ENTREP REVIEWER (5).pdf

SOPH ENTREPRENEURSHIP LESSON 1.1 DEFINITION OF ENTREPRENEURSHIP ❖ Process of creating or seizing an opportunity, and pursuing it regardless of resources controlled. (Howard H. Stevenson) ❖ Science of convertin...

SOPH ENTREPRENEURSHIP LESSON 1.1 DEFINITION OF ENTREPRENEURSHIP ❖ Process of creating or seizing an opportunity, and pursuing it regardless of resources controlled. (Howard H. Stevenson) ❖ Science of converting processed ideas into a remarkable business venture. (Marife Agustin-Acierto) ❖ A capacity for innovation investment, and expansion into new markets and techniques. (Fajardo) DEFINITION OF ENTREPRENEUR ❖ Someone who starts and manages a business is called an entrepreneur. “ENTREPRENEURS AS INNOVATORS” UNDERLYING PRINCIPLES FOR BUSINESS SUCCESS ❖ Having a vision. Transform vision into a reality. A clear vision provides a sense of purpose and direction for the business. ❖ Managing effectively. Effective management refers to the extent to which entrepreneurs achieve their goals and objectives with the help of their employees and the proper utilization of organizational resources. ❖ Taking risks and opportunities. Entrepreneurs are accountable to the success or failure of their businesses. Successful entrepreneurship involves taking calculated risks and take advantage of opportunities. ❖ Making informed decisions. When facing a decision with significant risks or consequences, entrepreneurs need to apply informed decision-making, which involves logic and information gathering. CORE COMPETENCIES A core competency refers to an entrepreneur’s traits or personal attributes rather than physical assets or financial resources EMPRETEC PROGRAM OF UNITED NATIONS ❖ Identified  SOPH ❖ competencies related to entrepreneurial ❖ development. ❖ EMPRETEC ❖ the Spanish acronym for Emprendedores (entrepreneurs) and tecnologia (technology); was first introduced in Argentina in 1988 and has been initiated in 36 countries. 10 personal Entrepreneurial Competencies 1. Opportunity-seeking and initiative 2. Persistence 3. Fulfilling of commitments 4. Demand for quality and efficiency 5. Taking Calculated Risks 6. Goal-setting 7. Information-seeking 8. Systematic planning and monitoring 9. Persuasion and networking 10. Independence and self-confidence 3 clusters of the 10 PECs 1ST CLUSTER (ACHIEVING BEHAVIORS) ❖ Opportunity-seeking and initiative Persistence ❖ Fulfilling commitments ❖ Demand for quality and efficiency ❖ Taking calculated risks 2ND CLUSTER (PLANNING BEHAVIORS) ❖ Goal-setting ❖ Information-seeking ❖ Systematic Planning and monitoring 3RD CLUSTER (POWER BEHAVIORS) ❖ Persuasion and networking ❖ Independence and self-confidence ENTREPRENEURIAL SKILLS ❖ Creative/Critical Thinking Learners who engage in creative thinking are able to both generate innovative solutions and use relevant information to understand the greater picture. ❖ Organizing Entrepreneurs can plan and prioritize work to ensure that time is managed effectively. ❖ Planning Entrepreneurs must be specific about the direction of their venture and their strategy.  SOPH ❖ Business Principles Entrepreneurs must be well versed in market knowledge, economic principles, and ethical practices. ❖ Computer Competency Entrepreneurs must be competent in the use of basic computer hardware and software ❖ Workplace Competencies Entrepreneurs are able to apply their skills, knowledge, and values to job tasks and work related experiences ❖ Marketing Entrepreneurs are competent in both executing strategies that promote their products and establish client/customer relationships ❖ High-Growth High-Value Entrepreneurship Entrepreneurs typically offer incentive compensation, manage business operations, build a strong entrepreneurial culture around determination and high work ethic, and from effective board of directors and advisors. ❖ Interpersonal Skills Entrepreneurs can work well with people regardless of their backgrounds. They are also insightful on the behavior of people OPPORTUNITIES There are four skills necessary to a successful business. They apply equally to any business. ❖ Engineering the skill to invent and develop new products (or services). ❖ Manufacturing the skill to deliver them, consistently and reliably, with quality, service, and price. ❖ Selling the skill to sell them. ❖ Business the skill to make a profit doing the other three. TRENDS, RISKS, AND DISADVANTAGES ❖ Losing stable income - Lack of family support ❖ Long hours - No health benefits ❖ All expenses are yours - It’s ALL your fault! ❖ You don’t work, you - Didn’t research don’t eat ❖ Start up costs - Thinking, I’m my own boss DISADVANTAGES ❖ No regular Salary ❖ Work schedule ❖ Administration REASONS FOR FAILURE ❖ High debt ratio – you’re heavy in debt or others owe you ❖ High levels of mismanagement – lack of professionalism  SOPH ❖ Unexpected staff resignation ❖ Inadequate inventory ❖ Selling products below cost ❖ Dwindling working capital, consistent negative cash flow, & inability to secure operational capital ❖ Declining profit ❖ Loss of market share TRENDS ❖ Internet Businesses ❖ Service Businesses ❖ Home-Based Businesses ❖ Socially Responsible Nonprofit Businesses ❖ Focus on Technology ❖ Outsourcing – contracting with other companies for service ❖ Strategic Alliances – forming a partnership with another company ❖ Corporate Ventures – new venture started inside a large corporation ❖ Convenience Products/services LESSON 1.2 THE ENTREPRENEURIAL MINDSET THEORY OF ECONOMIC DEVELOPMENT TWO TYPES OF ENTREPRENEURS ❖ MEGA ENTREPRENEUR Individuals who have generated substantial value and profits from innovations in a very short period of time. Willing to absorb huge risks using enormous amounts of capital in their business Rapid Economic Progress Huge amount of valueadded Attracts number of competitors & Imitators Crucial in rapid economic prosperity  SOPH ❖ MICRO ENTREPRENEUR Individuals who initiate business enterprise, but the value-added and profits they make are limited Value-added & Profits are limited Contributions are minimal Attracts few competitors and imitators Short in fund and inadequate in skills Cannot undertake huge capital, sophisticated technology and extensive risks Engage in micro and small business as an alternative to formal employment ENTREPRENEURIAL PROCESS ❖ A system entrepreneurs follow to achieve their goals. ❖ A strategic process that includes an articulation of a plan and how this is going to be implemented. ❖ An entrepreneurial discipline which involves several stages. 1. DISCOVERY a. The recognition of a business idea or the detection of opportunities that could make money for the entrepreneur. 2. DEVELOPMENT OF BUSINESS CONCEPT a. Gives more details on how the general business idea can be realized. b. Suggest a business plan c. Business Plan must also describe: i. How the enterprise is going to be organized ii. How it is going to be managed iii. How the business is going to be financed 3. ORGANIZING RESOURCES a. The process of identifying, sourcing and financing human, non human and other resources needed for the conduct of business. 4. IMPLEMENTATION a. The process of carrying out the business plan. b. Management of human, physical, technological, and financial resources. c. Confronting actual and potential rivals d. Responding to various opportunities, challenges and developments e. Managing growth and threats for the survival of the business 5. REAPING THE RETURNS a. Pertains to strategies related to the expansion of the business firm. CHARACTERISTICS OF AN ENTREPRENEUR INTERNAL FACTORS ❖ Demographics Gender, age, marital status, and employment status of individual who are likely to form entrepreneurial intentions.  SOPH ❖ Personal traits Theoretical bases for the contributions of selfconfidence, determination, and enthusiasm and other positive human qualities. ❖ Psychological traits include a host of qualities including need for achievement, risk appetite, acceptance for vagueness, self-efficacy and goal setting. Individual Skills & Prior ❖ Knowledge Vocational Know-how, supervisory and managerial skills acquired from work experience. ❖ Social Ties important in building networks that can complement the productivity of human and nonhuman resources of business. EXTERNAL FACTORS ❖ ENVIRONMENTAL SUPPORT Positive effects of government, financial institutions and training institutions ❖ ENVIRONMENTAL INFLUENCE Includes regulatory structure, patents, protection of property rights, and competitive environment. ENTREPRENEURIAL DECISION MAKING CRITICAL THINKING ❖ the systematic and rational way of providing an answer to a question. ❖ Explains what is going on in a business and how a firm can survive and remain stable. ❖ SWOT Analysis STRATEGIC THINKING ❖ involves thought process that assess current situation that can be useful in formulation of plans for the future. ❖ Porter’s Five Forces of competition ❖ Trend Analysis ❖ Scenario Building PORTER’S FIVE FORCES OF COMPETITION ❖ Competitive Rivalry. This looks at the number and strength of your competitors. How many rivals do you have? Who are they? ❖ Supplier Power. How Powerful are the companies that supply to me? Can they Easily Drive up prices? ❖ Buyer Power. How powerful are my consumers? Can they easily choose other business and force me to change my price? ❖ Threat of Substitution. Are there other similar products and services, which my customers might switch to?  SOPH ❖ Threat of New Entry. How easy is it for new businesses to enter my market and take my customers? RISKS, COGNITIVE ADAPTABILITY, AND ENTREPRENEURIAL DECISIONS RISKS ❖ are uncertain situations and developments that can increase the probability of loss or business failure Internal risks pertains to danger coming from the management of resources of a business enterprise Liquidity and Financial Risks Failure to hire best talents Damage to reputation Failure to innovate External risks are threats coming from various environment outside the business firm. Lethargic Economy Increased Competition Business interruptions Political Risks ❖ RISK MANAGEMENT The process of identifying, assessing, and responding to risks. COGNITIVE ADAPTABILITY ❖ Refers to the ability of individuals to be involved in the process of producing several decision-making based on the identification and management of changes in their environment. FLEXIBILITY Can shift from one thinking to another in making decisions, depending on the objective being pursued. DYNAMISM Needed in the light of the variety of changes, situations, problems, and issues that he has to confront. SELF-CONTROL The decisions of an entrepreneur should be formulated after careful analysis, deep reflection and in an undue haste manner.  SOPH LESSON 1.3 DEVELOPMENT OF BUSINESS PLAN SOURCES OF IDEAS FOR ENTREPRENEURIAL VENTURES ❖ From the product Differentiates them from those currently in the market More than changing the product, successful entrepreneurs introduce new products because of their dissatisfaction with those available in the market ❖ From the process of production and distribution ❖ From the person Interests, hobbies, skills, dreams, and even ones travels. ❖ From relationships METHODS FOR GENERATING OR TESTING NEW IDEAS ❖ LOGICAL THINKING Systematic and rational way of providing an answer to a question ❖ CREATIVE THINKING Looks at things from different perspectives LOGICAL THINKING ❖ STATISTICAL ANALYSIS refers to a systematic analysis of data generated from survey of individuals. Aside from giving basic information on the population being studied, it can also be used for hypothesis testing on the difference of the values of certain variables. ❖ MARKET ANALYSIS which is undertaken to know the various factors that affect the demand for a particular product or service. It can also determine how certain socioeconomic and demographic groups will react to the introduction of a new commodity or a change in existing products or services. This can be done through surveys, interviews and focus group discussions ❖ SWOT ANALYSIS usually describe the state of competition within an industry. ❖ DELPHI TECHNIQUE s the systematic way of generating ideas from a select group or individuals using various rounds of consultations or sessions. This process is mostly used in research and economics, that aims to collect opinions on a particular research question or specific topic, to gain consensus. CREATIVE THINKING ❖ BRAINSTORMING refers to an unstructured discussion of a group to elicit ideas. ❖ PROBLEM INVENTORY ANALYSIS  SOPH is similar to brainstorming. It uses the group discussion method to elicit ideas from the usual brainstorming because it is directed to identifying all possible problems encountered with a specific product or service. After identifying all the possible problems and issues with the product or service, the participants are tasked to give alternative solutions to the problems ❖ FREE ASSOCIATION METHOD is another technique used in discovering business ideas. It is a method that has been used in psychology to elicit the unconscious thoughts of individuals by expressing their thoughts associated with words and ideas given by the therapist; ❖ CHECKLIST METHOD is another creative way of obtaining business ideas from target participants by listing all possibilities that ideas can be connected to, reprocessed and associated with; and participants in the discussion group can be asked to list down all possible changes that can be made with an existing product or service. GENERATING BUSINESS IDEAS THROUGH TRENDS IN BUSINESS ENVIRONMENT Methodologies That Focused On The Business Environment ❖ PORTER’S FIVE FORCES OF COMPETITION ❖ SWOT ANALYSIS ❖ ENVIRONMENTAL SCANNING BASED ON TREND IN THE BUSINESS ENVIRONMENT ENTREPRENEUR CAN GET IDEAS FROM ❖ Bargaining powers of its competitors and suppliers ❖ Major shift in government involvement in business ❖ Sociodemographic changes and technological developments BARGAINING POWER OF ITS COMPETITORS AND SUPPLIERS ❖ Lower the selling price ❖ Product differentiation FACTORS THAT INFLUENCE CREATIVITY ❖ PROBLEM SOLVING FACTORS Provide an answer to a problem. ❖ MOTIVATIONAL FACTORS Internal and external factors that stimulate desire and energy in people to be continually interested and committed to a job, role or subject, or to make an effort to attain a goal. ❖ SITUATIONAL FACTORS Creativity of an individual is manifested when they are confronted with concrete situations.  SOPH ❖ ORGANIZATIONAL FACTORS A creative person thrives in an environment that is nurturing and not threatening. CREATIVE PROBLEM SOLVING A procedure of answering a problem with mechanism and technique incorporating creativity ❖ Divergent thinker Thinks of all possible ways to reach a solution ❖ Convergent thinker Thinks for a final solution OSBORN-PARNES MODEL ❖ DR. SYDNEY PARNES ❖ ALEX OSBORN 1. SETTING THE OBJECTIVE a. This involves in the identification of an objective that an individual wishes to achieve. 2. REVISITING THE OBJECTIVE a. This stage involves the search for studies, reports, analyses, and papers as well as conducting interviews related to the objective set. 3. IDENTIFYING THE PROBLEM a. Based on the objective set and the review of related studies, the individual has a clearer view on what problem to pursue. 4. LOOKING FOR A SOLUTION a. Once the problem has been identified, another series of divergent thinking of generating ideas for the solution to the problem is needed. 5. SELECTING THE SOLUTION a. Once enough options are given from the divergent thinking process, a convergent evaluation process of weighing the significance, relevance and feasibility of these options is undertaken. 6. ACCEPTING THE SOLUTION a. After the convergent evaluation process, we then have selected the solution to the problem. LESSON 1.4 THE BUSINESS PLAN ❖ Describes the various external and internal elements involved in starting a business or in expanding an existing venture, amidst a dynamic business environment ❖ It integrates the different functional plan such as:  SOPH Marketing (Marketing Plan) Manufacturing (Production plan) Finance (Financial Plan) Human Resource Management (Organizational Plan) ❖ Serves as a guide for short-term and medium-term decision-making and managerial action WHY WRITE A BUSINESS PLAN 1. Determine whether a proposed or existing business venture is viable given its target market 2. Guides the entrepreneur in mobilizing the resources needed by the business 3. Serves as a tool in helping get financing for the business WHO READS IT? 1. ENTREPRENEURS 2. LENDER 3. INVESTORS INFORMATION NEEDS FOR THE MAJOR SECTIONS OF THE BUSINESS PLAN 1. MARKET INFORMATION NEEDS Determine the size of the market however, the entrepreneur must be clear on who his primary and secondary markets are. 2. OPERATIONS INFORMATION NEEDS Depends largely on the cost of sourcing and manufacturing the product or of providing the service. 3. FINANCIAL INFORMATION NEEDS Require the entrepreneur to include a list of all sources of revenue and a list of all possible expenditures MARKET INFORMATION OPERATIONS FINANCIAL INFORMATION NEEDS INFORMATION NEEDS NEEDS ❖ General information ❖ Location ❖ Rental rates trends ❖ Manufacturing or ❖ Cost of equipment ❖ Specific industry service operations ❖ Cost of utilities trends Equipment and/or ❖ Personnel costs ❖ Local market furniture required ❖ Distribution costs conditions ❖ Space requirements ❖ Cost of insurance ❖ Market potential (e.g. ❖ Labor requirements ❖ Registration and Market size, untapped ❖ Raw materials needed license fees or underserved and potential market) suppliers ❖ Demographic and/or ❖ Utilities psychographic profile  SOPH of target market MAJOR SECTIONS OF THE BUSINESS PLAN I. INTRODUCTORY PAGE Provides a brief summary of the business plan’s content. A. The name of the business and address of the company B. The name of the entrepreneur and his contact information (mobile no., email address and personal website) C. A brief description of the company and the nature of the business D. The amount of financing needed. II. EXECUTIVE SUMMARY The executive summary is prepared after the total plan has been written. It must stimulate the interest of its reader, especially if he or she is a potential investor. III. ENVIRONMENTAL AND INDUSTRY ANALYSIS A. SOCIOCULTURAL CONDITIONS 1. Characteristics of the population 2. Lifestyle trends B. TECHNOLOGICAL CONDITIONS 1. Assessment of the major developments in science and technology C. ECONOMIC CONDITIONS 1. Description of the growth or both the national and local economies D. POLITICAL-LEGAL CONDITIONS 1. Must take into account existing laws and regulations E. SUPPLY AND DEMAND F. COMPETITION IV. DESCRIPTION OF THE BUSINESS ❖ Products and/or services ❖ Size of the business ❖ Mission statement and core values ❖ Location of the business and its major ❖ physical assets ❖ Background of the business  SOPH ❖ owners/entrepreneurs V. PRODUCTION PLAN ❖ Manufacturing process ❖ Physical plant ❖ Machinery and equipment ❖ Suppliers of raw materials ❖ Future capital equipment ❖ Needs VI. OPERATION PLAN ❖ Description of the company’s operations (manufacturing, service, retail or online business) ❖ Flow of orders for goods and services : (Manufacturing ) o (Service business) must describe the procedures in completing a business transaction ❖ (Retail business) must explain how it will purchase the various products it will offer, how it will manage the inventory and how it will keep track of sales ❖ (Online business) how will its website be designed, how will customers choose from its product offerings, how will they pay for their purchases, and how will the merchandise be delivered to them? VII. MARKETING PLAN ❖ Pricing ❖ Distribution ❖ Promotion ❖ Sales forecasts VIII. ORGANIZATIONAL PLAN ❖ Provides a documentation of the venture’s form of ownership ❖ Organizational chart ❖ Skills and abilities ❖ Roles and responsibilities IX. FINANCIAL PLAN ❖ Assumptions ❖ Pro forma balance sheet ❖ Pro forma income statement ❖ Cash flow projections ❖ Sources and uses of funds ❖ Breakeven analysis X. ASSESSMENT OF RISK ❖ Potential risks-internal or external ❖ Strategies for preventing or minimizing risks ❖ Response to risks should they occur  SOPH XI. TIMETABLE/MILESTONES ❖ When are major activities will happen and when milestones will be reached serves a useful purpose. XII. APPENDICES ❖ Market research data ❖ Detailed financial projections ❖ Opportunity Assessment Plan ❖ Curriculum vitae of the management team ❖ Price lists from suppliers ❖ Profile of competitors ❖ Sample Licenses (Mayor’s permit, BIR, Health permit etc.) WHY DO SOME BUSINESS PLAN FAIL? Document is sloppy and looks unprofessional. Executive summary is not coherent and is too long. Unclear on why people would want to buy the product can be readily produced Sales and financial projections are unreasonably optimistic Inadequate description of the qualifications and experience of the management team Inadequate assessment of the potential threats to the business HOW TO PRESENT A BUSINESS PLAN? ❖ Tell a compelling story ❖ Exhibit confidence and professionalism ❖ Cover the basics ❖ Adopt a cooperative attitude when answering questions LESSON 1.5 Recognizing, Assessing and Exploiting Opportunities According to Cambridge Dictionary, an opportunity is “ a situation or occasion that makes it possible to do something that you want to do”. From a business perspective, an opportunity is “an exploitable set of circumstances with uncertain outcome requiring a commitment of resources and involving exposure to risk” (www.businessdictionary.com STAGES OF OPPORTUNITY RECOGNITION ACCORDING TO HILLS, SHRADER, & LUMPKIN  SOPH 1. PRECONDITION (PREPARATORY STAGE) 2. CONCEPTION (GESTATION STAGE) 3. VISIONING ( HUNCH; LOGIC OF CONNECTIONS) 4. ASSESSMENT (EVALUATION OF IDEAS) 5. REALIZATION (PRODUCTION OF PROTOTYPE) FACTORS IN OPPORTUNITY RECOGNITION 1. Market awareness ( prior knowledge of the market ) a. refers to personal exposure to the market and its components including customers and suppliers. Tools used are market analysis and environmental scanning. 2. Entrepreneurial readiness (entrepreneurial alertness) a. refers to a variety of features of an individual to start a business venture; types of resources, financial, physical and human resources; ability of the individual to take risks and manage uncertainties once the enterprise is operational 3. Connections (networks) a. families and friends as well as business associates can bring about opportunities that an individual can pursue. ELEMENTS IN OPPORTUNITY ASSESSMENT 1. PRODUCT OR SERVICE a. What is the unique feature of the product or service? b. Why will the consumers purchase this commodity? c. What need or want is the product or service trying to fill? d. What is the competitive edge of the commodity compared with existing products or services? 2. MARKET OPPORTUNITY a. Refers to the appraisal of the characteristics of the market. b. Is it easy to enter the market? c. If there are barriers to entry, can they be overcome? d. What segment of the market is your product or service targeting? 3. COSTING AND PRICING a. The price of a product or service would depend on the cost of raw materials and other factors of production. Cheap and reliable raw materials and the employment of inexpensive unskilled laborers can make your product competitively priced. 4. PROFITABILITY a. A non-profitable business enterprise, however creative the business idea, is not worth pursuing 5. RESOURCE REQUIREMENTS a. intermediate inputs – raw materials that need further processing.  SOPH b. Factor inputs – are called the processing inputs which include labor, capital, and technology 6. RISKS a. If the potential business venture will just face normal business risks, the business venture can be pursued. However, very risky business ventures may not be suitable for beginning entrepreneurs. 7. ENTREPRENEURIAL COMMITMENT a. Commitment is the seriousness of the individual to proceed with the introduction of the product or service (skills, resources, amount of time and devotion in the business) OPPORTUNITY PATHWAYS 1. RATIONAL APPROACH (MEGA ENTREPRENEURS) a. Also called the TRADITIONAL APPROACH b. Uses systematic procedures or the Entrepreneurial Process in proceeding with the implementation of a business opportunity 2. INTUITIVE APPROACH(MICRO ENTREPRENEURS) a. Starts with the recognition of an opportunity and proceeds directly to the grabbing of the opportunity after sensing that it can be done. PRODUCT PLANNING AND DEVELOPMENT PROCESS This section summarizes the development process of a product from its inception, introduction in the market, and final decline, the various stages that a product or service undergoes in its product life. Two main phases, precommercialization phase and the commercialization phase. PRECOMMERCIALIZATION PHASE 1. IDEA STAGE a. Idea b. Evaluate c. refers to the formation of business ideas. d. starts with an entrepreneurial intent and proceeds with the development of the business idea using of logic and creativity, 2. CONCEPT STAGE a. Laboratory development b. Evaluate c. The refinement of ideas and visualization of an idea that can serve as business opportunity d. The initial customer evaluation also happens during this stage e. A feasibility study or market study is used to determine if there is a demand for the product or service  SOPH 3. PRODUCT DEVELOPMENT STAGE a. Pilot production run b. Evaluate c. After the visualization of the idea the business idea is concretized with the production of a prototype. 4. TEST MARKETING STAGE a. Semicommercial Plan Trials b. Evaluate c. The product or service is introduced in the market after a series of evaluation and feedback from potential customers. Commercialization phase 1. INTRODUCTION a. Product is launched b. Sales grow slowly as people are not aware of the product c. Informative advertising is used d. Usually no profit 2. GROWTH a. Sales start to grow rapidly b. Persuasive advertising may be used c. Prices may be reduced as new competitors enter the market d. Profits start coming 3. MATURITY a. Sales now increase slowly b. Intense competition in the market c. Competitive or promotional pricing may be used d. Advertising expenditure at its highest to sustain growth e. Profits may soon start to fall as the product enters saturation stage 4. DECLINE a. Sales will fail b. Product will lose its appeal c. Stiff competition in the market d. Advertising is reduced then stopped e. Production may be stopped in the future