Entrepreneurial Opportunity Notes PDF

Ch – (1) Entrepreneurial Opportunity Definitions: i. Entrepreneur - An entrepreneur is someone who perceives opportunity, organises resources needed for exploiting that opportunity and exploits it. ii. Entrepreneurship – it is defined as a systemati...

Ch – (1) Entrepreneurial Opportunity Definitions: i. Entrepreneur - An entrepreneur is someone who perceives opportunity, organises resources needed for exploiting that opportunity and exploits it. ii. Entrepreneurship – it is defined as a systematic innovation which consists of the purposeful & organised search for changes, & a systematic analysis of the opportunities that such change might offer for economic & social transformation. iii. Enterprise - An enterprise is the business organization that is formed and which provides goods and services, creates jobs, contributes to national income, exports and contributes to the overall economic development. ‘Business opportunity’ - An economic idea which can be implemented to create a business enterprise and earn profit. Before selecting an opportunity, the entrepreneur has to ensure two things- i. There is a good market for the product he is going to produce. ii. The rate of return on the investment is attractive to be accepted by him. Can all ideas be converted into opportunities? Mostly entrepreneurs conceive an idea and start their business without even analysing the market to satisfy their own ego. Thus they launch a product that has very few customers. Elements of a business opportunity: A business opportunity has five elements which are as follows: i. Assured market scope ii. An attractive and acceptable rate of return on investment iii. Practicability of the idea iv. Competence of the entrepreneur to encash it v. Potential of future growth Exploring opportunities in the environment - A prospective entrepreneur has to find an opportunity which would be suitable for him/her in terms of customers to be served and profits expected. An opportunity may be derived from the needs and problems of the society. Environment ppppP Opportunity Creativity Innovation Project Spotting and ideas and Business product  Enterprise Process diagram This diagram shows the following stages: i) Opportunity spotting by analysing the needs and problems that exist in the environment ii) Evaluating the ideas received from different sources to find a creative solution iii) Identifying a product or service through innovation iv) Setting up a project and nurturing it to success Sensing entrepreneurial opportunities is thus a process of converting an idea into an opportunity and then into an enterprise. I. Perceiving and sensing opportunities - The entrepreneurs perceive opportunities, synthesize the available information and analyse emerging patterns that escape the attention of other people. Factors involved in sensing opportunities - To sense an entrepreneurial opportunity, an entrepreneur employs his/her sharpened skills of observation, analysis and synthesis to identify an opening. The most important factors involved in the process are: 1. Ability to perceive and preserve basic ideas which could be used commercially 2. Ability to harness different sources of information 3. Vision and creativity 1. Ability to perceive and preserve basic ideas - Spotting an idea often triggers the process of sensing an opportunity. The following are the various sources which lead to the emergence of basic ideas: PI2C2 a) Problems: When a problem exists, an idea leads to a solution to resolve that problem, it emerges as a business opportunity. b) Change: A change in social, legal, technological aspects etc. leads to new opportunities to start a business. c) Inventions: New products or services leads to new business opportunities. d) Competition: Competition often results in emergence of new and better ideas that result in new business opportunities. e) Innovation: Creating new things of value as well as new and creative processes that add value to the existing products or services. For example, computers to tablets. 2. Ability to harness different sources of information - Various sources like magazines, journals, books, seminars, trade shows, family members, customers, friends etc. help in getting information that results in evolution of basic ideas. Bring together various sources of information and knowledge, and analyze it to the best possible extent. The analysis helps in the identification of the right opportunity to start a new business. 3. Vision and creativity - The entrepreneur should be able to creatively identify an idea to generate a valuable solution to a problem. Once the solution is identified, their vision to convert the solution into business opportunity. They constantly: a. Overcome adversity  b. exercise control over business c. make a significant difference II. Environment Scanning: Careful monitoring of an organization's internal and external environment for detecting early signs of opportunities and threats that may influence its current and future plans. Business Environment – may be defined as all those conditions and forces external to a business unit under which it operates. Why do we need to scan environment – In rapidly changing environment, one rule of thumb applies: If you don’t adapt, you don’t endure. This is the core idea behind environmental scanning. So organisations gather information on changing conditions & make those necessary changes. The right information, combined with the right adaptations, can determine an organisation’s future viability. If an entrepreneur is not aware of the environment surrounding his business, he is sure to fail. Importance of environment: Sensitivity to environmental factors is crucial for an entrepreneur. If a company is able to adapt to its environment, it would succeed in the long run. For example, Sony failing to understand the changing trends in mobile phones and therefore losing its market share. (FIT) (BIS) The benefits of understanding the relevant environment of business are: i) Formulation of strategies and policies: It helps in identifying threats and opportunities in the market. These can serve as the basis of formulation of strategies to counter threats and capitalise on opportunities in the market. For example, to understand new trends in the market. ii) Identification of opportunities to get first mover advantage: By keeping in touch with the changes in the external environment, an enterprise can identify opportunities and find strategies to capitalise on the opportunities at the earliest. For example, Volvo, the Swedish brand has 74% share in the luxury bus segment as it had entered India earlier. iii) Tapping useful resources: If the company has a thorough knowledge of the external environment, it can tap raw materials, technology and even financial resources from the market at economical prices at the right time. For example, resources or raw materials which can be obtained from different countries. iv) Better performance: Proper understanding of the various elements of the external environment is necessary to take timely action to deal with threats and avail opportunities for the purpose of improvement in the performance of the firm. For example, new entry of a competitor with advanced technological product. v) Image Building – If a company is sensitive to the external environment, it will come out with new products and services to meet the requirements of the customers. This would build the image or reputation of the firm in the eyes of the general public. Eg call – radio taxis with additional features like GPS systems, online booking, etc. vi) Sensitisation of entrepreneurs to cope up with rapid changes: A keen watch on the trends in environment would help to sensitise the entrepreneur to the changing technology, competition, government policies and changing needs of the customers. For example, changing trends in clothing. Analysis of environment – environmental analysis is the process of monitoring the economic & non – economic environment, to determine the opportunities & threats to an organization. Such an analysis involves data collection, information processing and forecasting to provide a basis for developing goals and strategies for bs survival & growth. Information for environmental scanning / analysis can be collected from several sources: i. Verbal information from customers, wholesalers, retailers, distributors, etc. ii. Records of companies iii. Govt publications iv. Publications by financial institutions v. Formal studies conducted by strategic planners Diag of SWOT Analysis & Opportunity – Project Interface to be done from the Book. Environmental factors Entrepreneurship environment refers to the various forces within which various small, medium and large enterprises operate. These factors exert influence upon each other and do not operate in isolation. Business Environment consists of 2 factors: Micro & Macro env. Micro – forces operating in the market that are close to or within the organization and affects its ability to serve the customers directly Macro – all forces that are part of the larger society and are uncontrollable. Business Environment Micro Environment Macro Environment a. Suppliers a. Political b. Customers b. Economic c. Intermediaries c. Social d. Competitors d. Technological e. General public e. Ecological f. Legal The PESTEL Model a. Political: The political environment includes taxation policy, government stability and foreign trade regulations. b. Economic: The economic environment includes interest rates, inflation, business cycles, unemployment, disposable income, energy, availability and cost. c. Social: The social/cultural environment includes population demographics, social mobility, income distribution, lifestyle changes, attitudes to work and leisure, levels of education and consumerism. d. Technological: It is influenced by government spending on research, new discoveries and development, government and industry focus of technological effort, speed of technological transfer and rates of obsolescence. e. Ecological: It considers the ways in which the organisation can produce its goods or services with minimum environmental damage. f. Legal: It covers areas such as taxation, employment, law, monopoly, legislation & environmental protection laws.  Problem identification - A problem is a roadblock in a situation, something that sets up a conflict and forces you to find a solution. Objectives of problem identification: i. It should clearly state the problem ii. Identify target group facing the problem iii. Find the market acceptability of the solution to the problem Uses of problem Identification: It helps the entrepreneur to: i. Bring out new products in the market. ii. Understand the problems & needs of the market. iii. Be creative iv. Increase employment generation v. Increase national income of the country. Idea generation: The process of creating, developing, and communicating ideas which are abstract, concrete, or visual. It includes the process of constructing through the idea, innovating the concept, developing the process, and bringing the concept to reality. Idea fields: It can be described as 'Convenient frames of reference for streamlining the process of generation of ideas.' The process of generation of ideas can be streamlined by developing an awareness for different ‘idea fields’. This will help the entrepreneur in enlarging the scope of thinking, at the same time structuring the ideas according to Convenient frames of reference. Various sources of idea fields: IDEA FIELDS Natural Existing products Market driven Trading Service Creative Resources or Services or demand driven related ideas sector ideas efforts a. Natural resources - Ideas can be generated based on natural resources. A product or service may be desired from forest resources, agriculture, horticulture, mineral, animal husbandry, wind, sun and human resource. (examples from book pg 12) b. Existing products or services –Successful businesses find a need and fill it by providing a service or product. Entrepreneurs who look at ways to make an existing product or service better can be as successful as those who create or invent products. There is a constant and consistent effort on the part of all entrepreneurs to improve the products and services already existing in the markets. Change or improvement in existing products can come about in many ways. There are a number of pros (advantages) to changing or improving your existing product line, including:  Keep up with the competition: If you provide services or products in an industry that is constantly changing, it's important to stay aware of the latest in industry trends so you can continue to be competitive.   Increase sales: The main reason people will change and improve their existing product line is to increase their sales and ultimately, their revenue. c. Market driven or demand driven ideas: Market research is the systematic study & evaluation of all factors bearing on any business operations which involves the transfer of goods from a producer to consumer. It is any organized effort to gather information about target markets or customers. It is a very important component of business strategy. It helps to maintain competitiveness over competitors. It provides important information to identify and analyze the market need, market size and competition. Marketing research is different from Market research. Marketing research is concerned specifically about marketing processes, while market research is concerned specifically with markets. d. Trading related ideas - The scope and nature of trade has enlarged; local trade, import and export, e-commerce are all making trading a very wide area of enterprise. Trade is buying goods and services and selling them to consumers at a profit. One big advantage that trading has over other types of businesses is that, it is easier to launch and less risky. It is however, necessary for a prospective trader to be aware of the trends in an economy. With the opening of the market to International Companies, large size departmental stores, chain shops and umbrella markets have become omnipresent; competition has become intense and to survive in the market, new entrants will have to acquire skills, competencies and knowledge required to launch, manage and expand business opportunities. e. Service sector ideas - Entrepreneurial opportunities are not only restricted to the manufacturer. Service sector is the most growing field these days. So, new opportunities can be identified by understanding the linkages to different business activities. It includes Indian fast food / finger food, Speciality tourism, Personal grooming salons, career counselling centres, etc. f. Creative efforts - There are basically five ways in which creative ideas can be generated: i. Develop a new product or service. ii. Improve an existing product or service iii. Find a new process or resource for manufacturing a product iv. Find new markets for existing products or services. v. Find a new use of an existing product or service. III. Product identification After opportunity spotting and scanning of the environment, an entrepreneurial idea should lead to a definite product. Transformation of ideas into opportunities While the initial spotting of ideas (i.e., basic idea) is of a random nature, the development of ideas after scanning the environment (i.e., post scanning) idea is a more purposeful activity. Thus the former (ie spotting of ideas) is an experiential process while the latter (development of ideas) is a strategic process. All basic ideas have to undergo a vigorous process of examination, evaluation, analysis and synthesis to identify viable opportunities. Strategic positioning is required to convert an idea into an opportunity. Knowledge, skills, competencies and creative thinking are required for market success and to create a viable venture. So when Knowledge, skills, competencies and creativity are strategically applied for market orientation, a viable venture is born. Idea and opportunity assessment / Steps in investigation of ideas - All ideas need not necessarily become sound business opportunities. We have to assess the selected idea in terms of the potentiality of the opportunity. The steps involved in this opportunity assessment / investigation of ideas are discussed below: (PAL) (C2TA) 1. Product identification - An idea should lead the entrepreneur to a definite product/service which he can sell. So the first step is to obtain a concept of the product or service suggested by one idea. We should also see whether this product is already available in the market or not. If it is, then we should identify the reason for introducing the same product or service in the market. 2. Application and use - Ideas should be examined for their real life use and application. If it already exists in the market, we will have to find out its present use, then we may think of modifying it for better use. 3. Level of operation - Depending on the use of the product/service the entrepreneur will produce it in a cottage industry or a small scale industry or a large scale industry. 4. Cost - What is the per unit cost of the product at particular level of operation? Whether this cost is comparable with that of other competitive products? This will ultimately decide the sale price. 5. Competition - Any product or service will face market competition at some stage. So market competition should be assessed through a study of the trends in demand and supply. 6. Technical complexity - The entrepreneur has to see that what type of technology is required to produce the product and whether it will be locally available or will it have to be supported from other places? What would be the position of supply of plant and machinery for such a technology? These are important issues that have to be resolved. 7. Annual turnover and profit margin - Ideas should also have to be examined on the basis of expected annual turnover. This will also indicate the market share of the product or service. Once the entrepreneur has assessed the opportunities on these basis he/she should go ahead and assess the market also. Market assessment (DPS) C Selection of a product or service will depend upon many factors. While assessing the market, an entrepreneur has to prepare details on the following lines: 1. Demand The demand assessment will be based on the size of market being targeted, i.e., local markets, market at state level or national/international market. It will also involve a study of the target groups of consumers, their preferences, tastes, etc. 2. Supply and nature of competition Supply position means the complete picture of quantities of the product made available in the market by all the existing players. It should also take into account future supplies from possible entrants in the field. 3. Cost and price of product It is important to determine the cost of the product and its comparison with available products in the market. Cost variable of competitors in terms of transportation delays, wastage, storage etc., have to be studied to spot cost advantage. 4. Project innovation and change Market assessment will require a study of prevailing innovations and changes being carried out by existing entrepreneurs. Technological advancements in the field have to be analysed because they may change the quality and influence the cost and price also. Trend spotting It means identification of new trends. This will help the entrepreneur to understand the market and produce goods or provide services in accordance with market trends. Since it is unlikely for an entrepreneur to see into the future, the best way to do this is to become a trend – spotter. Ways in which an entrepreneur spots trends – 1. Read trends - They regularly read the leading publications and websites affecting their business. This could include industry publications, trade association sites, major newspapers, key business magazines, thought leaders and influential bloggers. So many trends start overseas (London, Paris, Tokyo), so they make sure that they read about what is going on in those cities. At first, they scan information from a wide variety of sources – from international news on down to niche bloggers focused on specific aspects of their industry. They also use tech–tools like RSS feeds, e-mail newsletters or websites and forums to get the information. 2. Talk trends - Talking to people is an equally important trend-spotting tactic. They get involved in specific industry’s trade association and attending events both online and offline. They also take advantage of social networking tools like social network websites and forums. They even start or join groups on the networks to know about the latest trends. It's also important to talk to customers and prospective customers, both online and offline. They use social media or online surveys: i. to get input on what customers are thinking or buying. ii. to identify key influencers and trendsetters in their target markets. In addition, they pay attention to ratings and review sites -- not just what customers are saying about the business, but what they are saying about competitor’s business. 3. Watch trends – There is no substitute for getting out in the marketplace. They make it a point to regularly go where their target customers hang out. If the customers are teenagers, that might be the local mall. If they are businesspeople, it might be the region’s "power lunch" restaurant or office park restaurant center. The entrepreneur spends some time simply watching and observing. What are people eating, doing, wearing, using? What stores or restaurants draw crowds and which sit empty? Trade shows are a great place to get trend ideas. 4. Think trends - As an entrepreneur begins gathering all these information regularly, they will start to develop a “trend - spotter mind.” As they absorb and mull about what they’ve read, heard and observed, they’ll start to make connections and observations that will lead to Business - boosting insights.  Creativity - Creativity is important to entrepreneurs because it is the first stage in the process of innovation, providing the stimulus for opportunity discovery and new venture creation. One of the first tasks demanded of an entrepreneur is to manifest creative ability through the conceiving of new product-market opportunities and unique value propositions. The creative process: Idea Germination Preparation Incubation Illumination Verification 1. Idea germination - This is the seeding stage of a new idea. It is the stage where the entrepreneur recognises that an opportunity exists. The idea germination takes place according to interest, curiosity of the entrepreneur according to which opportunity is explored and exploited to its best potential. 2. Preparation - On the basis of the idea, interest and curiosity the need is adjudged by the entrepreneur and he starts looking for the answer to implement the idea. If the idea is to launch a new product or service then market research is conducted. 3. Incubation - This is the subconscious assimilation of information. This is the transition period. The entrepreneur starts thinking about the idea and implementation in his sub- conscious mind. He also studies the pros & cons of manufacturing a product before it is launched. 4. Illumination - In this period of illumination the idea re-surfaces in realistic way and entrepreneur comes out with viable plan to give practical shape by collecting raw- material, arranging funds, policy – making for the implementation of idea. 5. Verification - Also called the validation or testing stage. This is where the idea is verified to prove that it has value. This is the most difficult phase of creativity as obstacles begin to appear. This is the developing stage in which knowledge is developed into application. In this case, when the fridge was developed acceptance in the market for such a product was a big obstacle. Innovation: It is the process of entrepreneurship which involves the translation of a useful idea into an application which has commercial value. It takes persistent effort to work out analytically the details of the enterprise or service, to develop marketing strategies, to organize finances & strategize operations. Elements in the innovation process – Analytical planning Organising resources Implementation Commercial Appl i. Analytical planning: Carefully identifying the product or service features, design as well as the resources that will be needed. ii. Resource organization: Obtaining the required resources, materials, technology, human or capital resources. iii. Implementation: Applying the resources in order to accomplish the plans and delivering results. iv. Commercial application: The provision of value to customers, reward to employees, and satisfying the stake holders. Selecting the right opportunity: The entrepreneur should look into various factors before deciding on the opportunity. Even if the opportunity looks promising, an entrepreneur should look into the environmental factors before choosing the best opportunity.