Chater-6 Opportunity Identification & Selection

Concept of idea Generation

-Generating ideas is an innovating, creative land brainstorming process.

-idea can be generated through vision, insight observation, experience, education, training and exposure of the
entrepreneur.

-idea generation involves new venture (project) identification and product selection.

-it can be generated through environmental scanning and market survey.

-its purpose is to select the best business opportunity.

-Idea can be:-

 Promising ideas: Promising ideas are considered in next stage

 Marginal ideas: retained/stored for future use

 Rejected ideas: rejected or dropped ideas.

Identifying & Recognizing Opportunities

-Opportunities refers favorable conditional situation in the environment.

-Opportunities are the scope through which entrepreneurs can benefits.

-Opportunities are key to success for entrepreneurs.

-Rational and smart entrepreneurs can identify opportunities influence.

-Business opportunities influence performance and outcomes of entrepreneurs.

-Entrepreneurs is the art of finding, developing and making profit from business opportunities.

-Business opportunities (i.e. locate) in the external environment such as……..

-In order to grab the opportunities, entrepreneurs need to enhance their strength and eliminate(reduce) weakness.

Business opportunity identification involves:.

1) Identifying sources of Generating new ideas.

2) Determining methods of Generating new ideas.

3) Selection of best ideas.

Sources of Generating New ideas
1) Situation Survey: i.e. environmental scanning, scanning PESTIN factors. (Describe components of political,
economic, socio-cultural, technological & natural environment)

2) Present work Environment: Entrepreneurs existing ventures vision, mission ,goals, strategies.
Entrepreneurs effort to overcome problems, entrepreneurs experience ,hobby, creativity, product of
existing business venture.

3) Out sources: Need, taste, preference of customer, outside consultant and experts member of distribution
channel, suggestions from friends, family, various medias, trade fairs activities and strategies of
competitors ,various information's provided by government.

4) R&D: Scientist & technologist are also very important source of new product, ideas new scientific
knowledge provides clues for new business ideas.

Methods of Generating New ideas

1) Brainstorming: A group of people meets together to generate ideas focusing on specific product or market.
It is the method or generating new ideas through group creativity. Greater number of ideas are generated
and all ideas are recorded.

2) Reverse Brainstorming: It is the group method for obtaining new ideas focusing on negative aspect,
criticism is allowed.

3) Focus Group: It is the group of individuals providing information's in a structural format.

4) Problem Inventory Analysis: It is method for obtaining new ideas and solutions by focusing on problems.
The consumers are provided with a list of problems and then asked to have discussion and it ultimately
results new product idea.

5) Checklist Method: In this method, new ideas are developed through a list of related issues or suggestions.
The entrepreneur can use the list of questions or statements to guide the direction of developing entirely
new ideas.

6) Dream/Big Thinking Approach: This is the method of thinking big by the entrepreneur. The entrepreneur
dream about the problem and its solution. Every possibility should be recorded and investigated.

7) Scientific Method: It includes principles, process, observation and experiments. This method involves the
entrepreneur defining the problem, analyzing data, developing and testing potential solutions and choosing
the best solution.

Selection of Best Ideas

1) Evaluation of ideas: The generated ideas are evaluated by using various criteria such as profit test,
constrains test, Risk test etc.

-Profit Test: Ideas should be attractive to provide entrepreneurs sufficient profit.

-Constrains Test: Before selecting an idea, it should be ensured whether the resources and inputs required for
idea would be available adequately or not. The idea should fit various resources of the enterprise.
 -Risk Test: Risk refers possibility of loss or damage. The desirability of any idea largely depends on the risk
associated with that idea. Risk can be idea risk and process risk. Idea risks are associated with technical aspects of
the idea and process risks are associated with process, procedure, tools, techniques of idea.

2) Selecting Best Ideas: After evaluating all possible ideas, the best idea is selected on the basis of cost, time,
benefits, and risks. All ideas are classified into following categories after evaluation(i.e while selecting)

-Promising ideas

-Marginal ideas

-Rejected ideas

Personal Characteristics of an Entrepreneur for Idea Generation

The required characteristics of an entrepreneur in order to recognize opportunities and generating ideas are as
follows:

1) Prior Experience: Prior experience in the related sector helps entrepreneurs recognize opportunities in the
market and generating ideas

- Prior experience helps to build social network & contracts which may provide insights that lead to
opportunities.

2) Cognitive Factors: Cognitive factor is concerned with knowledge, learning, intellectual capacity insight etc,
Opportunity recognition may be an innate or natural skill considered as cognitive process. Cognitive factors provide
entrepreneurial alertness which is also new as “sixth sense” that allows entrepreneurs to see opportunities.

3) Social Networks: Social networks refers social and professional contact of an entrepreneur such as friends,
relatives, peers group, consultants etc. The extent and depth of an individual’s social network affects opportunity
recognition. Larger the social network, higher the possibility of opportunity recognition & idea generation.

4) Creativity: Creativity is the process of generation a novel or useful ideas. Creative entrepreneurs are able to
seek opportunities and generating ideas.

Encouraging & Protecting Ideas

1) Communicate importance of creativity: Organization should create innovation and creativity supporting
culture and environment. The employees should be ensured that ideas are welcomed and recognized.

2) Facilitates Brainstorming: Enough time should be provided in order to generate new ideas. Time should be
managed for brainstorming.

3) Searching ideas: An organization should actively seek ideas in order to encourage innovation and creativity,
suggestion boxes, idea bank should be maintained.

4) Supportive Environment: An organization must be supportive towards regarding new ideas generation.
 5) Avoiding/Tolerate mistake: In order to encourage creativity, mistakes should be tolerated to certain extent
this allows people to learn from their mistakes.

6) Reward Creativity: In order to encourage creativity, employees should be rewarded for new idea
generation. Reward motivates employees to come up with new ideas.

7) Implementation of ideas: Ideas should be converted into action, otherwise ideas remains on paper or
mind.

8) Provide opportunity to grow: In order to encourage, individual employees should be encouraged to face
challenges and grow according to their talents.

Protecting Ideas
Ideas, creativity, innovations are regarding as intellectual property. Intellectual property can be protected through
patents, trademarks, copyrights, trade secrets etc.

i. Putting ideas into tangible form: Ideas are generated from human after brainstorming. They should be
converted into tangible forms by storming in logbook or computer hard disc.
ii. Securing the ideas: The ideas recorded in logbook or computer should be secured.
iii. Intellectual property Rights: The generate ideas can be secured through intellectual property rights
such as patent, copyright, trademark so that the ideas can’t be used and copied by unauthorized
person.

Unit 7 Formulation of Business Plan

Concept And Scope of Business Plan
 The business plan is the future road-map of proposed new venture of the entrepreneurs.

 Planning refers determining future course of action.

 It is detailed written document about proposed venture.

 It describes current status, expected needs and projected results of the new venture.

 Business plan provides clear picture about new venture.

 It covers various aspects of business venture such as production , marketing. Financial operations and
mgmt aspects.
  It analyzes strength, weakness, opportunities and threats of business venture.

 It is a document about the future of a business.

 It describes venture’s opportunity, it’s product or services, context, strategy, team required resources and
potential financial returns (budget).it is also known as project proposal

Scope of Business plan/Areas/Aspect

The scope of business plan decides in advance about every aspects of new venture. The major scopes are:

1) Business description of new venture/product, service, production, marketing, finance, HR, R & D etc.

2) Objectives of new venture.

3) Activities of new venture.

4) Timing and sequence of performing activities.

5) Methods of doing activities

6) Responsibilities for doing each activities

7) Resources needed

8) Projected investment, expenditure and profits.

9) Employees

10) Shareholders

11) Market intermediaries

12) Government Agencies

13) Competitors etc.

Significance/ Importance/ Benefits of Business plan

1) Provide Direction: Business Plan determines future course of action for new business venture. It provides
guideline about what are goals, how to achieve them and how business will move towards goal.

2) Risk mgmt: Under business plan, all aspects of new business venture are analyzed which helps
entrepreneur to deal with risk and uncertainties.(Risk refers possibility of loss or damage.)

3) Communication: Business plan includes informations and analysis of all stakeholders of the venture which
ultimately helps entrepreneurs to communicate with them.

4) Attract Investor: A well-prepared business plan attracts investor to invest in new venture. Business plan is
used as obtaining loan from Bank and financial institutions.
 5) Implementation: Business plan serves as an operational tool for guiding the new venture towards success.
It helps to put planning into action.

6) Increase Efficiency: Efficiency is concerned with more output from less inputs and time. Business plan helps
optimum utilization of resources which ultimately reduces wastage i.e cost reduction. Cost reduction is also
tools for profit maximization.

7) Control: Business plan establishes standard for performance as benchmark. Actual performance is
compared with standard performance to take corrective action.

8) Facilitates Business growth/Success: Proper business plan provides necessary strategies for business
growth.

9) Product/service: Business plan provides complete description of product and services offered by the
business venture.

10) Cash flows: Provides details about cash flow (investment and expenditure) and cash inflow of business
venture. it provides projected (budgeted) income and expenditure.

Elements of Business Plan: (Imp)

1. Executive Summary: It is the first section/chapter of business plan. it is the summary of entire business
plan designed to capture the reader’s attention. It generally includes vision and mission statement of company
competitive advantage, shares and profit projections, financial requirements and remaining highlights of entire
business plan.

2. Business Description: In this section, the nature and form of business, the existing condition (i.e. old or
new venture) of business are described. Similarly, the nature of market demand and technical outline of business
are also explained.

3. Market Analysis: This section as the basis for a company’s sales plans. It covers various analysis about
competitors, customer, product or services, market acceptance, market demand etc. It covers various marketing
mix such as product, place, price, promotion, people, process, physical environment etc. The competitive analysis
details the competitor’s strength and weakness, providing a basis for discovering market opportunities. The
customer analysis provides information about needs, wants, desire, intention and behaviour of customers.

4. Development and Product Aspect: This section focuses on R& D and production of firm’s basis product or
services. Generally, in this section factors relating to production process, resources requirements and quality
assurance are explained.

5. Marketing Aspects/Marketing Strategy: This section describes the actual marketing strategy of business
venture. The strategy must be consistent with the objectives of the venture. This section explains how firm will
exploit its resources best to create a total marketing focus. Similarly, it analyzes the size of market in rupees,
market penetration rate, and pricing strategy.

6. Financial Aspects: This section covers the financing and cash flow requirements, cash inflows, cash
outflows of the business venture. It contains projections of income, expenses and cash flows as flows as
description of budgeting and financial controls. The monthly figures are generally given for the first two years,
followed by annual figure for next three to eight years.
 7. Organization and Mgmt Aspect: This section shows the strength of the business ventures mgmt team by
high lighting knowledge, relevant experience, achievement and past performance. It includes key areas of mgmt’s
ability to provide planning, organization skill and leadership as well as specific mgmt and control systems.

8. Ownership: This section contains informations about ventures ownership. In this section the founder
describes the legal forms of the business, the contractual obligations of the owners. Similarly, equity position and
capital structure are also described.

9. Critical Risk: Risk refers uncertainty. Every new venture will have to face some potential hazards in the
particular industry (sector) and competitive environment. Entrepreneurs make the assessment of critical risks.

First, the entrepreneurs should indicate potential risk to new venture. The next step, discussion of what might
happen and finally, the entrepreneur should discuss the strategy that will present or minimize the risks.

10. Summary and conclusion: In this section key features are briefly summarized and highlighted .The
elements such as firm’s overall strategic direction, success factors, sales and profits.

11. Scheduling and Milestones: The section indicates when specific finance is needed when specific aspects of
particular marketing activities will be performed and delivery dates based production schedules.

12. Appendix: Appendix is provided at the end of business plan for reference. In this section, supplementary
informations such as organizational charts, important calculations, patent, mgmt resumes, articles, reports etc are
presented.

Presenting The Business Plan

- It is the responsibility of entrepreneurs to present business plan. - Business plan prepared either by the
organization or by the team of the organization or by outside consultant.

- If it is prepared by a team the entrepreneur should understand the contribution of each team member.

-If it is prepared by outside consultant, the entrepreneur should encourage the consultant for preparing effective
plan. Business plan should be developed through the true accurate and reliable informations.

- It is important to understand who the target audience of the business plan is.

The following guidelines should be followed while preparing and presenting the business plan:

1) Simple and short: Business plan should explain the business venture clearly and concisely. It should be made
reliable within short time. It should not exceed fifty pages.

2) Organize properly: The business plan should contain all components in systematic sequence. The overall
neatness is essential for effective presentation of Business plan.

3) Future –oriented: Business plan should point out (identify) future opportunities

4) Critical Risk: Critical risk should be properly highlighted in Business plan. Business risk refers uncertainty.

5) Effective Team: Business plan should provide evidence of effective team work in order to attract potential
investors.
6) Target Market: The Business plan should properly identify the target market and potential customers. The
needs, wants and desire of customer should be identified; different segments of target market should be analyzed.

7. Capture Interest: The Business Plan should attract/capture the attention of reader by emphasizing uniqueness of
the venture.

8. Appearance: the typing binding and printing should be attractive. The format, table of content should be well-
designed. Graphs and charts should be used.

The presenting of Business Plan should cover following stages:

i) Pre-Start up Stage: During this stage the idea for new venture is selected. Preliminary work is done to obtain
various resources. Legal formalities are fulfilled and legal documents are prepared and business plan is prepared.

ii) Start-up stage: In this stage the business venture is launched. Product is produced and marketed. Revenues
generating activities start. This stage is completed when the venture is established in the market.

iii) Early growth stage: It is the stage which requires careful co-ordination of resources. This stage expresses major
changes in markets, finance and resources utilization. Responsibility is shared; there is transition from
entrepreneurial style to managerial style.

iv) Later growth stage: it is the fourth stage represents as evaluation into an established enterprise when the
business venture is professionally managed. The companies (ventures) go for public sales of stock (i.e IPO)

Financial information needs while preparing business plan

Financial information is essential for preparing business plan. Before preparing business plan, the entrepreneur
must analysis capital requirements, sources of funds and profitability of venture through following aspects:

a) Expected sales and express figures for the first 3 years

b) Cash flow figures for the first 3 years

c) Current balance-sheet and projected balance sheet for the next 3 year

d) Determination of expected sales and expenses based on the market informations gathered earlier.

Sources of Finance for Venture Launching

Long term finance (fund) Short term finance

-Own saving/from relatives -Friends/relatives
-Bank and financial institutions -Bank overdraft/credit card
-Share issue -Advance from customers
-Debenture issue -Advance from distribution channels
-Hire purchase/leasing facility - trade credits
-Retained earning
Using the Internet as a Resource Pool
- Internet is the worldwide web of computer networks.
- It is the largest source of information which is shared worldwide.
- Creates a worldwide distribution channel for goods services and informations.
- Entrepreneurs can reach to new & potential customers and gather business related informations quickly
through the use of internet & email.
- Because of development of technology & internet, entrepreneurs are able to access informations efficiently
at very little cost.
- Internet can serve as an important source of information in preparing the business plan.
- Informations about industry (sector), competition, competitors, customers, market potentiality can be
gathered.
- The website can be a vital tool for advertising for direct marketing.
- Provides low-cost & efficient way to display product, provide informations, attract customer, handle
purchase order & receive payment.
- An entrepreneur can also access competitor’s website to gain knowledge of their strategy in marketplace.
- Similarly, they can achieve informations about needs, wants, desire, and expectation of customers.