be

made. If not it can be discarded

 However, in the context of entrepreneurship,

opportunities besides existing in the environment in the
form of needs and problems of people around might have
to be ‘created.’…new need
• e.g. Hectic work schedules, frequent corporate traveling created the need
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for fast banking services and hence the ATM.
OPPORTUNITY SCOUTING/searching

.
Scanning the
Sensing
Search environment
opportunity
for
Business
Idea

Initial
screening Feasibility
Discard Analysis
 Idea generation
 Once an individual decides to take up entrepreneurship as a career

path, He must carefully scan his environment to generate a number of

ideas

 After tentatively identifying four to five ideas he should proceed to

undertake a detailed assessment/screening called feasibility study.

 This will help him to crystallize one idea in an objective and

systematic manner, which will greatly enhance his chances of success

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All ideas are not opportunities
 Entrepreneurship is all about opportunity.

 Would-be entrepreneurs often ask themselves the following two

questions:

‘‘How do I come up with a good business idea?’’

and

‘‘Is this idea big enough to make a successful business?’’

 While an idea is necessary to entrepreneurship, it isn’t

sufficient.

 To have a successful entrepreneurial endeavor, your idea needs

to be an opportunity.
 What is basic business idea?
 It is logical to think of a goal for the unit in long run rather than to
look for the immediate tomorrow. This long-term thinking is called
basic business idea

 Businessmen/businesswomen should think of long-term goal and the

profit when they start a business.

 The basic business idea, which is at the top of the hierarchy, is to meet
the broadest needs of the customers, and has the long life perhaps
from 5-50 years.

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  The basic business idea facilitates choice of product under an overall
plan.

 Thus, entrepreneur may think of being in the entertainment film, in

automobiles, in medicines, in services, in industries, etc.

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  The product line is relatively narrow and has a shorter life.
The product line consists of different families of product.

 A unit with a basic business idea for example packaging can

manufacture any of the following groups of the products:
• Glass bottles,
• Plastic packages,
• Metal packages,
• Aluminum packages,
• Paper or wood packages.

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  The product range includes different size of the product with in the product line, in
the examples given above different size of glass bottles can be manufactured for
varied applications.

 The product is one item of the product range having different specifications like
• size,
• material used and
• weight, etc.

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  In a dynamic business scheme, one has to carefully assess and
evaluate the basic business idea and the business opportunities in
terms of
 Its ability to generate quick returns
 Its ability to permit quick changes in the
products/services
 Its ability to achieve the founders long term
goals

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 To be a successful entrepreneur, one major determinant factor is
the choice of a good business idea. To select the best business idea,
the following general steps needs to be pursued.
ዉ….discuss abt z order
*Define objective, select best alternative, identify problem, analyze
the possible alternatives

a.Identify your problem

b.Define your objectives
c. Identify, develop and analyze the possible alternative
d.Select the best alternative in light of the specific criteria set to the
better fulfillment of the objective.
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 Idea generation techniques
Source of idea….
 Read more

(project progress 1)=Ass2.

Bring 3/5 business idea with their description-&
one selected (at least two page)
DL=next week class
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 What project an entrepreneur should have?

 A project is a complex of economic activities in which the key players

commit scarce/limited resources in the expectation that the
benefits gained will exceed these resources.

 Also, a project, broadly defined, in a way of using resources: a

decision between undertaking and not undertaking a project is a
choice between attentive ways of using resources.

 The project should have to consider the SWOT and should be

designed accordingly.

 The SWOT approach compels individuals to think or reason out

systematically and analytically the important factors strengths,
weakness, opportunities, and threats.
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  Strength: is an inherent capacity, which an organization can use
to gain strategic advantage over its competitors.
 Weakness: is an inherent limitation or constraint, which creates
a strategic disadvantage
 Opportunity: refers to any factor that offer promise or
potential for moving closer or more quickly towards the firms
goal
 Threat: is any factor that may limit or impede the business in
the pursuit of its goals

 Discussion
classify them as internal and external factors to the firm.
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 SWOT example

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 Next class

Conducting feasibility study and

developing business plan…

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 Conducting Feasibility study
Assessing the Feasibility of a New Venture

 As the name implies, a feasibility study is an analysis of the viability

of an idea. It focuses on helping answer the essential question of
“should we proceed with the proposed project idea?” All activities of
the study are directed toward helping answer this question.

 Entrepreneurs with a business idea should conduct a feasibility

study to determine the viability of their idea before proceeding
with the development of the business.
 Determining early-on that a business idea will not work, saves time,
money and heartache later.
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 Assessing the Feasibility of a New Venture…

 A feasible business venture is one where the business will

 generate adequate cash-inflow and profits,

 withstand the risks it will encounter,
 remain viable in the long-term and meet the goals of the
founders.

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 Elements in Evaluating New Ventures
 Market Opportunity
 Industry Trends & Regulatory Matters
 Proprietary approach …is the intellectual property stand alone
or platform IP
 Technology impact - what is the nature and outgrowth of the
technology?
 Financials - is the model articulated for how products will be sold,
who will buy them, how much revenue is projected and by when?...
 Team - does the team have the requisite skills to move all aspects of
the company forward?
 SWOT is a series of steps one has to consider in evaluating a
business opportunity and arriving at a decision on starting a business
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or not.
 Guidelines of business feasibility study

I. Description of the Business

II. Market Feasibility: Enterprise description, Enterprise

competitiveness, Market potential, sales projection, Access
to market outlets …

III. Technical Feasibility: Determine facility needs,

Suitability of production technology, processes, Availability
and suitability of site, Raw materials, HR, functionality of
the product/service …

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 Guidelines FS…

IV. Financial Feasibility: Estimate the total capital requirements, Estimate

equity and credit needs and determine sources, Budget expected costs and
returns of various alternatives…
V. Organizational/Managerial Feasibility: legal structure of the business,
Business founders,
VI. Study Conclusions: it contain the information you will use for deciding
whether to proceed or not with creating the business

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 When & what could be the venture
that we are going to do feasibility?

 The venture can be a new start-up business, the

purchase of an existing business, franchise, an
expansion of current business operations or a new
enterprise for an existing business.

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 DEVELOPING A BUSINESS PLAN

WHAT IS A BUSINESS PLAN?

 A business plan is a comprehensive set of guidelines for a new venture.

 A business plan is also called a feasibility plan that encompasses the full
range of business planning activities, but it seldom requires the depth
of research or detail expected for an establishment enterprise.

 A business plan would present your basic business idea and all related
operating, marketing, financial and managerial considerations.

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  What ever the name, it should lay out your idea, describe where
you are, point out where you want to go, and how you propose to
go there.

 The business plan may present a proposal for launching an entirely

new business. More commonly, perhaps; it may present a plan for
a major explanation of a firm that has already started operation

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 THE PURPOSE OF BUSINESS PLAN

1. It can help the owner/manager crystallize and focus his/her idea.

2. Although planning is a mental process, it must go beyond the realm of

thought.Thinking about a proposed business becomes more rigorous as rough
ideas must be crystallized and quantified on paper.

3. It can help the owner/manager set objectives and give him a yardstick
against which to monitor performance.

4. It can also use as a vehicle to attract any external finance needed by the
business. Eg. To get fund…

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 PURPOSE…

5.It can convince investors that the owner/manager has identified high growth
opportunities.
6. It entails taking a long-term view of the business and its environment.
7. It emphasizes the strengths and recognizes the weaknesses of the proposed venture.
8.The plan can uncover weakness or alert the entrepreneur to sources of possible danger

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 WHEN THE BUSINESS PLANS ARE PRODUCED?

Discuss
 At the start up of a new business: After the concept stage of
initial ideas and feasibility study, a new business startup may go through a more
detailed planning stage of which the main output is the business plan.
 Business purchase: A detailed plan, which tests the sensitivity of changes
to key business variables, greatly increases the prospective purchasers
understanding of the level of risk they will be accepting, and likelihood of rewards
being available.
 On going: Ongoing review of progress, against the objectives of either a
startup or small business purchase, is important in a dynamic environment.
 Major decisions: at a time of major change, For example, the need for
major new investment in equipment or funds to open a new outlet. It may be
linked to failure, such as a recovery plan for an ailing (or in bad condition)
business.
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 WHO PRODUCED THE BUSINESS PLAN?

o Managers, Owners, Lenders, Experts

WHY THE BUSINESS PLANS ARE PRODUCED?

 Assessing the feasibility and viability of the business/project: it is in every ones

interests to make mistakes on paper, hypothetically testing for feasibility,
before trying the real thing.

 Setting objectives and budgets: having a clear financial vision with believable
budgets is a basic requirement of everyone involved in a plan.

 Calculating how much money is needed: a detailed cash flow with assumptions
is vital ingredient to precisely quantify earlier the likely funds required.
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 THE FORMAT OF A BUSINESS PLAN
1. Where are we now?
 An analysis of the current situations of the market place, the
competitions, the business concept and the people involved. It will
include any historical background relevant to the positions to date.

2. Where do we intend going?

 Qualitative expression of the objectives, quantifiable targets will
clarify and measure progress towards the intended goals.

3. How do we get there?

 Implementing of accepted aims is what all the parties to a plan are
interested in as a final result.
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 COMPONENTS OF BUSINESS PLAN (OUT LINE OF A BUSINESS PLAN)

I. Analysis of the current situation (where are we now?)

1. Identification of the business
a. Introduction
- relevant history and background
- Proposed date for commencement of trading /beginning of a plan
b. Names
-name of the business and trading name
- name of the managers/owners
c. Legal identity
-company/partnership/sole-trade/cooperative
- details of share or capital structure
d. Location
-address-registered and operational
- brief details of premises.
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e. Professional advisers, -Accountants, solicitors, bank
 OUT LINE OF A BUSINESS PLAN…

2. The key people

a. Existing management- Outline of background experience
, skills and knowledge.
-Names of the management team
b. Future requirement -gaps in skills and experience and how
they will be filled ,- future recruitment intentions

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 OUT LINE OF A BUSINESS PLAN…

3.The nature of the business

a. Product(s)or service(s)-Description and applications
-Key suppliers
-Planned developments of product or service
b. Market and customers
–Definition of target market, classification of customers
- Trend in market place
c. Competition- description of competitors; strength and
weakness of the major competitors.

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 II. FUTURE DIRECTION (where do we intend going?)

i. Strategic Influence -SWOT Analysis

1. Opportunities and threats in the business environment
• Socio-economic trends, Technological trends
• Legislation and politics, Competition
2. Strengths and weaknesses
• In its industry, In the general environment:

ii. Strategic direction:

1. Objectives- general and specific
2. Policies- guidelines and rules
3.Activities- action plans and timetable of key activities

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 III. IMPLEMENTATION OF AIM (how do we get there?)
1. Management of resources
a) Operation:-premises, materials, equipment, insurance, management
information system.
b) People/Human resource/- employment practices, recruitment, team
management, training etc

2. Marketing plan
a)Competitive edge- unique selling point of business (Critical products
or service characteristics or uniqueness in relation to competitors)
b) Marketing objectives - specific aims for product or service in the
market place
c) Marketing methods- product, pricing, promotion, distributions=4ps

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 III. IMPLEMENTATION OF AIM…
3. Financial plan
 Sales and Cost of Goods or Services Sold Schedules
 Sources and Uses of Funds
 Depreciation Schedule
 Loan Amortization Schedule
 Income Statement, Cash Flow Statement, Balance Sheet
 Breakeven Analysis or return on investment

Ass1. Explain d/f between FS and BP

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 Steps in business setting
1. The first key to success in any manufacturing activity is to
select the right product.These must be examined with a
view to assess:
…
a.The marketing aspects
b.Technical aspects
c. Financial aspects

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 2. Having selected a product, a detailed project report to be
prepared. This will cover the following aspects.
…
a. A detailed estimate of demand is to be made.
b. Technical specifications of the process should be carefully studied.
c. The equipment required and their sources are to be specified
d. Requirement of space.
e. The total cost of the project to be worked out, the means for financing it
identified
f. The economics of the entire scheme at projected operating level is to be
assessed.

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 3. Implementation of the detailed project report. Includes:
a. Deciding on form of ownership and registration
b. Obtaining finance ,Obtaining license
c. Establishing necessary infrastructures

4. Once all the required authorizations and sanctions have been obtained,
simultaneous action is to be taken for the following. Pre-commissioning
requirement
…
a. Ordering machinery from suppliers
b. Obtaining utilities like power and water connections after constructions of
shed, if necessary.
c. Recruitment of staff,
d. Arranging supplies of materials
e. Arranging for distribution of the products
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 5. Once these are complete, the plant is ready for commissioning trial
run may be made. Commissioning of plant, Includes:

a.Trial run of machineries

b.Promotional activity for the product
c. Introduce the product to the market and obtain feedback

6.The unit is then ready for commercial production.

Commercial production

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