LESSON 10

The entrepreneurial process

Definition - Entrepreneurship process refers to the process through which a new
business unit is created by an entrepreneur. An entrepreneur should identify and
evaluate a business opportunity to create a new venture.

Stages in the entrepreneurial process

Step 1: Identification of business opportunity

Step 2: Evaluation of opportunities
Step 3: Selection of the best opportunity
Step 4: Decision on the location
Step 5: Development of a Business Plan
Step 6: Determination of the resources required
Step 7: Management of the Enterprise
Step 8: Periodic Review

Details to the stages in the process

Step 1: Identification of business opportunity

The entrepreneur must identify an opportunity to undertake a new venture, this can be
through various techniques such as: market research, discussion with other business
people, consultancy firms, discussions with employees, customers, dealers or just
observation of what is happening in the market.
Step 2: Evaluation of opportunities
When evaluating the opportunity, the entrepreneur needs to find answers to the
following questions.
a) Do consumers need such a product?
b) Would the consumers understand the idea behind such a new product?
c) Can the existing set up handle the new product?
d) Will it require additional resources?
e) When will it be possible to break-even in sales?
f) Are there substitutes available in the market?
g) How is the competition in the market?
Step 3: Selection of the best opportunity
Before selecting the opportunity, the entrepreneur needs to go for a detailed analysis of
the short-listed opportunities. This may take days, months or even years.
Step 4: Decision on the location
Here the entrepreneur considers the following factors before locating the business. The
factors include:
1. Availability of raw materials
2. Security
3. Infrastructure
4. Incentives from the government
5. Proximity to the sources of raw materials
6. Proximity to the market
7. Availability of skilled workforce
8. Social infrastructure such as health centers, schools etc.

Step 5: Development of a Business Plan

This is an outline of an entrepreneur’s goals and objectives and how they intend to
achieve them. Most entrepreneurs do not realize the importance a business plan to the
growth and development of a business. The business plan describes the future direction
of the business. The entrepreneur must prepare a sound business plan in order to exploit
the opportunity or the idea. (The Business planning process is explained below)
Step 6: Determination of the resources required
This is where the e entrepreneurs determine the amounts of financial, human and
physical resources required to run the venture.
Step 7: Management of the Enterprise
After acquiring the resources, the entrepreneur employs them in order to implement the
business plan. He ensures employees are trained and are properly placed according to
their qualifications. The entrepreneur and the top management needs to give effective
directions to the employees in all functions of the organization.
Step 8: Periodic Review
There must be periodic reviews to monitor the new business venture. Those reviews are
important because they show how each function/department is performing
BUSINESS PLAN

Importance of a business plan

A good business plan is important for the following reasons:
1. Helps in getting funds for the business (a good financial analysis the business will
motivate investors to see that their money is in safe hands are they know they will get
profit from their funding of your business entity.
2. Helps in spotting potential problems before they occur (A good business plan helps
an entrepreneur to forecast into the future and look at trends that could occur that
may help or affect the business.
3. Helps entrepreneurs to stay on track (a good business plan has future plans and helps
targets made to meet what the business entity attains to achieve.
4. It helps in managing the business better (With a good business plan, entrepreneurs
may find out that managing business becomes much easier and better and knows
what goes where and who is responsible for various duties.
5. Staying on the budget is much easier (A good plan allows you to plan how money
will be properly allocated to various aspects of the business enabling one to find out
cheaper alternatives to what to venture in to the business and helps stay in the budget
and avoid unnecessary spending on the business which saves money that can put
back into the business. This is simply since many businesses fail, not because they are
unprofitable, but because they ultimately become insolvent i.e. unable to pay their
debts as they fall due.
6. Helps to decide whether to start or continue with the business (A good business plan
allows entrepreneurs to know when a business is not doing well especially when
targets in your plan are not met. This does not mean the idea or business is bad but
maybe a different approach is needed for the business.
7. Helps in developing and communicating a course of action (A business plan helps an
entrepreneur to access future opportunities and commit to a particular course of
action making all other options effectively marginalized and the company is aligned
to focus on key activities.
8. To better understand your competition (Creating the business plan forces you to
analyze the competition. All companies have competition in either direct or indirect
competitors, and it is critical to understand your company’s competitive advantages.
9. To reduce the risk of pursuing the wrong opportunity (The process of creating the
business plan helps to minimize opportunity costs. Writing business plan helps assess
the attractiveness of this particular opportunity, versus other opportunities.
10. To attract potential partners (Partners also want to see a business plan to determine
whether it is worth partnering with your business. Establishing partnerships requires
 time and capital, and companies will be more likely to partner with your venture if
they can read a detailed explanation of your company.
11. To position your brand (Creating business plan helps to define your company’s role
in the marketplace. This definition allows you to succinctly describe the business and
position the brand to customers, investors, and partners.

Contents of a good Business Plan

1. Introduction- Contains the name and address of the business, names of the directors,
nature of the business, funds required, statement of confidentiality of the report/plan.
2. Industry analysis- Showing the trends in the industry, competitors, nature of the
market and the industry forecasts.
3. Description of Venture- Products, services, size of business, office equipment and
personnel.
4. Production Plan- Manufacturing process, physical plant, machinery and names of
suppliers of raw materials.
5. Marketing plan- Pricing, distribution, product forecasts and controls.
6. Organizational and management plan- e.g Form of ownership, names of the
shareholders, names of the directors, authority of the directors and roles and
responsibilities of members of the organization.
7. Assessment of risks- Where weaknesses of the business are evaluated, new
technologies and contingency plans.
8. Personal Financial position- Personal assets, incomes and savings, credit status of the
entrepreneur.
9. Financial plan for the business- Includes: working capital, income statements, cash
flow projections and the budget for the proposed activities.
10. Executive summary- This is information in 3-4 pages summarizing the whole
business plan.
Appendix- These are attachments including reports, market research data, leases or
contracts, price lists from suppliers and supporting letters and business brochures.
Business Plan Format
An exhaustive business plan should include the following sub topics.

1. Executive Summary
a) Company name address and some number
b) Name, address and phone numbers of all very key people.
c) Brief description of the business, its product /service
d) Brief overview if the market for your products and services
 e) Brief overview of the strategies that your firm a success
f) Brief description of the managerial and technical experience of key people
g) Brief statement of the financial request and how the money will be used.
h) Charts as tables showing highlights of financial forecasts
2. Vision and Mission Statement
a) Entrepreneurs vision for the company
b) What business to venture in
c) Values and principles on which the business stand
d) What makes the business unique
3. Company History (for ongoing businesses)
a) Company funding
b) Financial and operational profile
c) Significant achievement.
4. Business and Industry Profile
a) Industry background and overview
b) Significant trends
c) Growth rate
d) Key success factors in the industry
e) Outlook for the future stages of growth (start-up growth, maturity)
5. Business Strategy
a) Desired image and position in market
b) SWOT Analysis
• Strengths
• Opportunities
• Threats
• Focus
6. Company products and services
a) Description
• Product /service features
• Customer benefits
• Warranties and guarantees
• Uniqueness
b) Patent and trademark protection
c) Description of production process (where applicable)
• Raw materials
• Costs
• Key suppliers
 d) Future product or service offerings
7. Marketing strategy
i. Target market
a) Complete demographic profile
• Complete demographic profile
• Other significant customer characteristics
b) Customer’ motivation to buy
c) Market size and trends
• How large in the market
• Trend of the market – growing or shrinking
d) Advertising and promotion
• Media used – reader, viewer, listener profiles
• Media costs
• Frequency of usage
• Plans for generating publicity.
e) Pricing
• Cost structure – fixed and variable cost
• Desired image in market
• Comparison against competitors’ prices
f) Distribution strategy
• Channels of distribution used
• Sales techniques and incentives
8. Location and layout
a) Location – Demographic analysis of location versus target customer profile
b) Traffic count
c) Lease/rented
d) Labour needs and supply
e) Wage rates

9. Competitor analysis
a) Existing competitors
b) Potential competitors
c) Impact on your business
10. Description of management team
• Key managers and employees
• Their backgrounds
• Experience, skills and know how expertise
• Resumes of key managers and employees (suitable for an Appendix).
11. Plan of operation
a) Form of business chosen and reasoning
b) Company structure (organizational chart)
c) Decision making authority
d) Compensation and benefits packages
12. Financial forecasts (suitable for an Appendix)
a) Finance statements
• Income statements
• Balance sheet - Cash flow statement
b) Break-even analysis
c) Ratio Analysis with comparisons to industry standard applicable to
ongoing businesses.
13. Loan or investment proposal
a) Amount requested
b) Purpose and uses of funds
c) Repayment or “Cash out” schedule (exit strategy)
d) Timetable for implementing plan and launching the business
14. Appendices – which may entail supportive document, such as market research,
financial statements organizational charts, resumes and other items.

NB When developing a business plan, the entrepreneur should not lose focus on the
following:
1. Vision of the business- Where he hopes the business shall be in future.
2. Mission- This should be short and memorable and it indicates the reason why the
said business exists.
3. Core values- These are the principles guiding the employees and the activities
undertaken in order to achieve the vision and mission of a business entity. Must of
the time they include: safety and security, integrity, professionalism, excellence and
customer focus.
4. Business Objectives- The entrepreneurial activity may not achieve its vision and
mission if the objectives it sets are not SMART I.E
- Specific – i.e They must set out exactly what the firm is trying to do
- Measurable-It must be possible to measure whether the objective has been
achieved or not.
- Agreeable- Those implementing the objectives must be in agreement that that is
what they plan to achieve.
 - Realistic- The targets set in a given objective must be achievable given the firm
resources.
- Time specific- It is important to specify how long people have to take to complete
the objective.

Focus/coverage of the objectives

Typically, business set objectives that relate to:

- Profit- i.e The revenue they hope to make over a specified period
- Growth- i.e The market share they have achieved during a given period of time.
- Social considerations- What the organizations hope to have done for the society in a
given period of time.
- Employee welfare- What the organizations hope to have done for the employees in a
given period of time in relation to working conditions and career development
opportunities.