Midterms

Chapter 4, Additional: Entrepreneur’s Resources to Transform Idea 

and Pursuit of Knowledge

The Search for Business Idea

 A new business venture is confronted with the immediate concern of gaining at least a
foothold in the market it desires to serve.
 An established business, however, has a different concern-it must grow or at
least maintain its competitive stance.
 In both cases, there is a need to adapt new sound business ideas. This could
mean improvements to products or services offered, or in the way customers are
served, or some innovation in doing business.
 The product or service offering may be improved in terms of:
o Performance
 like the chair that can carry more weight;
o Maintenance Cost
 like the car battery that requires less servicing than competing
brands;
o Acquisition Cost
 like the latest low-priced model of a certain brand of cellphone
compared to competition.
 Improvement of service to customers may mean faster delivery or prompt after
sales service when required. An innovation in doing business could mean
transactions are entertained 24 hours a day.
What is a business idea?
 Entrepreneurs spend time and money exploiting business ideas. The high rate of
failure in new venture businesses, however, indicates a concomitant failure on
the part of entrepreneurs to adapt schemes that will work. Apparently, the
business ideas they adapted are not sound. A business idea may be defined as
the economic opportunity which is within the reach of the entrepreneur and which
will provide him with a desirable value. An entrepreneur who is well grounded in
the concept of sound business ideas will be able to save time, effort, and money
in pursuing his goals.
 When an aspiring entrepreneur is confronted with a business idea, it is to his best
interest to determine the soundness. He should do it before committing himself
financially and otherwise
 Any successful venture started with the adaptation of a sound business idea. For
instance, before the advent of parcel delivery services, people had to contend
with the very poor service rendered by the post office. Complaints about delayed
delivery and lost parcels have become common. The situation was ripe for a
business solution. Enterprising personalities recognized the economic
opportunity and adapted a business idea to serve the people better. The success
of DHL, FEDEX, and LBC proves that the business idea they adapted is a sound
one.
 The production of bottled mineral water is another example of a business idea
that was proven sound.
Procedure in Determining the Best Business Idea
 Business ideas may be generated by anyone connected with the firm, but it is
very important that the most applicable idea to the firm’s objectives and
resources is chosen. As such, a procedure must be adapted. The steps in the
proposed procedure are as follows:
 Preparation of the list of business ideas
 Screening of the listed ideas
 Final selection

Methods of Searching for Ideas

There are two general methods of generating business ideas. They are as follows:
 Unanticipated means
 When the entrepreneur finds business ideas without serious effort, the
method is referred to as unanticipated means. Included in this means are
the following:
 The person’s work
 The person’s hobby
 The person’s acquaintances
 A chance event encountered by the person
 Deliberate search
 A disadvantage of unanticipated means in idea generation is the difficulty
of ascertaining the exact date when the ideas will come pouring in. To
offset this problem, a deliberate search for ideas is made. This type of
idea generation takes the form of the following:
 Using search questions 
 Idea prompting

Business ideas may be screened with the use of the following criteria:
 Market feasibility
 A business idea must pass the test of market feasibility. This means that
there must be some positive indication about the following:
 Stable and sufficient demand
 A business idea will not last if there is insufficient demand for
whatever product or service that is contemplated. Demand
that remains constant or shows signs of growth throughout
long periods indicates the probability of market feasibility.
Demand must also be large enough to justify the
investments that will be needed by the venture.
 Potential competitive strength of the film (Competitive
strength)
 The business idea must be such that the venture can
effectively compete with current or potential competitors. The
competitive strength of the competitors must be determined
in terms of product offerings, prices, distribution methods,
promotion methods, and others.
 - The proposed business idea must be strong enough to withstand
competition
 Technical feasibility
 Business ideas oftentimes appear easy to execute, but it is not really so
when converting them into real products or services with the required
quality or quantity.
 Anything can go wrong in the attempt to assemble the needed resources.
Difficulties may be encountered in the procurement of materials and
manpower. Production difficulties could take the form of unstable supply of
materials, unreliable or fluctuating power supply, and others.
Nevertheless, technical concerns such as those must first be cleared
before subjecting the business idea to further consideration.
 Financing feasibility
 One of the factors necessary in determining whether a business idea
should be considered or not is financing. This means that there must be
sufficient funds to finance operations. The proposed owners of the venture
must have sufficient capital or if insufficient, must be of good credit
standing in the community. In general, the sources of financing include the
following:
 The proposed owner’s savings
 Relatives and friends
 Financing institutions like banks
 Financial feasibility
 The purpose of entrepreneurship is to provide a source of income to the
entrepreneur. This will not be possible if the venture will not be profitable.
Any business idea that cannot provide some indication of profitability must
be screened out.
 Profit is the result of the financial feasibility of the business idea. Financial
feasibility may be determined through an analysis of the financial
prospects of the proposed business idea.

What is a business plan

 The business plan is a document that helps the small business owner determine
what resources are needed to achieve the objectives of the firm, and provides a
standard against which to evaluate results.
 The business plan is a sort of a business blueprint and it keeps the entrepreneur
on the right track. It gives a sense of purpose to the business. It also provides
guidance, influence, and leadership, as well as communicating ideas about goals
and the means of achieving them to partners, associates, employees, and
others.

Purpose of a Business Plan

 A business plan is written for two main purposes. They are the following:
 To serve as management’s guide during the lifetime of the business
 To fulfill the requirements for securing lender and investors
The plan as a Guide
 In the course of writing the business plan, the small business operator (SBO) is
afforded sufficient time to consider all factors relevant to operating the business.
Through analyses of the environment and derivation of what can be expected to
happen, decisions about various aspects of business operations can be
considered in advance.
 As periodic objectives are accomplished one at a time, the business plan serve
as a useful tool for comparing what was planned against what was achieved.
Discrepancies will provide the bases for implementing changes or making
adjustments in the business plan.
 The timetable indicated in performing the various aspects of operations is also a
very useful guide for the management of the firm.

A Tool for Securing Funds

 When the SBO needs initial or additional funding for his business venture, the
business plan is a handy means for convincing lenders and investors. In many
cases, the business plan indicates that the proponent SBO is fully aware of what
he is getting into. Lenders will be more comfortable to see various documents
that indicate the borrower can repay the loan. Such documentation takes the
form of financial projections which are usually included in the business plan.
 The business plan will serve as a means of providing some assurance that the
investor will place his funds in a worthwhile investment.
Revising the Plan
 A business plan is prepared in consideration of the current and expected
situations. In the process of implementing the plan, however, the expected
development or changes in the environment may not happen fully or even
partially.
 In that case, the business plan or portions of it may no longer be relevant. When
that happens, revision of the business plan is in order.
 The implication is that even with a business plan, the SBO must strive to be well
informed about what is happening to his business and to the industry where his
business belongs. Necessary steps must be undertaken to adjust to changes.
For instance, if the usual source of labor has become unreliable, the
corresponding portion of the business plan must be revised.
Parts of the Business Plan
 The contents of the business plan will depend upon the purpose. Usually,
however, they contain the following:
1. Title page and contents
2. Executive summary
3. description of the business
4. Description of the product or service
5. Market strategies
6. Analysis of the competition
7. Operations and management
8. Financial data
9. Supporting documents