2.

ENTREPRENEURIAL OPPORTUNITY AND PRACTICE

 Define entrepreneurial opportunity

Entrepreneurial opportunity is the point at which identifiable consumer demand meets the
feasibility of satisfying the requested product or service.
It begins with developing the right mindset—a mindset where the aspiring entrepreneur sharpens
their senses to consumer needs and wants, and conducts research to determine whether the idea
can become a successful new venture.

 Discuss Joseph Schumpeter’s theories of opportunity

According to Schumpeter, entrepreneurial innovation is the disruptive force that creates and
sustains economic growth, though in the process, it can also destroy established companies,
reshape industries, and disrupt employment. He termed this force creative destruction.
Schumpeter described business processes, including the concept of downsizing, as designed to
increase company efficiency. The dynamics of businesses advances the economy and improves
our lifestyle, but the changes (sometimes through technology) can make other industries or
products obsolete. For instance, Schumpeter provided the example of the railroad changing the
way companies could ship agricultural products quickly across the country by rail and using ice
“cold cars,” while at the same time, destroying the old way of life for many ranchers who
wrangled cattle from one location to their intended commercial destination.

To him, the goal was to progress, and progression starts with finding new ideas. He identified
these methods for finding new business opportunities:

1. Develop a new market for an existing product.

2. Find a new supply of resources that would enable the entrepreneur to produce the product
for less money.
3. Use existing technology to produce an old product in a new way.
4. Use an existing technology to produce a new product.
5. Finally, use new technology to produce a new product.

 Identify key drivers of opportunity

Drivers of Opportunity

Some recent drivers for change in the entrepreneurial space include new funding options,
technological advancements, globalization, and industry-specific economics.
  Increased access to capital through social media sources like crowdsourcing for a more detailed
discussion of crowdsourcing) is having a significant impact on entrepreneurship in that it enables
underserved people and communities—such as women, veterans, African Americans, and Native
Americans, who otherwise might not be able to start and own a business—to become
entrepreneurs.
 Technological advancements continue to provide new opportunities, ranging from drones to
artificial intelligence, advancements in medical care, and access to learning about new
technology. For example, drone technology is being used to map and photograph real estate,
deliver products to customers, and provide aerial security and many other services. Cell phones
have spawned many new business opportunities for a wide range of cell phone accessories and
related products, ranging from cell phone cases to apps that help make our cell phones faster for
business and personal use.
 Increased globalization drives entrepreneurship by allowing importing and exporting to
flourish. Globalization also helps spread ideas for new products and services to a world market
instead of a local or regional market. Combined with the Internet and computer technology, even
small businesses can compete and sell their products around the globe.
 Economic factors could include a strong economy that fuels other businesses. For example,
growth in the housing market fuels growth for many housing-related products and services,
ranging from interior decorating to landscaping as well as furniture, appliances, and moving
services.

David Pridham, CEO of the patent advisory board and transaction firm Dominion Harbor
Group in Dallas, cites six reasons that current conditions are excellent for startups:

1. Venture capital investment, has surged to the highest level ever, totaling $148 billion in
2018.
2. The concern over patent protection is improving with better trade protection of
intellectual property rights.
3. Artificial intelligence could be a tremendous opportunity based on a McKinsey report
projection, estimating artificial intelligence to become a $13 trillion industry by 2025.
4. The explosive growth in freelance workers has been a boon to startups and small
businesses.
5. Another hot sector is technology-driven advancements such as self-driving vehicles.
6. Intellectual property now accounts for 38.2 percent of our total Gross Domestic Product
(GDP) in the United States. That totals $6 trillion per year, more than any other nation’s
GDP except for China.

 How You Can Recognise Entrepreneurial Opportunities

1. Economic Trends-These help determine areas that are ripe for new start-ups and areas
that start-ups should avoid.
2. Social trends- They alter how people and businesses behave and set their priorities.
These trends provide opportunities for new businesses to accommodate the changes.
For example, interest in health, diversity of the workplace etc.
3. Technological advancement-Once technology is created, products often emerge to
advance it. An entrepreneur might decide to introduce a new technology to produce a
new product, introduce an existing technology to produce a new product or use an
existing technology to produce an old product in a new way.
4. Political and Regulatory changes- It provides the basis for opportunities for example,
laws to protect the environment have created opportunities for entrepreneurs to start
firms that help other firms comply with environmental laws and regulations.
5. Solving a Problem- This involves noticing a problems and finding a way to solve it.
The problems can be pinpointed through intuition, serendipity or change.
6. Finding Gaps in the Market place- Product gaps in the market place represent
potentially viable business opportunities.
7. Consumer comments/complaints- What the consumers say about a product or services
can be the sources of ideas to improve them.
8. Distribution Channels- Sometime certain products or services may not have well
established distribution channels right to the convenience of customers.
9. Research and Development- The results and recommendations could provide a basis
for new business opportunities.
10. The unexpected success or failure of a product or service can provide opportunities to
an entrepreneur.
11. The incongruity- this is an anomaly or a discrepancy between the reality and what
everyone assumes it to be.
12. Process Needs- there may be need for certain processes to complete a service.
13. Changes in the industry or market structure create gaps in the market place.
14. Demographics give information on the products and service required by certain group
15. Changes in perception or mood create opportunities for new products or services
16. New knowledge may create opportunities to solve existing problems.
17. Developing a new market for an existing product.
18. Finding a new supply of resources that might enable the entrepreneur to produce a
product more economically.
19. Competitive advantages in price, location, quality, reputation, reliability, speed or
other attributes of importance to customers.
20. Technology Transfer and Licensing- Universities and research institutes develop a
range of new technologies, but never do anything with them. These universities can
offer a licensing arrangement. A licence is a legal agreement granting one rights to
use a particular piece of intellectual property. In return, the licensee is required to pay
the owner of the license. These payments can consist of an upfront or annual flat
licensing fee or royalty. Often the licensor will provide access to the idea’s creator to
help make the move to market as successful as possible.

 Describe opportunity screening: Opportunity screening is the process by which

entrepreneurs evaluate innovative product ideas, strategies, and marketing trends. Focusing on the
viability of financial resources, the skills of the entrepreneurial team, and the competition, this
screening helps determine the potential for success in pursuing the idea and can help refine
planning.

For most entrepreneurs, research will also include asking potential customers, specifically your
target customers, questions about products they like and don’t like, how a product or service could
be improved, how the customer buying experience could be improved, and even where customers
might go to purchase products and services instead of your business.
 Small business marketers can use several no-cost or low-cost methods, including surveys,
questionnaires, focus groups, and in-depth interviews.

You will likely begin with secondary research—that is, data that are already available through
some published source. There may be articles, research reports, or reliable Internet sources where
you can research information about your industry, products, and customers. If you have the funds,
you can also purchase research reports from firms that specialize in gathering research on certain
topics or products. Secondary research has the advantage of being quickly available. However,
secondary research often is not specific enough to provide all the details you need to know about
your idea.

Primary research is needed when secondary research does not address the questions you want to
explore while investigating your business idea.

 How You Can Evaluate Entrepreneurial Opportunities

Successful entrepreneurship is comprised of a number of crucial elements: markets, industries and

the key people who make up the entrepreneurial team. These elements brought together offer a
clearer way to answer the crucial that every aspiring entrepreneur must ask themselves: why will
or won’t this work? The model offers a toolkit for assessing and shaping market opportunities and
a better way for entrepreneurs and their teams to assess the adequacy of what they bring to the
table as individuals and as a group.

Is the market attractive? Macro and Micro considerations

Macro Level

One first assesses how large the market is. Market size can be measured in many ways.
Assessment is done by gathering secondary data from trade publications and the business press.
Measures include:

The number of customers in the market, say for workplace snacks;

The aggregate money spent by these customers on the relevant class of goods or services in this
case workplace snacks;

The number of units of relevant products or usage on occasions, such as workplace snacks bought
annually.

You can also collect recent historical data to ascertain how fast the market has been growing,
together with any available forecasts about how fast it is likely to grow in the future.
For instance investors want to know the size and growth rate of the market, so that if the product
catches on, they should have a substantial upside. Others may want to know whether the overall
market opportunity is big, and also if the market size of this particular offering is robust.

You need to assess broad macro-environmental trends- democratic, sociocultural, economic,

technological, and regulatory and national- to determine whether things are likely to get better or
worse in the future. Do the trends favour the opportunity or will you be swimming against a
powerful tide? Being able to assess, spot and maybe even create trends is key to decision making.

The broad, macro-level market assessment is important to an entrepreneur, for you to invest years
committed to an idea that, in the end, may not be substantial enough to be worth all your time and
effort. Its important for an entrepreneur to know whether the opportunity is a substantial one,
serving a large and attractive market, or niche opportunity with limited potential. Either may be
acceptable: it depends on the entrepreneur’s aspirations. It is also important to know which way
the tides are flowing. So, reaching a clear conclusion about market attractiveness is critical.

Micro Level

Most successful entrepreneurs, rather than targeting the entire market, identify a much smaller
segment of customers within the overall market. The micro-level market assessment involves
asking four key questions relevant to such segment.

Is there a target market segment where we might enter the market in which we offer customers
clear compelling benefits, or better yet resolve their pain at a price they are willing to pay?

Are these benefits, in the customers’ minds different from superior in some way- better, faster,
cheaper or whatever to what’s currently offered by other solutions? Differentiation is crucial.

How large is this segment and how fast is it growing?

Is it likely that our entry into this segment will provide us with access to other segments that we
may wish to target in the future?

These questions can be answered through a combination of first hand primary data (talking to
prospective customers) and secondary data (available on the internet, libraries and other sources.)

Most aspiring entrepreneurs make the mistake of examining only the macro level. Through failing
to identify the first customers who will buy- almost by name and why they will benefit and by
ignoring how entry into this segment might create one or more options into other market segments,
they risk persuing a dead-end path on two counts:

Without differentiated benefits, most customers won’t buy and

Without a pathway to growth, most investors wont invest.

Is the Industry attractive? Macro and Micro considerations

Serious entrepreneurs prefer to compete on the basis of some sustainable advantage that their
competitors do not enjoy, and with a business model that won’t soon run out of cash.

Macro Level

Michel Porter identified five forces to determine the overall profitability of any industry as; threat
of entry; buyer power; supplier power; threat of substitute and competitive rivalry.

The aspiring entrepreneur first identifies what industry his or her business will be in. The
entrepreneur then asks a series of questions about each of the five forces to determine whether that
force is favourable or unfavourable on balance. The more forces that are favourable, the more
attractive the industry and vice versa.

Once all five forces have been assessed, the key outcome is to reach a clear conclusion about the
attractiveness of your industry. This step is crucial to the overall assessment of your opportunity.

Micro Level

Identifying and assessing the competitive and economic sustainability of the proposed venture is
necessary to fill in the micro-level industry piece of the opportunity assessment puzzle. Assessing
the sustainability of the proposed venture requires examining, in relationship to its competitors,
the proposed venture itself- whether a new firm or a venture within an existing firm. The goal is to
determine whether certain factors are present that would enhance the ability of the venture to
sustain any advantage that it might have at the outset, without quickly running out of cash. These
competitive and economic factors are the following:

The presence of proprietary elements- patents, trade secrets that other firms are unable to
duplicate.

The likely presence of superior organisational processes, capabilities or resources that other would
have difficulty duplicating or imitating.

The presence of an economically sustainable business model- one that won’t quickly run out of
cash. This factor, in turn, involves a careful look at some more detailed issues:

Revenue, in relation to the capital investments required and margins obtainable;

Customer acquisition and retention costs, and the time it will take to obtain customers;

Contribution margins and their adequacy to cover the necessary fixed cost structure to operate the
business;
Operating cash cycle characteristics, that is, how much cash must be tied up in working capital
such as inventory, how quickly customers will pay, and how slowly suppliers and employees can
be paid, in relation to the margins the business generates.

Can the Team Deliver?

There are three elements relating to the entrepreneurial team. Examining these elements is
necessary in order to complete the opportunity assessment task.

Does the opportunity fit the team’s business mission, personal aspirations and risk propensity, and
does all of that align with that of a prospective investor?

Does the team have what it takes, in a human sense- in experience and industry know-how- to
deliver superior performance for this particular opportunity, given its critical success factors, that
is those factors that done right, almost guarantee superior performance, even if other things aren’t
done so well or done wrong, will have severely negative effects on performance regardless of
doing other things right?

Is the team well connected up, down and across the value chain so it will be quick to notice any
opportunity or need to change its approach if conditions warrant?

The Team’s Business Mission, Personal Aspirations and Risk Propensity

Individual entrepreneurs and investors come to the opportunity assessment task with certain
preconceived preferences, often defined in terms of:

Markets they wish to serve;

Industries in which they are willing to compete;

Their own aspirations;

Risks they are willing to undertake.

Opportunities that do not match these preferences will be seen as unattractive.

The Team’s Ability to Execute on the Critical Success Factors

The backgrounds and prior experiences brought to the venture by particular entrepreneurs make
them better able to execute on some critical success factors than on others. Understanding the
critical success factors relevant to a particular opportunity and the industry within which it will
 compete and matching them against the team’s ability to perform on them is one of the most
compelling aspects investors consider when assessing opportunities.

Entrepreneurs who fail to assess accurately whether they and their team what it takes to execute on
the critical success factors they will face take a huge personal risk- beyond the business risk they
already take- if they seek external capital.

The Team’s Connectedness Up, Down, Across the Value Chain

The ability to combine tenacity with a willingness to change course- sometimes due to changes in
the market place, fortuitous or others can make all the difference. Entrepreneurial teams should
ask how connected they are, both up and down the value chain- with suppliers and customers and
across their industry to address this concern. How can they get connected if they are not? One
partial answer: network.

By assessing themselves with respect to the three elements as part of their broader opportunity
assessment efforts, entrepreneurial teams gain in three ways.

If the team needs to be strengthened to better suit an otherwise promising opportunity, the best
time to do so is before getting started. Doing this early enables the venture to benefit from the
talents, insights and perspectives of the team’s new members from square one.

Viewing investors as part of the team also builds trust and can reduce the risk investors perceive in
the venture, since many investors like to help build the team. Entrepreneurs who are willing to
admit they don’t have all the skills required often rate highly with the investor community.

If external funding is to be sought, then pitching an inadequate team is not only likely to be
successful but also undermines the credibility and reputation of the team members, thereby
hampering their ability to raise capital in the future. Get the right team first, then pitch. You’ll
need to make a convincing case that the team will be able to deliver the results it seeks and those it
promises to investors and other stakeholders.

 Researching and Verifying the Entrepreneurial Opportunity

Whether you start your own business, buy an existing business, or purchase a franchise,
researching the industry, your target market, and examining the economic and funding options
are all part of performing due diligence. Due diligence is the process of taking reasonable steps
to verify that your decisions are based on well-researched and accurate information. It means
thoroughly researching potential pursuits, asking detailed questions, and verifying information.
Different industries have different meanings for due diligence. For example, in the legal industry,
due diligence involves understanding the terms of a transaction and contract. In business finance,
due diligence refers to raising capital or the work involved in merger and acquisition
transactions. In the entrepreneurship field, research is necessary to verify whether the idea is
really an opportunity, considering the entire process of starting the venture and funding the
venture.

One of the more common questions entrepreneurs must ask is whether now is a good time to start
a business. This question of timing is addressed in the investigation to determine whether the
idea is merely interesting or fits the criteria of being an entrepreneurial opportunity.

An idea can move to a recognized opportunity when the following criteria are met:

Significant market demand

Significant market demand means that the idea has value by providing a solution to a problem that the
target market is willing to purchase. This value can result from a new product or service that fills an
unmet need, a lower price, improved benefits, or greater financial or emotional value. This value can also
result from capitalizing on “non-consumption.”

For example, in the 1980s, the Disney Corporation realized that it was losing an opportunity to entice
visitors to come to their theme parks from 9 p.m. to 9 a.m. when they were closed. So the company
started having “school nights” when schools and students could use the parks at a discount.

In Zimbabwe schools are now renting out class rooms and halls as church venues during the weekends.

 Significant market structure and size

Significant market structure and size involve growth potential and drivers of demand for the
product or service. Barriers to entry are manageable, meaning that entering the industry or
creating a new industry is not exceptionally difficult. If the industry already exists, there must be
room within the industry for your venture to gain market share by providing a value that creates a
competitive advantage.

 Significant margins and resources to support the venture’s success

Significant margins and resources involve the potential for achieving profit margins at a high-
enough level that the work of starting the venture (including the entrepreneur’s time and energy) is
worth the risks involved. If the operating costs are too high and the profit margin is too low, it is
important to analyze whether the idea is truly feasible. Significant margins also include the capital
requirements—how much money is needed to start the venture—as well as the technical
requirements, the complexity of the distribution system, and similar resources.
After confirming that a business idea is an entrepreneurial opportunity, the entrepreneur should
ask more detailed questions in the next phase of screening the business. Here are some examples:

 Would other people value your product or service?

 Does your product or service solve a significant problem?
 Is the market for the product definable/specific?
 Does the market have unique needs or expectations that align with your entrepreneurial
opportunity?
 Is the timing right to start the venture?
 Are there infrastructure or supporting resources that need to be commercialized or created
prior to your launch of the venture?
 What resources are needed to start the venture?
 What is the competitive advantage your venture offers within the industry and is this
competitive advantage sustainable?
 What is the timeline between starting the venture and the first sale?
 How long before the venture becomes profitable and do you have the resources to support
this timeline?

A good starting point in your opportunity screening research is to begin learning about the
demographics of the market you are targeting (your target market). Demographics are statistical
factors of a population, such as race, age, and gender.

 Industry and consumer sources of opportunities

1. Value
2. Scarcity
3. Expertise
4. Identifying and leveraging uniqueness (and competitive advantage)
5. Import and export (from an area of high concentration to an area of low
concentration)
6. Employees
7. Start-Up Partners (Collaboration (example is professional associations)
8. Previous Employment
9. Friends (friends helped to identify the business opportunity which resulted in the
establishment of my present business enterprise )
10. Members of Families (a member or members of my family helped me to identify the
business opportunity which resulted in the establishment of my present business
enterprise)
11. Members of Ethnic Networks
12. Chance Factors (The business opportunity resulted in the establishment of my
present business enterprise was identified by chance)
 13. Prior Knowledge of Markets (prior knowledge of the market before i started my
business)
14. Prior knowledge of operating in specific markets (prior knowledge of how to serve
the market which my business serves)
15. Prior knowledge of the problems which are likely to be encountered with customers
16. Changes in the environment
17. Technological discovery and advancement
18. Government’s thrust, programs, and policies
19. People’s interests
20. Idea Sites
21. Serendipity
22. Education and expertise
23. SCAMPER

Exercise

T-Shirt Startup

Create your own t-shirt line to target your classmates.

 What would be the theme?

 How much would you charge?
 Where would you sell the shirts?
 What are the expected sales of the business?
 What are the resources needed to get started?

 SETTING UP AN ENTREPRENEURIAL VENTURE

 The fact that small businesses are born each day is no guarantee that all will grow and be
successful in business. Some are still born; they never see the light of the day. Others die
after a few months or within the first year of operation. The majority die before their 5th
anniversary.
 Small business are prone to failure due to a number of reasons some of which are
 Stiff competition from already established ventures. Financial problems such as misuse of
finances, lack of adequate finances or inability to secure finances
 The ability to capitalise on opportunities and creativity make small businesses
outstanding and thrive in face of setbacks.
 THE BUSINESS ENVIRONMENT
 Businesses do not operate in a vacuum but rather in a dynamic environment. The
business environment is composed of internal and external factors which influence a
company’s operating system. The business environment is composed of three-layered
environments;

INTERNAL

TASK
EXTERNAL

 INTERNAL
 TASK/INDUSTRY
 EXTERNAL
Environmental scanning

Refers to the efforts by which owner entrepreneurs examine the internal and external
environments before making a decision. The business environment is composed of the layered
environments which are:

 The internal environment

 The task/industry environment
 The External environment

 Internal environment

This describes the internal state of a venture which constitute of the structure, culture and
resources of a venture . the owner entrepreneur has to assess the internal capabilities of the
venture such as the resources: financial, assets, etc. These determine the strengths and
weaknesses of the venture.

Task/ Industry environment

This environment is characterised by certain forces that may have serious negative and positive
effects to the new venture, i.e opportunities and threats.

 The Five Forces Model by M Porter

 Rivalry in industry

An entrepreneur has to determine the level of direct and indirect competition in the industry
before establishing a venture.

 Bargaining power of buyers

The customers can have high bargaining power which can then affect the level of
competitiveness of a newly established venture. This has an impact the revenue against the costs
being incurred. Newly established ventures are more likely to be less competitive in their pricing
strategies as compared to already established ventures.

 Bargaining power of suppliers

The suppliers can also have high bargaining power which has a direct bearing on the cost of raw
materials/supplies. This can have serious negative implications to a newly established venture
that does not enjoy trade discounts always/ buy in bulk!

 Threat of substitute products

These will pose serious competition to the newly established venture. If a new venture is
supplying products that are easy to substitute then there is indirect competition.

 Threat of new entrants

Just like the newly established venture, new other ventures will come and increase the rivalry in
the industry.

 External environment
 Economic factors

Factors such as interest rates, inflation rate, balance of payments, economic growth have serious
implications on newly established ventures. Economic melt down and the general commercial
health of a nation can have adverse effects on the establishment of new ventures.

 Legal and political factors

 Policies that are established that can encourage or discourage new venture creation e.g
 Price controls
 Competitive restrictions
 Indigenisation policy
 SMEs policies
 Import and duty policies

 Technological factors
The technological advancements have given more opportunities to new ventures, e.g. the growth
of the internet usage has made it easy to conduct Research and Development and even buying
supplies from abroad online.

 Socio-cultural factors

Demographic changes such as cultural integration, improvement in income levels, more affluent
demographics have created more opportunities for venture creation.

An effective analysis of the environment will enable the entrepreneur to know:

 When to set up
 Where to set up

When to set up

 When the economic environment is conducive e.g low interest rates, low inflation rates,
structural changes favour new venture start-up
 When one has accumulated adequate personal savings
 When its profitable to start a venture i.e low competition
 When consumer expenditure is high

Where to set up

 In areas of high population growth

 In business centres , where there are more business establishments more customers are
always attracted to such places
 The right market segment is located

Importance of business environment knowledge

Each business firm has to exist, survive and grow in relation to the various forces of the business
environment. Since business firms have no control on these forces, it has to adapt itself
according to these forces. Points that would help us to understand the importance of business
environment are:

1. Enabling the identification of opportunities and getting the first mover advantage:

Business environment provides many opportunities to the firms to improve their performance.
The firms which are able to scan these opportunities at an early stage get maximum benefit and
can leave their competitors behind.

For example, scientific research has come out with an energy efficient light bulb which lasts at
least 20 times more than a normal bulb. General Electric and Phillips had identified this
discovery and are coming up with their new bulbs.

2. Helping in the identification of threats and early warning signals or Radar effect:

Environment understanding helps an enterprise to recognize qualitative information in advance,

which can be used to prepare it for facing likely challenges.

For example, if any new multinational company is entering the Zimbabwean market, the
manager of an Zimbabwean firm dealing with same product as that of the multinational
company, should take it as a warning signal. He should handle this threat proactively & well
ahead of the launch of MNC’s product, take measures like improving the quality of his product,
heavy advertisement etc.

3. Tapping useful resources:

Business requires many resources like raw materials, tools, equipments, finance, labour etc. for
performing business activities. These resources are known as inputs. Business environment
provides all these inputs to the business firms for carrying out their activities and also expects
something in return.

The firms supply their output to the environment, for example goods and services to the
customer, payment to investors on account of money invested by them, payment of wages to the
workers and so on. Thus, we can say that business firms depend fully on the environment, for
supplying inputs and for receiving their outputs.

4. Coping with the rapid changes:

Business environment is very dynamic. One can see changes like new technologies, fragmented
markets, more demanding customers, heavy global competition and so on. Thus, in order to
efficiently cope with these changes, managers must understand the environment and should
adopt appropriate courses of action at the right time. It helps management become more sensitive
to ever changing needs of customers. As a result, they are able to respond to such changes
effectively.

5. Assisting in planning and policy formulation:

Business environment brings both threats and opportunities to a business. Hence, understanding
of environment helps the management in future planning and decision making. For example,
competition increases with the entry of new firms in the market.

The management has to draft new plans and policies to deal with new competitors.
Environmental awareness provides intellectual stimulation to planners in their decision making.
They can make changes in their plans efficiently and effectively.

6. Improvement in performance:

Environmental awareness provides a continuing, broad based education for management.

Objective qualitative information generated by such understanding provides a strong basis for
strategic thinking. The enterprises that monitor their environment closely can adopt suitable
business practices not only to improve their performance but also to become leaders in the
industry.

7. Image building:

Environmental understanding generates a feeling among public that business is sensitive and
responsive to its environment. This helps in building the image or reputation of the firms.
The understanding of its business environment helps an organization to make realistic plans and
ensure their effective implementation. It also helps the business enterprise in identification of
opportunities and threats. Consequently, such an enterprise is likely to succeed in achieving its
goals smoothly & consistently.

8. Successful Conduct of Business

The business executive can successfully conduct the business operation. Since chances for losses
are minimized, the firm can withstand in the long run, widen its financial base and face
competition more effectively. All these finally lead the business venture to a grand success

9. Opening of New Avenues

Environment opens fresh avenues for the expansion of new entrepreneurial operations. When the
business climate is favorable, new ideas, schemes and ventures may be put into action. The firm
can utilize its resources advantageously and derive the maximum benefits.

10. Dynamism in Approach

Business enterprise is essentially a dynamic endeavor. Hence the business executive should be a
dynamic personality. Acquisition of knowledge about the changing environment will keep the
businessmen always alert and dynamic in his approach. His dynamic approach in turn will help
the firm to avoid ecological stresses and to maintain harmony with the environment.

11. Chances for Growth

By identifying itself with the changing situations and environment, the firm can gain the popular
support and win the confidence of the consumers and others. This popular support will produce
many chances for growth and development of the firm.

12. Control over Environment

We all know that environment exercises vital control over the scope and performance of a
business firm. A proper understanding of the nature, character and influence of the environment
over the activities of the firm and its continued efforts to identify with the changing economic
conditions will at one stage enable the business firm to exercise control over the environment
itself. This will result in a smooth and successful running of the venture in the short run as well
as in the long run.

Thus, a clear understanding of the environment shall bring many benefits, while a minimum
disregard of these factors will entail a heavy penalty to the firm.

 Barriers to Market Entry

A barrier to market entry is an obstacle (usually high costs) which prevents a product from
gaining traction in a new market. Such obstacles can be natural (i.e., due to the nature of the
product and the characteristics of its target market) or artificial (i.e., imposed by existing
dominant players or governments to prevent newcomers and competition).

Economies of scale

These are declines in the unit costs of a product as the absolute volume per period increases.
These force the entrant to either come in at a large scale (risking strong reaction from
incumbents) or a small scale (forcing a cost disadvantage).

Product differentiation

Incumbents have brand identification and customer loyalties. This forces entrants to spend
heavily to overcome these loyalties. Startups may bring a different product to market, but its
benefits must be clearly communicated to the target customer. Startups must find an
effective positioning, which often requires marketing resources beyond their means.

Capital requirements

These are the financial resources required for infrastructure, machinery, R&D and advertising.
Startups may get around capital requirements by outsourcing parts of the operation to companies
that can leverage existing investments.

Switching costs
These are one-time costs the buyer faces when switching an existing supplier’s product to a new
entrant (for example, employee retraining, new equipment, technical support).

Access to distribution channels

This can be a barrier if logical distribution channels have been locked up by incumbents.

Cost disadvantages independent of scale

Incumbents may have cost advantages that cannot be replicated by a potential entrant. Factors
include the learning or experience curve, proprietary product technology, access to raw
materials, favourable locations and government subsidies.

Government policy

Governments can limit or prevent entry to industries with various controls (for example,
licensing requirements, limits to access to raw materials). Startups in highly regulated industries
will find that incumbents have fine-tuned their business according to regulation

Question: How to Break Barriers to Market Entry?