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Chapter Two New

The document discusses methods for generating business ideas, including learning from successful business owners, drawing from your own and others' experiences, surveying your local business area, scanning your environment, and brainstorming. It emphasizes generating as many ideas as possible through brainstorming and considering gaps in existing markets or industries to identify potential business opportunities.

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Kebede Challa
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0% found this document useful (0 votes)
58 views52 pages

Chapter Two New

The document discusses methods for generating business ideas, including learning from successful business owners, drawing from your own and others' experiences, surveying your local business area, scanning your environment, and brainstorming. It emphasizes generating as many ideas as possible through brainstorming and considering gaps in existing markets or industries to identify potential business opportunities.

Uploaded by

Kebede Challa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CHAPTER TWO: BUSINESS PLANNING

Chapter Objectives
After completing this chapter, students will be able
to:
 Identify opportunity in the environment,
Evaluate the opportunities in the environment,
Generate business idea,
Explain the concept of business planning,
Identify components of business plan,
Develop business plan,
2.1 Opportunity Identification and Evaluation

The initial stage in the entrepreneurial process is the


identification and refinement of a viable economic
opportunity that exists in the market.
A business opportunity is a gap left in a market by those who
currently serve it, giving a chance to others to add unrealized
value by performing differently from and better than
competitors in order to create new possibilities

The opportunity identification and evaluation stage can be


divided into five main steps namely described as follows:
1) Scanning the Environment/ Getting the
Idea
Idea is a thought or suggestion about a possible course of
action. Synonymous with “idea” are the terms thought,
intention, scheme, suggestion, proposal, initiative, spur,
impulse, brainwave, insight, concept and connotation.
opportunity is a favorable time or set of circumstances for
doing something.
Synonymous with opportunity are chance, opening and
prospect.
Business opportunities are distinguished from ideas; an idea
is not synonymous with opportunity.
The difference between an idea and an opportunity
is that an opportunity is the possibility of occupying
the market with a specific innovative product that
will satisfy a real need and for which customers are
willing to pay but idea is all about opinion about
anything we can have.
Successful venturing may well rest upon the ability
of an individual to recognize or distinguish an
opportunity from an idea
2) Opportunity Identification
• Opportunity identification is ability to see, to discover
and exploit opportunities that others miss. It is the
process of seeking out better ways of competing.
• It includes scanning the informational environment,
being able to capture, recognize and make effective
use of abstract, implicit and changing information from
the changing external environments.
• It is important for the entrepreneur to understand the
cause of the opportunity. Is it technological change,
market shift, government regulation, or competition?
• The market size and the length of the window of
opportunity form the primary basis for determining
risks and rewards which serves for opportunity
evaluation.
• Opportunity identification is a very difficult task, as
most opportunities do not just appear but rather
result from an entrepreneur’s alertness to
possibilities.
• In developing countries, problems may be changed
to business opportunities.
3) Opportunity Development
• Having recognized the opportunity, timely
adaptation of that opportunity to suit actual market
need is key to new venture success.
• Opportunity development is the process of
combining resources to pursue a market
opportunity identified. This involves systematic
research to refine the idea to the most promising
high potential opportunity that can be transformed
into marketable items
4) Opportunity Evaluation
• Opportunity screening and evaluation is a critical element of the
entrepreneurial process.
• A professional executed evaluation can tell whether the specific
product or service has the returns needed to justify the investment
and the risk to be taken.
• Opportunity screening and evaluation allows the entrepreneur to
assess whether the specific product or service has the returns
needed for the resources required.
• This evaluation process involves looking at the creation and length
of the opportunity, its real and perceived value, its risks and
returns, its fit with the personal skills and goals of the
entrepreneur, and its differential advantage in its competitive
environment.
5) Assessment of the Entrepreneurial Team

• Regardless of how right the opportunity may seem to be, it


will not make a successful business unless it is developed by
a team with strong skills. Gartner et al (1999:230) advices
that once the opportunity has been evaluated, the next step
is to ask pertinent questions about the people who would
run the company
2.3 Business Idea Development

• A business idea is a short and precise description of the


basic operation of an intended business. There are three
types of business ideas.
• They are:
1. Old Idea – Here an individual copies an existing
business idea from someone.
2. Old Idea with Modification – In this case the person
accepts an old idea from someone and then modifies it
in some way to fit a potential customer’s demand
3. A New Idea – This one involves the invention of
something new for the first time
2.4 Business Idea Identification
Before you start a business, you need to have a clear
idea of the sort of business you want to run. Your
business idea will tell you:
Which need will your business fulfill for the
customers and what kind of customers will you
attract?
The problem that the your business solves for the
costumers
 What good or service will your business sell?
The specific things that can be sold to the customers
Who will your business sell to?
The target costumers
How is your business going to sell its goods or services?
The strategy of selling the products
How much will your business depend upon and impact the
environment?
A good business idea will be compatible with the
sustainable use of natural resources and will respect the
social and natural environment on which it depends. All
business ideas are not equally worth.
Therefore, to identify promising business idea among
others, it is important to answer the above raised questions.
Let we see the explanation for the questions raised above.
2.5 Methods for Generating Business Ideas

• different approaches to generating business ideas


1. Learn from successful business owners
You can learn a lot from people in your area who have already
gone through the process of establishing a business.
You should try to get the following information from them:
 What kind of idea did these businesses start with?
Where did the ideas come from?
How did they develop their ideas into successful businesses?
How does the business profit and fit into the local environment?
Where did they get the money to start their business
2. Draw From Experience
2.1 Your own Experience
Look at the list of your interests, your experiences
and your networks.
Are there any possible business ideas that you can derive
from your own past experience? Think about each type of
experience. Start with yourself.
What has your experience been as a customer in the market
place?
Have you ever searched all day for some items that you
could not find in any store in your area?
2.2 Other People’s Experience

• The people around you are potential customers. It is


important to understand their experience trying to find goods
and services that are unavailable or not exactly what they
need.
• Listen carefully to what these people say about their
shopping experience.
• Ask your family and friends about the things they would like
to find that are not locally available.
• Expand your social knowledge by talking to people from
different age groups, social classes, etc. You can also visit
community groups, colleges, etc. for a greater understanding
of the market
• Here are some examples of comments that would help
with your search for a business idea:
“I cannot find a lunch box that keeps the food warm.”
“The choice of cooking pots in the shops is very limited.”
“There is no reliable way of sending gift packages to my
friends and relatives living in the villages.”
“There is not enough entertainment in this town and
the weekends are so boring.”
 “I really need to buy some marketing textbooks, but
there are no good bookstores in this town.”
“There is so much garbage on the streets. Somebody
should do something about it.
3. Survey Your Local Business Area
• Another way of discovering business ideas is to look
around your local community. Find out what type of
businesses are already operating in your area and see if
you can identify any gaps in the market.
• Visit the closest industrial area, markets and shopping
centers in your area.
4. Scanning Your Environment
You can use your creativity to find more business ideas in
your area. Look at the list of existing local businesses. If the
list has included most of the local markets, you may be able
to learn about the industries or service providers on which
the local economy relies
5. Brainstorming
Brainstorming means opening up your mind and thinking
about many different ideas.
You start with a word or a topic and then write down
everything that comes to mind relating to that subject. You
continue writing for as long as possible, putting down things
that you think of, even if they seem irrelevant or odd.
Good ideas can come from concepts that initially seem
strange.
Brainstorming works best in a group. Get your family, friends
or classmate together and ask them to help by writing down
ideas they have when they hear the word or subject matter.
• Brainstorming is a technique for creative problem solving
and for generating ideas. The objective is to come up with
as many ideas as possible.
• Brainstorming usually starts with a key question or
problem statement. Each idea leads to one or more
additional ideas. As a result, you will have in a good
number of business ideas.
Principles of Brainstorming

No criticism is allowed by anyone in the group - no negative


comments.
Freewheeling is encouraged - the wider the idea the better.
Quantity of ideas is desired - the greater the number of ideas,
the greater the likelihood of useful ideas emerging.
Combinations and improvements of ideas are encouraged-
ideas of others can be used to produce~ still another new idea.
6. Focus Group
• Focus group is a group of individuals providing
information on a structured format which is led by
moderators. It is characterized by an open and in
depth discussion: rather than simply asking
questions to solicit student response. The
moderator focuses the discussion in either Directive
or 51 non-directive manner. It is useful for both
getting new idea on existing product or screening
idea/concepts.
2.6 Business Idea Screening
• Idea screening is the process to spot good ideas and
eliminate poor one.
• To screen the business idea generated, three approaches
are discussed as follow:
1) Macro screening: is aimed screening down ideas to 10.
the common criteria are:
 Are my own competencies (see strength detector) sufficient?
Can I finance it to a large extent with my own equity?
 Will people buy my product/service (i.e. is it needed and can
people afford it)?
2) Micro Screening: is aimed screening down ideas into 3. The
common criteria used for screening are
• Solvent demand
• Availability of raw materials
• Availability of personal skills
• Availability of financial resources
THE FUNNEL MODEL FOR IDEA GENERATION and
SCREENING

• Brainstorming 500-1000 ideas

• Macro screening 10 project ideas

• Micro screening 3 project ideas

• SWOT analysis the best project idea


Generally Idea screening
Marketability/demand
Profitability of the idea if implemented
Availability of raw materials and resources
Personal goals and competence of the entrepreneur
Ease of implementation
Financial Requirements
Government priority and support
Risk exposure criteria
Concept of Business Plan
WHAT IS A BUSINESS PLAN?

 A business plan is a document that convincingly


demonstrates that your business can sell enough of its
product or service to make a satisfactory profit and be
attractive to potential stakeholders.
A business plan is a written summary of an entrepreneur
proposed business venture, its operations, its financial
details, its marketing opportunities and strategies, and its
managers’ skills and abilities.
A business plan is the blueprint of the step-by-step
procedure that would be followed to convert a business
idea into a successful business venture.
A business plan is a road map for starting and running a
business. A well-crafted business plan identifies
opportunities, scans the external and internal
environment to assess the feasibility of business and
allocates resources in the best possible way, which finally
leads to the success of the plan.

A business plan first of all identifies an innovative idea,


researches the external environment to list the
opportunities and threats, identifies internal strengths
and weakness, assesses the feasibility of the idea and
then allocates resources (production/operation, finance,
human resources ) in the best possible manner to make
the plan successful)
• A business plan is a selling document. It sells your business
and its executives to potential backers of your business, such
as bankers, investors, partners, employees, etc.

• A business plan is a document that summarizes the


operational and financial objectives of a business and
contains the detailed plans and budgets showing how the
objectives are to be realized
The objectives of a business
plan
 Give directions to the vision formulated by entrepreneur.
 Objectively evaluate the prospects of business.
 Monitor the progress after implementing the plan.
 Persuade others to join the business.
 Seek loans from financial institutions.
 Visualize the concept in terms of market availability, organizational, operational
and financial feasibility.
 Guide the entrepreneur in the actual implementation of the plan.
 Identify the strengths and weakness of the plan.
 Identify challenges in terms of opportunities and threats
 Clarify ideas and identify gaps in management information about their business,
competitors and the market.
 Identify the resources that would be required to implement the plan.
Why Write A Business Plan?

to help you determine the feasibility of your business idea,


to attract capital for starting up the business, (Seeking Investment
Funds)
Obtaining Bank Financing
to provide direction for your business after it is in operation.
It provides guidance to the entrepreneur in organizing his or her
planning activities
When to prepare a business plan

At the start up of a new business


Ongoing
Major decision
Business purchase
Who are interested in your business plan?
(Users of the business plan)

Managers

Owners

Lenders

Investors
The three basic questions

Where are we now?


o The current situational analysis
Where we intend going?
o The vision, the goals/objectives or the destination of our
business
How do we get there?
o The strategy, methods, and systems
Business Planning Process
• The various steps involved in business planning process are
discussed here below:
1) Preliminary Investigation
Before preparing the plan entrepreneur should:
Review available business plans (if any).
Draw key business assumptions on which the plans will be
based (e.g. inflation, exchange rates, market growth,
competitive pressures, etc.).
Scan the external environment and internal environment to
assess the strengths, weakness, opportunities and threats.
Seek professional advice from a friend/relative or a person
who is already into similar business (if any).
2) Opportunity Identification and Idea Generation

• Entrepreneurship is not just limited to innovation


(generation of an entirely new concept, product or
service, but it also encompasses incremental value
addition to the concept/product/ services offered to the
consumer, shareholder and employee).
• Opportunity identification and business idea generation
is the first stage of business planning process. It involves
generation of new concepts, ideas, products or services
to satisfy demand.
3) Environmental Scanning
Once a promising idea emerges through idea generation
phase the next step is environmental scanning, which is
carried out to analyze the prospective strengths,
weakness, opportunities and threats of the business
enterprise.
Hence before getting into the finer details of setting up
business it is advisable to scan the environment both
external and internal and collect the information about
the possible opportunities, threats from the external
environment and strengths and weaknesses from the
internal environment
4) Feasibility Analysis
• Feasibility study is done to find whether the proposed
project (considering the above environmental scanning)
would be feasible or not.
• It is important to demarcate environmental scanning and
feasibility study at this point.
• Environmental scanning is carried out to assess the
external and internal environment of the geographical
area/areas where, entrepreneur intends to set up his
business enterprise, whereas feasibility study is carried
out to assess the feasibility of the project itself in a
particular environment in greater detail.
5) Report Preparation

After environmental scanning and feasibility


analysis, a business plan report is prepared. It is a
written document that describes step-by- step, the
strategies involved in starting and running a
business
Essential Components of Business Plan
I) Cover Sheet
• Cover sheet is like the cover page of the book. It mentions the
name of the project, address of the headquarters (if any) and
name and address of the promoters.
II) Executive Summary
Executive summary is the first impression about the business
proposal. As the saying goes, the first impression is the last
impression.
It should be in brief (not more than two or three pages) yet it
should have all the factual details about the project that can
improve its marketability.
It should briefly describe the company; mention some financial
figures and some salient features of the project.
Generating interest in the minds of the readers is the prime
motive of the executive summary.
III) The Business
• This will give details about the business concept. It will discuss the objective
of the business, a brief history about the past performance of the company
(if it is an old company), what would be the form of ownership (whether it
would be a single proprietor, partnership, cooperative society or a company
under company law).
• It would also label the address of the proposed headquarters.
IV) Funding Requirement:
• Since the investors and financial institutions are one of the key bodies
examining the business plan report and it is one of the primary objectives of
preparing the business plan report, a careful, well-planned funding
requirement should be documented.
• It is also necessary to project how these requirements would be fulfilled.
Debt equity ratio should be prepared, which can give an indication about
how much finance would the company require and how it would like to
fund the project
V)The Product or Services
• A brief description of product/services is given in this
subsection. It includes the key features of the product, the
product range that would be provided to the customers and
the advantages that the product holds over and above the
similar products/ substitute products available in the market. It
also gives details about the patents, trademarks, copyrights,
franchises, and licensing agreements.
VI)The Plan: Now the functional plans for marketing,
finance, human resources and operations are to be
drawn
1) Marketing Plan:

• Marketing mix strategies are to be drawn, based on the market


research.
2) Operational Plan
The operational plan would give information about
(i) Plant location: why was a particular location chosen? Is it in the
vicinity of the market, suppliers, labor or does it have an
advantage of government subsidies for that particular location or
are there any other specific reasons for choosing the particular
location?,
(ii) Plan for material requirements, inventory management and
quality control are also drawn for identifying further costs and
intricacies of the business. Finally, the budget for operational plan
is also drawn.
3) Organizational Plan:

• The organizational plan indicates the pattern of flow of


responsibilities and duties amongst people in the organization,
it provides details about the manpower plan that would be
required to put life into the business and it would also enlist the
details about the laws that would be governed in managing the
employees of the organization.
• In the end the organizational plan is also budgeted.
4) Financial Plan

• The financial plan is usually drawn for two to five years for an
existing company.
• For a new organization the following projections are drawn:
a) Projected Sales
b) Projected Income and Expenditure Statement
c) Projected Break Even Point
d) Projected Profit and Loss Statement
e) Projected Balance Sheet
f) Projected Cash Flows
g) Projected Funds Flow
h) h) Projected Ratios
VII) Critical Risks:
• The investors are interested in knowing the tentative
risks to evaluate the viability of the business and to
measure the risks involved in the business.
• This can further give confidence to the investors as
they can calculate the risks involved in the business
from their perspectives as well.
VIII) Exit Strategy:
• The exit strategies would provide details about how
the organization would be dissolved, what would be
the share of each stakeholder in case of winding-up
of the organization.
• It further helps in measuring the risks involved in
investing.
IX) Appendix
• The appendix can provide information about the
Curriculum Vitae of the owners, Ownership Agreement
and the like.

Refer to pages 58-62 for sample business plan format

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