NEW VENTURE CREATION

Basic requirements for setting up a new business

1. Product/service
2. Clear objectives-Determination of objectives is one of the most essential prerequisites for
the success of the business. Objectives should be realistic and well defined.
3. Business plan- This is a predetermined line of action.
4. Market- An entrepreneur should not start a business before knowing whether the market
for its products/services exist
5. Sound organization- This is a harmonious combination of man, machine, material,
money, management, etc. so that they all work as one unit.
6. Finance-This is the life blood of business enterprise. It is like a lubricating oil to keep the
business wheel on the move. Capital requirements should be considered carefully.
7. Infrastructure- there is need to consider: availability of power, transport (accessibility),
communication facilities and social amenities.
8. Security- They need to be assured of the continuity of the business.
9. Location- The success of the business depends greatly upon the location where it is set
up. The entrepreneur needs to know the cost of the premises/rental charges.
10. Effective management-One of the reasons for failure of a business is often attributed to
poor or inefficient management.
11. Research- Market research enables a business in finding out new methods of production,
improving the quality of product and developing new products.
12. Harmonious relationship with employees- Employees are supposed to be rewarded well
for good performance.
3. What can put an individual off starting?

Reasons for not starting a business are often surrounded by elements of fear. The fear of failure, of
not having enough cash to be able to continue their quality of life and what other people will think
about them.
In the UK we have a negative view of what it’s like to run a business. Even now when culture is
changing it is still a different culture that exists compared to that of the American culture. In
America, fear of failure, liquidation, and bankruptcy isn’t seen as a major inhibitor in terms of
starting a business.
4. What are the three main factors to consider when setting-up in business?

There are three factors that have to come into play when offering advice to people setting up and
running a business. Those of 1) risk, 2) reward and 3) timing.
1) Risk: The risk may be too great in a volatile, changing market place, where the product requires
constant changes and updates and where ownership of intellectual property rights (IPR) may cause
problems. If you don’t have the resources in place to cover these problems, you risk will be higher.
2) Reward: Whilst the risk might be acceptable, the return or reward might not be adequate. The
individual should be looking for a reasonable return for efforts in running that business.
3) Timing: Timing is crucial to the success of a business. Never enter a saturated market unless you
have powerful point of difference or unique selling point. Early entrance to market should be the
most successful strategy; satisfying initial demand and getting established as a recognised provider
for future demand. Timing applies equally to resources. If you set up a market proposition but
cannot produce the goods in time you will rapidly lose credibility and hence market share.

Abilities and skills

Can anyone set up in business or do you have any special skills and characteristics?
The requirement for specialist skills and characteristics will depend on the industry. Some, not all,
businesses require technical skills. Management skills are critical to all business.
Negotiating skills, selling skills, administrative skills, along with the ability to be able to identify
target markets and customers are all required when setting up and running a business.
One way to work out whether you have the appropriate skills or attributes to set up and run a
business is to undertake a quiz. The quiz will identify individual strengths and weaknesses,
together with areas for development.
The idea in relation to the market
How do you choose a profit making idea?
The business idea is key to success. The idea itself might come about by friends and so forth.
To validate the idea it is a good idea to check with people who know about that particular industry.
Do they think there is a gap on the marketplace and that the product could be serviced?
It is also a good idea to use the internet, to see if the idea has been done anywhere else in the world
before.
Following discovery and validation of the idea, you must consider profitability. Can the product be sold
at a profit and therefore generate the income stream that is required to run a successful business.

Procedures of Starting a Business 

1. Identification of a business idea /opportunity
2. Development of a business plan
3. Location of a business -demand evaluation
4. Business name
5. Trading licenses / permit
6. Registration of the business
7. Choice of the business organization
8. Start-up and management of the business.

How does one start a new venture?

– Who is your customer?
– How will you reach key customer market segments?
– What determines customer choices to buy or not buy your
product/service?
– Why is your product/service a compelling choice for the customer?
– How will you price your product/service for the customer?
– How much does it cost to make and deliver your product/service?
 – How much does it cost to attract a customer?
– How much does it cost to support and retain a customer?

1. Identification of business opportunity

An opportunity is a chance that an entrepreneurs utilizes after a thorough research through which he
can manifest his ideas.

A business opportunity is a viable business potential to create something new by engaging new
technologies in the industry. The process of new venture is embodied in the entrepreneurship process
which is more than just problem solving in a typical management position. He must find, evaluate, and
develop an opportunity by overcoming threats that resist the creation of something new. The process
has four distinct phases;

 Identification and evaluation of the opportunity

 Development of the business plan
 Determination of the required resources
 Management of the resulting enterprise.

a) Opportunity identification- This is quite a difficult task. Most opportunities don’t suddenly
appear, but rather result from an entrepreneurs’ alertness to possibilities or in some cases, the
establishment of mechanisms that identify potential opportunities. i.e research
Sources of new business ideas;

Business idea- Coming up with something that was not there/related to the product/ customer/ service.

 Personal interests and hobbies – These are activities that one has a lot of interest in and can
easily develop into a business e.g making hair can lead one to starting a saloon, baking,
photography.
 Previous jobs- a research done revealed that 45% of business people got the idea from their
previous employment before starting the business.
 Suggestion from people- This could be from consumers and business associates, members of the
distribution system and technical people.
 Education course- What one has done in the process off training
 Family business- branching from a family business
 Friends and relatives- ideas from these people on how to start a business will enable one to do a
feasibility study and write a business plan.
 Mass media –The mass media is a great source of information, ideas and often opportunity.
Examples include newspapers, magazines, television and now internet. One way to become an
entrepreneur is by responding to offers in the media.
 Exhibitions – One way to find ideas for a business is to ettend exhibitions and trade fairs.
 Brainstorming – Is a technique for creative problem solving as well as generating ideas. The
objective is to come up with as many ideas as possible.
  Government – New products and service idea can also come from government regulations.
 Existing companies – Entrepreneurs should establish a formal method for monitoring and
evaluating the products and services in the market. This may uncover ways to improve on
present product, resulting in new product ideas.

2. Development of a business plan

 Business plan is a document that describes the goals and objectives of the business and
clearly how and when they will be achieved. It is a roadmap to owning and operating
business.
 A business plan is a detailed account of the conversion of the entrepreneur’s ideas and
vision into a real, functioning business.
 It’s a written document that describes all the steps that the entrepreneur plans to carry out
in opening and operating a successful business.
Importance of a business plan

1. Better understanding of the business

A business plan helps the entrepreneur appreciate the business needs of his venture beforehand.
Through a well prepared business plan, the entrepreneur will be able to see clearly the problems
he had not thought of earlier, so he becomes well prepared psychologically to deal with them.

2. Financing from financial institutions

An entrepreneur will need to secure funds for his business. Most lenders will require that he
comes up with a business plan before they can consider him for financing. This has become the
main reasons why most business prepare business plan.

3. A tool for management

It is in the business plan that the entrepreneur sets out the objectives for the business. He lays out
in writing what his vision for the business is. The entrepreneur will be referring to the business
plan to check whether the growth of the business is in line with the plan he had envisaged earlier
on.

4. A tool for planning and guidance

A business plan in itself is a planning tool. The big plans are laid out and the small ones that
make up the major plans are also followed up closely. The entrepreneur has set out what he
needs to achieve within a given time frame so he will set out all these in the business plan.

5. Communication tool
A business plan is a strong communication tool for the business. It defines the purpose, the
competition, management and personnel. It clearly identifies the vision and mission of the
business to all the stake holders

6. Highlight risks involved

The risks involved in the business are perhaps something that the entrepreneur may not want to
dwell upon too much. However, for the plan to gain more credibility, the entrepreneur will have
to incorporate what risks his type of business is likely to encounter. These could be financial,
operational or control risks. The entrepreneur should also highlight the measures he has in place
to manage the risks that he fore sees.
7. Reference Tool
A well prepared business plan offers a benchmark against which actual performance can be
measured and reviewed. As has been mentioned, a business plan will tell the entrepreneur when
the trend in performance tends to deviate from the laid out plan.

3. Business Location and address

It means where the business will be located, the place and also the site. It means the physical
address of the business including email and website.
4. Determine the resources required
The resources needed to for addressing the opportunity must also be determined. This process
begins with an appraisal of the entrepreneur’s present resources. Care must be undertaken not to
underestimate the amount and variety of resources that are needed.
5. Manage the enterprise
After the resources are acquired, the entrepreneur must use them to implement the business plan.
The oprerational problems of the growing enterprise must also be examined.

Sources of funds for a business

SOURCES OF ENTERPRENUERSHIP FINANCE AT VARIOUS STAGES OF BUSINESS
DEVELOPMENT:

 The startup stage –this is the period when the entrepreneur needs seed money for rent,
supplies, inventory, equipment, wages, licenses and fees and other expenses associated
with starting the biz. The major source of finances include; personal resources, wealthy
investors, and friends and relatives.

 The growth stage- the period when you will need additional financing for business
expansion-the hiring of full time sales personnel, building new production lines, investing
in new machinery, or investing in new product development. by this time the biz. Will
have developed its product or service, successfully marketed what the business offers,
commercial banks, small biz. Administration and venture capital firms.

 Maturity stage-During this period, the enterprise tends to outgrow its ability to finance
further expansion with cash generated from its own internal operations and external
sources. At this point business will want to move into new markets, construct new plants
or distributing channels, and purchase more equipment. Sizable sums of money for
marketing may be needed to meet increased competition.

The five stages of business growth

Stage 1: Inception
At this stage the emphasis will be on generation profit and coping with
administrative demands. The emphasis will need to be on obtaining
customers and achieving economic modes of production. Its sources of
finance are likely to come from the ownership or friends and relatives.

Stage 2: Survival

A firm at stage two faces problems of overtrading and uncontrollable

growth. It has to take account of increased complexity in its distribution
channels and changes in the nature of the competition it receives.
Sources of finance are still likely to be the owners but increasingly finance
will come from banks and suppliers. Cash generation is likely to break
even, and investment goes back as working capital. There is likely to be a
single product line but there will be evidence of increasing volume and a
broadening of distribution channels.

Stage 3: Growth

By stage three the keys issues are how best to manage growth and
ensure that the firm is sufficiently resourced. At this stage the firm will
begin to experience the pressure of large competitors and the extra
demand caused by its entry into new markets. Marketing may by now get
designated as a function and research becomes necessary to underpin
new product development. Sources of finance show signs of broadening
with evidence of cooperation from banks and new partners. There should
also be retained earnings and cash generation should be positive but
reinvested.

Stage 4: Expansion

The key issues for stage four revolve around financing the firm’s growth
and maintaining control. There is a growing need to focus externally on
the environment and on shifts in markets. Sources of finance will come
from retained profits, new partners and secured long term loans. Cash
generation will be positive and there may be dividend payments.

Stage 5: Maturity

At stage five the key issues are ones of expense control, productivity,
entry into niche markets to offset any potential decline in the firm’s
traditional markets, price competition, active marketing, and investment
in plant and equipment. Its major investments will be in plant and
 equipment, and in refining the marketing mix applying its products in
order to maintain its market position. Sources of finance here include:

 Sale of stock
Large sums of equity money are usually sought from such sources as public sale of stock
 Mergers- Large sums of equity money are also obtained from mergers and joint ventures
with other companies.

Reasons for small business failures:

– Lack of experience
– Lack of expertise/ incompetent human resource
– Lack of strategy and strategic leadership
– Poor financial control
– Growing too fast
– Insufficient commitment
– Ethical failure (lack of discipline)