Study Guide in Entrepreneurship PDF

Study Guide in Entrepreneurship Chapter 4 CHAPTER 4 THE SEARCH FOR A SOUND BUSINESS IDEA OVERVIEW In entrepreneurship, the first investment of the entrepreneur...

Study Guide in Entrepreneurship Chapter 4 CHAPTER 4 THE SEARCH FOR A SOUND BUSINESS IDEA OVERVIEW In entrepreneurship, the first investment of the entrepreneur is his/her business ideas. Thus, this module will focus on discussing the concept and importance of a sound business idea, as well as the methods for searching or generating such sound ideas. Finally, this module will also discuss the procedure in determining the best business idea, which includes the preparation, screening, and final selection. LEARNING OBJECTIVES At the end of this module, students should be able to do the following: 1. Define what a Sound Business Idea is 2. Explain the procedures in determining the Best Business Idea 3. Determine the methods of searching for new ideas 4. Explain the final selection of Business Ideas LEARNING CONTENTS (What is a Sound Business Idea?) In entrepreneurship, the business idea serves as the starting point for both novice and habitual entrepreneurs. In fact, it acts as the blueprint of the entrepreneurs on how they are going to run and manage their business to maximize its profit. It is necessary, therefore, that entrepreneurs are well- grounded in the concept of a sound business idea to save time, effort, and money in pursuing their business goals. What then is a sound business idea? A Sound Business Idea is defined as the economic opportunity which is within the reach of the entrepreneur and which will provide him/her with a desirable value. As shown by the figure below, having a sound business idea is important for both established businesses and new ventures. Sound Business Idea New Venture Established Business Successful Success in Market Entry Competition Figure 1: The Importance of Sound Business Idea PANGASINAN STATE UNIVERSITY Study Guide in Entrepreneurship Chapter 4 While a sound business idea is essential in ensuring a successful market entry for new ventures, it is also important for established businesses in order to gain more market share compared to their business competitors. The different forms of Business Ideas 1. An old type of business can be professionalized. 2. A standard product can be customized. 3. New technology can be adapted to manufacture an old product. 4. Imported products can be replaced by local products. 5. Business operations can be internationalized. ACTIVITY 1 LEARNING CONTENTS (Procedure in Determining the Best Business Idea) Because entrepreneurs are creative, innovative, and ambitious, having multiple business ideas is a very common situation that new and even experienced entrepreneurs face quite often. As such, a procedure must be adapted in order to ensure that the chosen idea is the one that is most applicable to the firm’s objectives and resources. The steps in the proposed procedure in determining the best business idea are as follows: 1. Preparation of the list of business ideas 2. Screening of the listed ideas 3. Final Selection LEARNING CONTENTS (Methods of Searching for Ideas) In general, there are two methods of searching for business ideas. These are the Unanticipated Means and the Deliberate Search. 1. Unanticipated Means It is when the entrepreneur finds business ideas without serious efforts. Unanticipated means include a person’s work, hobbies, acquaintances, and chance events. A. The Person’s Work -Employees who are in direct contact with customers are sometimes confronted with demands for products or services that are not currently provided by the company. B. The Person’s Hobby - There are times when a person’s hobby turns out to be a business opportunity. A hobby is a useful means of developing some skills, which could be useful in the future when a hobbyist decides to operate a business. The entrepreneurship literature contains a handful of success stories of people with hobbies that were later converted into business ventures. C. The Person’s Acquaintances PANGASINAN STATE UNIVERSITY Study Guide in Entrepreneurship Chapter 4 - It may take another person, in the form of a friend, neighbor, or just any other acquaintances to make someone become aware of the wisdom of starting a new business venture. D. A Chance Event - There are times when entrepreneurs encounter an event that will provide them with a clue to a business venture and spark a sound business idea. 2. Deliberate Search One of the disadvantages of unanticipated means in the search and generation of a business idea is the uncertainty of when these ideas will come pouring in. To counteract this problem, a deliberate search for ideas could be made. This type of idea generation takes the form of the following: Sound Business Idea Using Search Questions Idea Prompting Idea Prompting Someone Customer request Customer Some other Some otherelse’s eventIdea request event A. Using Search Question When questions are used to draw out specific answers, they are referred to as “search questions”. Some of the examples are “How can this product be made differently?” And “What will motivate the consumers to buy my product instead of the competitor’s products?” In the generation of business idea, it is important that entrepreneurs are able to ask the right questions. B. Idea Prompting - Encounters with someone else’s idea, or a customer request, or some other event may provide hints or cues leading to a business idea. SCREENING GENERATED IDEAS The search for a sound business idea calls for the preparation of a list to ensure that the best can be selected. However, before the selection is made, the listed ideas should first undergo screening. Business ideas may be screened with the use of the following criteria: 1. Market Feasibility -A business idea must pass the test of market feasibility. This means that there must be some positive indication about the following: PANGASINAN STATE UNIVERSITY Study Guide in Entrepreneurship Chapter 4 a. Stable and sufficient demand -a business idea will not be successful if there is insufficient demand for the product or service that the entrepreneur plan to venture. A demand that remains constant or shows signs of growth throughout long periods indicates the probability of market feasibility. Also, the demand must be large enough to justify the investments that will be needed by the venture. b. Competitive Strength -The business idea must be such that the venture can effectively compete with current or potential competitors. The competitive strength of the competitors must be determined in terms of product offerings, price, distribution methods, promotion methods, etc. 2. Technical Feasibility -Production difficulties could take the form of unstable supply of materials, unreliable or fluctuating power supply, etc. Nevertheless, technical concerns such as those mentioned must be cleared before subjecting the business idea to further consideration. 3. Financing Feasibility -Financing feasibility means that there must be sufficient funds to finance operations. -The proposed owners of the ventures must have sufficient capital, or if insufficient, must be of good credit standing in the community. In general, there are three sources of financing: The proposed owner’s savings, Relatives and friends, and Financing institutions like Banks. 4. Financial Feasibility -The purpose of entrepreneurship is to provide a source of income to the entrepreneur. This will not be possible if the venture will not be profitable. Profit is a result of the financial feasibility of the business idea. Financial feasibility may be determined through an analysis of the financial prospects of the proposed business idea. This may be done in two steps: 1. The preparation of projected financial statement such as: a. Income statement b. Balance Sheet statement c. Cash flow statement 2. The determination and analysis of financial ratios derived from the projected statements. PANGASINAN STATE UNIVERSITY Study Guide in Entrepreneurship Chapter 4 Business Idea Prepare project financial statements Derive financial ratios Analyze financial ratios Financially feasible Not Financially feasible FINAL SELECTION The purpose of screening is to eliminate from the list the generated business ideas that did not pass the adapted criteria. After the screening, the list may appear to be any of the following: 1. Status quo 2. A shorter list 3. Zero listing LEARNING ACTIVITY 1 Identification. Write the answer on the space provided. _____________1. This method of idea generation occurs when the entrepreneur finds business ideas without serious efforts. _____________2. It is the result of the financial feasibility of the business idea. _____________3. It is defined as the economic opportunity which is within the reach of the entrepreneur and which will provide him/her with a desirable value. _____________4. It refers to the first investment or starting point for both novice and habitual entrepreneurs. _____________5.This type of feasibility means that there must be sufficient funds to finance operations. LEARNING ACTIVITY 2 ESSAY 1. Explain using your own words, the importance of having a sound business idea to both new ventures and established businesses. 2. Enumerate and explain the different criteria to consider in screening generated business idea. PANGASINAN STATE UNIVERSITY Study Guide in Entrepreneurship Chapter 4 SUMMARY This module focused on the concept of a sound business idea. As the entrepreneur’s first investment, business ideas should be generated and examined carefully. To ensure that the best business idea is chosen, the procedures which include the preparation, screening, and final selection should be adapted. This module specifically discussed the two methods of searching for a sound business idea which includes Unanticipated means and deliberate search. After the ideas are generated, they should undergo screening and pass the following criteria: Market feasibility, Technical feasibility, Financing feasibility, and Financial feasibility. REFERENCES Medina, R. (2010). Entrepreneurship and Small Business Management (2 nd ed). Manila: Rex Bookstore Morato, E. (2016). Entrepreneurship. Quezon City: Rex Bookstore PANGASINAN STATE UNIVERSITY