Entrepreneurial Process

THE ENTREPRENEURIAL PROCESS
The entrepreneurial process involves all the functions, activities, and actions associated with
perceiving opportunities and creating organizations to pursue them. The birth and eventual
success or failure of a new enterprise is rarely a matter of chance, but the art and science of
entrepreneurship that can be taught and learnt. This is embodied in the entrepreneurial process,
which involves five distinct phases:
 Identification of an opportunity – Idea generation
 Evaluation of the opportunity,
 Development of the business plan,
 Determination of the required resources, and
 Management of the resulting enterprise
Although these phases proceed progressively, no one stage is dealt with in isolation or is totally
completed before work on other phases occurs.
IDENTIFYING AND CREATING OPPORTUNITY
A person gets an idea for a new business either through a deliberate search or a chance
encounter, more often through the present line of employment or experience. Good business
opportunities do not just appear. They result from an entrepreneur’s alertness to possibilities or
the establishment of mechanisms that identify potential opportunities through consumers and
business associates, members of the distribution system, and technical people.
Often, consumers are the best source of ideas for a new venture because they are aware of what
they need. Due to their close contact with the end user, members in the distribution system
including retailers, wholesalers, or manufacturer’s representatives also see product needs.
Technically oriented individuals can also conceptualise business opportunities when working on
other projects.
Opportunity Identification
Opportunity identification is very much organised, systematic, rational work and just a bit of
intuition. It is based on the analysis of the perception of change, of new realities, and of the
incongruities between what most people are sure is the reality and what has actually become the
reality. Although some opportunities are identified instantaneously in a flash of genius or luck,
opportunity identification can be learned and developed in a systematic manner. Drucker (1986)
looks at seven major sources of opportunity that include:
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MUBs- BBA/BPSM III 2017/18 Entrepreneurship Development - Lecture Notes
 The Unexpected Success, Failure or Unexpected Event. Keeping truck of the goings on in
the firm, the industry, the economy, and the environment can monitor these. These are a
high indicator of change that has occurred or is waiting to happen, that many people ignore.
Failure is normally frowned upon without examining the root causes of failure that could
highlight new opportunity.
 Incongruities are discrepancies or dissonances between “what is” and “what was expected.”
Incongruities are a sign of change that has occurred, and therefore a sign of opportunity.
 Process Needs: Necessity is the mother of invention. Once a need is felt the innovator
identifies what is needed, and how it can be produced. This involves understanding the
problem, accumulating knowledge of how to satisfy the need, and fitting the solution within
people’s expectations.
 Industry & Market Structure many times last a long time, and are sometimes considered
part of the order of nature destined to endure forever. In reality however, these structures are
quite fluid and can be dismantled – sometimes with little effort. When such a change occurs,
everyone in the industry has to act, giving an opportunity for innovation. Industry and
market changes are likely to change if the industry grows very fast, convergence of
technologies or development of new technologies. Outsiders usually see the opportunities,
while insiders see them as threats.
 Demographics: define changes in population size, age structure, composition, employment,
educational status, and income. The consequences of these changes can be predicted and are
a good driver of innovation. However, it is common for established firms to ignore these
changes if they do not conform to their expectations giving an opportunity to innovators.
 Changes in Perceptions: The way people perceive situations is constantly changing.
Understanding these perceptions will help people innovate (health & fitness, healthy foods,
security). A change in perception does not necessarily change facts; it changes the meaning
of already existing facts. Timing is a critical factor in innovations based on perceptions
because perceptions change very fast and some of them are fads that disappear within a short
time.
 New Knowledge: Knowledge based innovation is the most publicised and recognised
innovations. The knowledge may not necessarily be scientific or technical. It can be social.
It is characterised by a long time frame, large casualty rate, unpredictability, and the big
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challenges it poses to the entrepreneur. These innovations are normally a convergence of
several different kinds of knowledge from a variety of disciplines.
Whether or not he decides to pursue that idea depends on factors such as his alternative career
prospects, family, friends, role models, the state of the economy, and the availability of
resources.
Creativity as a source of opportunities
What is Creativity?
Creativity is the generation of imaginative new ideas, involving a radical newness, innovation or
solution to a problem, a radical reformulation of problems or a reintegration of existing
knowledge in a different way that results in increased value. Creativity is the ability to generate
new ideas. Everyone has substantial creative ability. However, creativity is often suppressed
through socialization, education, and training; but it is still there and can be reawakened.
Creativity is also an attitude that accepts change and welcomes new things - a willingness to
experiment with new ideas and possibilities in an effort to improve on the current offering. The
love for basic routine that constitutes the majority of the things we do ensures that only a small
number of permitted or normal things are accepted, and other things are ignored or hated with no
justification. Creativity accepts that there are many possibilities outside the accepted norms, and
creative people are always seeking to exploit these other possibilities.
Creativity is very rarely a result of a single stroke of brilliance resulting from luck or Devine
providence. It is more often a process that involves input of physical and mental effort and time.
Creative people work hard and continually to improve ideas and solutions, by making gradual
alterations and refinements to their works.
Creative Methods
There are a number of methods that people use to come up with seemingly new ideas. It is
important to note however, that creative ideas are very often not completely new, and definitely
never come from nothing. Many creative ideas come from existing ideas, things and processes
through the following methods:
 Evolution. Where new ideas and solutions to problems are obtained from existing ideas and
solutions to problems through slight alterations and modifications. These incremental
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improvements will normally result in a simple or a radical improvement of the existing idea,
product, service or process. However, such adjustments may in some rare cases result in a
completely new idea, product, service or process. This method is dependent on the assertion
that every problem that has been solved can be solved again in a better way, and
improvements can be made even on a seemingly perfectly operating system.
 Synthesis. Where two or more existing ideas or solutions that may be entirely different and
seemingly unrelated are combined together to generate a new idea that is substantially
different from the original ideas. This method is also called “combinational” creativity
because it involves new combinations of familiar ideas
 Revolution. Where new ideas are a completely departure from the existing mode of
thinking; providing a completely new way of thinking that is seemingly unconnected to the
conventional thinking. This is also called “transformational” creativity because it involves
the transformation of some dimension of the existing structure, so that new structures can be
generated
 Reapplication. Where old ideas are brought into the current situation, and are used to
generate new ideas or solve current problems. This calls for looking at something old in a
new way by removing prejudices, expectations and assumptions and discovering how
something can be reapplied. The key is to see beyond the previous or stated applications for
some idea, solution, or thing and to see what other application is possible.
 Changing Direction. Many creative breakthroughs occur when attention is shifted from one
angle of a problem to another. In problem solving: the goal is to solve the problem, not to
implement a particular solution. When one solution path is not working, creative people will
always try to explore the possibility of shifting to another solution path. They are not
committed to a particular path, only to a particular goal. Path fixation is many times a
problem for the non-creative; they become over-committed to a path that does not work –
resulting in loss of time and resources. This is also called “exploratory” creativity, because it
involves the generation of new ideas by the exploration of structured concepts.
Main objectives of a creative thinking process is to think beyond existing boundaries, to awaken
curiosity, to break away from rational, conventional ideas and formalized procedures, to rely on
the imagination, the divergent, the random and to consider multiple solutions and alternatives.
This is especially important for businesses. The fast-changing and ambiguous environments in
business require creative solutions and strategies to solve problems, to find multiple problems, to
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produce new combinations, to generate multiple solutions, to consider possible alternatives in
various situations and “to expand the opportunity horizon and competence base of firms.
Why we often fall short of Creativity
Creativity is not reserved for geniuses. It is present in everyone, and can be learned, practiced
and developed. However, most people do not make use of their natural creative abilities because
of the following attitudes that block creativity:
 Fear of problems: The reaction to a problem is often a bigger problem than the problem
itself. Many people avoid or deny problems until it's too late, largely because they cannot
tolerate ambiguity. Creative people believe that a problem is an opportunity. They welcome
and sometimes look out for problems, meeting them as challenges and opportunities to
improve things. They define problems as
o Seeing the difference between what you have and what you want or
o Recognizing or believing that there is something better than the current situation
o An opportunity for a positive act
Such an understanding of problems helps creative people to build confidence and get a
better sense of control over your life.
 It can't be done. This amounts to surrendering before starting. Assuming that something
cannot be done or a problem cannot be solved, gives the problem a power or strength it
didn't have before. Skeptics declaring that “It cannot be done.” - man will never fly, rockets
will never land on the moon characterize the history of creative successes. Creative people
believe that: "The difficult can be done immediately; the impossible takes a little longer."
 Learned helplessness. This is the feeling that you don't have the tools, knowledge,
materials, or ability to do anything, so you might as well not try. The emerging crisis in
Africa is that we are being trained to rely on other people for almost everything. We think
small and limit ourselves. We think that ideas and solutions can only come from foreign
experts, and since we are not experts – there is nothing we can do. I'm not educated, smart
enough, and an engineer, or a minister etc is the excuse we give for failing to solve problems
that affect us. However, a good mind with a positive attitude, Interest in and commitment to
the problem and some good problem solving skills will go far in solving any problem.
 But I'm not creative. Everyone is creative to some extent. The problem is that this
creativity has been suppressed by education. All you need to do is let it come back to the
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surface. You will soon discover that you are surprisingly creative. We believe that Ideas
either come or they don't. This is not true; there are many successful techniques for
stimulating idea generation.
 What will people think? There is strong social pressure to conform and to be ordinary and
not creative. Some Peoples' herd instinct is so strong, and to deviate from them is considered
wrong or ridiculous. Almost every famous contributor to the betterment of civilization was
ridiculed and sometimes even jailed. "Progress is made only by those who are strong
enough to endure being laughed at."
 Fear of failure – is one of the major obstacles to creativity and problem solving. The cure is
to change your attitude about failure. Failures along the way should be expected and
accepted. Failing is a sign of action, struggle and trial; which is much better than inaction.
People who never attempt to deviate or try something new may never fail, but they are
essentially useless to humanity.
 Every problem has only one solution (or one right answer). The goal of problem solving
is to solve the problem, and most problems can be solved in any number of ways. If you
discover a solution that works, it is a good solution. There may be other solutions thought of
by other people, but that doesn't make your solution wrong. Look at the history of any
solution set and you'll see that improvements, new solutions, new right answers, are always
being found. Many solutions now seen as best or at least entrenched were put in place
hastily and without much thought. Other solutions are entrenched simply for historical
reasons: they've always been done that way.
 Creative answers are complex technologically. Only a few problems require complex
technological solutions. Most problems require only a thoughtful solution requiring personal
action and simple tools. Even problems that seem to require a technological solution can be
addressed in other ways.
 Functional fixation. The older we get, the more preconceived ideas we have about things.
These preconceptions often prevent us from seeing beyond what we already know or believe
to be possible. They inhibit us from accepting change and progress. Too often we permit
only a narrow range of attitudes and behaviours in products, services, businesses or other
people, based on bias, prejudice, hasty generalization, or limited past experience. Sometimes
we begin to see an object only in terms of its name rather in terms of what it can do. Some
solutions are not considered or are rejected simply because our negative reaction to them.
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Positive Attitudes for Creativity
Creativity is present in everyone, and can be learned, practiced and developed especially by
emphasising the following attitudes that are believed to enhance creativity:
 Curiosity. Creative people want to know things--all kinds of things. Knowledge does not
require a reason. Knowledge is enjoyable and often useful in strange and unexpected ways.
Wide ranging knowledge, is necessary for creativity to flourish to its fullest. Much creativity
arises from variations of a known concept or combinations of two or more known concepts.
The best ideas flow from a well-equipped mind. Creative people want to know why - the
reasons behind decisions, problems, solutions, events and facts. The curious person's
questioning attitude always seems threatening because too often there is no good reason
behind many of accepted norms.
 Challenge. Curious people like to identify and challenge the assumptions behind ideas,
proposals, problems, beliefs, and statements. Although many assumptions are necessary and
have a solid base, many others have been assumed and accepted with no solid basis, and in
breaking out of those assumptions often comes a new idea, a new path, a new solution.
 Constructive discontent. This is the ability to see a need for improvement and to propose a
method of making that improvement. Constructive discontent is a positive, enthusiastic
discontent that is necessary for a creative problem solver. If people are happy with
everything the way it is, they won't want to change anything. Discontent illuminates the
problem, and arouses the need to solve the problem and improve the situation. The more
problems you find, the more solutions and therefore improvements you can make.
Sometimes the discontent is almost artificial—creative people may not be unhappy with the
status quo, but they want to find something better just for the challenge of it and the
opportunity to improve things.
 A belief that most problems can be solved - By faith at first and by experience later on,
creative people believe that something can always be done to eliminate or help alleviate
almost every problem. Problems are solved by a commitment of time and energy, and where
this commitment is present, few things are impossible. This belief is especially useful in
attacking any problem, because many problems at first seem impossible and scare off the
weak hearted. Taking on the problem with confidence allows the creative person to think
through the impossibilities.
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 Suspend judgment and criticism - Many new ideas, because they are unfamiliar, seem
strange, weird, odd, bizarre, and even repulsive. However, some ideas later become great
ideas and lead to practical and beneficial innovations. Thus, it is important for the creative
thinker to be able to suspend judgment for, have an optimistic attitude toward, and avoid
condemning without dully considering new ideas. Ideas should be given a chance because
some ideas may begin to look good only after it becomes a bit more familiar or is seen in a
slightly different context or circumstance. Moreover even a very wild idea can indirectly
serve as a stepping-stone to an innovation. By too quickly bringing judgment into play, these
fragile ideas and their source can be destroyed.
 Seeing the good in the bad - Creative thinkers avoid falling into either/or thinking, which
assumes that a bad solution is bad in every aspect. The truth is that even a bad situation may
have some good parts that can be borrowed and used on a good solution. They should not be
condemned outright because there may be something useful even in the worst ideas. And
however little that good may be, it might be turned to good effect or made greater. And
often, the bad solution has just one really glaring bad part, that when remedied, leaves quite
a good solution.
 Emotionally accepting and enjoying Problems - Many people confront every problem
with great discomfort, sometimes even refusing to admit that a problem exists. As a result,
often the problem persists and rises to a crisis. Creativity calls for seeing problems as
interesting challenges worth tackling, and not fearful beasts to be loathed and avoided at all
cost. Problem solving is fun, educational, rewarding, ego building, and helpful to society.
 Perseverance. Creativity and problem solving are hard work and require fierce application
of time and energy. There is no quick and easy secret. You need knowledge gained by study
and research and you must put your knowledge to work by thinking hard and experimenting.
Planning to persevere is planning to succeed.
 A flexible imagination - Creative people are comfortable with imagination and with
thinking so-called weird, wild, or unthinkable thoughts, just for the sake of stimulation.
During brainstorming or just mental playfulness, all kinds of strange thoughts and ideas can
be entertained. And the mind will pragmatically something useful in it all.
 A belief in making mistakes - In a search for perfection, most people tend to despise
failure. However in creativity failure is an opportunity; and mistakes show that something is
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being done. So creative people have come to realize and accept emotionally that making
mistakes is part of the game.
EVALUATING THE OPPORTUNITY – Feasibility Study
Ideas generated and opportunities identified must be carefully screened and evaluated. This
evaluation is perhaps the most critical element of the entrepreneurial process because it allows
the entrepreneur to assess whether the specific product or service has the returns needed
compared to the resources required. This evaluation process involves looking at the 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 uniqueness or differential advantage in its competitive
environment. The market size and the length of the window of opportunity are the primary basis
for determining the risks and rewards. These risks reflect the market, competition, technology,
and amount of capital involved. The amount of capital needed provides the basis for the return
and rewards.
Opportunity analysis, or what is frequently called a feasibility study, is one method for
evaluating an opportunity and includes the following: a description of the product or service, an
assessment of the opportunity, an assessment of the entrepreneur and the team, specifications of
all the activities and resources needed to translate the opportunity into a viable business venture,
and the source of capital to finance the initial venture as well as its growth. It is not a business
plan. Compared to a business plan, it should be shorter; focus on the opportunity, not the entire
venture; and provide the basis for making the decision of whether or not to act on the
opportunity.
What is a feasibility study
A feasibility study can be defined as a controlled process for identifying problems and
opportunities, determining objectives, describing situations, defining successful outcomes and
assessing the range of costs and benefits associated with several alternatives for solving a
problem. It is designed to establish the practicality of a business or project idea, and determining
whether the proposition warrants further investment of time and money. A feasibility study is
intended to answer five basic questions:
 Will a concept work or not?

 Is the implementation of the concept idea profitable or not?
 What will it cost to fund the implementation of the concept?
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 Is the concept worth implementing?
 Does the concept warrant commissioning of a business plan?
Answering these questions is a testing process to determine what needs to be done for an
enterprise to succeed and what could go wrong. This calls for lots of research, and leads to
significant changes in the original conception. However, a well thought out feasibility study
makes it easier to prepare a business plan, attract financial support, and ensure success for the
concept.
Objectives of a feasibility study
Feasibility studies may be presented in many forms; however they will almost always have
similar objectives that include:
 Showing the facts and figures needed to aid in decision-making

 Showing whether a business idea is both possible (practicable) and justified (profitable)
 Showing the alternative approaches and solutions available for putting the idea into practice.
 Showing whether there is a preferred idea and why.
These broad objectives will help management to make a go – no- go decision, and further
examine the idea in the context of the broader business strategy.
Highlights of a feasibility study
When carrying out a feasibility study, the following broad areas must be considered, studied and
clearly understood;
 The current situation, clearly highlighting the interaction between various stakeholders,
users, policies, functions and objectives
 Problems with the current situation characterised by inconsistencies, inadequacies, poor
performance etc…
 Goals and requirements of the new system, indicating what problem the new concept will
solve and what the various stakeholders stand to gain.
 Constraints to be overcome if the new concept is to be implemented
 Possible alternatives for implementing the new concept
 Advantages and disadvantages of the alternatives highlighted
 A conclusion showing the feasibility of the concept and the preferred alternative
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Exploring feasibility
Although profitability in financial terms is usually the single most important area used to
determine the feasibility of business ideas, there are a number of factors that can be used to
identify operational problems to be solved and their urgency in order to prove the feasibility of a
business or project idea. These factors may include:
 Performance: A project can be justified if it results in improved performance characterised

by increased rate of output or improved response time.
 Information: An idea can be justified if it can generate more timely, pertinent and accurate
information.
 Economy: benefits of a business idea can also arise from cost reductions.
 Control: ideas can be justified if they result in more effective controls to protect against
fraud, guarantee information accuracy and security
 Efficiency: An idea can be justified if it results in improved use of resources such as people,
time and assets
 Service: An idea can be justified if it results in improved services characterised by better
reliability, flexibility and capacity for expansion
Types of feasibility
Feasibility can be analysed in many ways. The most common types of feasibility include the
following:
 Technical feasibility: investigates if the idea can be implemented considering the

technology and know-how available and the technical risks involved. Feasibility is highest if
the technology and know-how is available within the company. If this is not the case, there
is need to establish if the know how exists at all, or if it can be acquired locally, regionally
or internationally; and its compatibility with already existing systems.
 Economic feasibility: is intended to establish whether the project is practicable given the
resource constraints, the tangible and intangible costs and benefits expected from the
implementation of the new idea using the different alternatives. Such cost-benefit analyses
involve determining the expected cash flows, present values, and net present value, pay back
period, Return on Investment and other ratios.
 Schedule feasibility: is intended to establish how long it will take to get the idea
implemented. Sometimes the project may prove unviable be cause it cannot be implemented
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within a given time frame. Schedule feasibility investigates the mandatory deadlines
imposed on the project, the real constraints on project deadlines and the schedule risks.
 Market feasibility: investigates the existence of enough customers willing and able to
spend money on the new idea, the number of potential customer, and a communicable
competitive advantage arising from the new idea characterised by better, more convenience,
healthier, more durable, cheaper, and higher quality. This involves some sort of research to
determine: How many customers are there? Who are they, and what are they like? Who are
the competitor, and how do they compete? Market feasibility will also focus on the proposed
business model and strategy and attempt to define and better understand the industry in
which they operate.
 Operational feasibility: establishes how the various stakeholders feel about the new idea.
This evaluates not just whether the idea can work, but whether the idea will actuary work
given reactions from the various stakeholders. It will help to predict if the idea might meet
with resistance or support, which stakeholders might resist or support and how the human
and social issues will be addressed.
Feasibility Study Outline
There is no standard format for presenting a feasibility study report. This will depend on the
individual preparing the feasibility study, the purpose for which it is prepared, and the audience
for whom it is addressed. However, most feasibility studies will consist of the following:
 Executive Summary: is a summary of all key sections of the feasibility study and should
work as a stand-alone document representing the entire feasibility report. Interested parties
will tread this section first, and often use this and a simple glance through the financial
figures before deciding whether or not to read the entire document or to make a final
decision on the entire document. The executive summary is usually very short (about one
page). It is written last after the entire document has been put together in order to capture all
the material within the feasibility report. However it is presented first so as to capture
maximum attention.
 Product/ Service: Describes the product or service resulting from the new idea in lay terms,
describing how customers will buy and use the product, the key components or raw
materials to be used, plans for testing and ensuring quality and plans of upgrading or
expanding the product line.
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 Technology: provides technical information about the products or service, processes and
research on the new idea in lay terms.
 Market Environment: defines and describes the target market, clearly distinguishing
between users and customers, and trying to establish how and why these customers and
users will buy your product. This section estimates the market size, the initial targeted
geographical area and the company’s market share.
 Competition: Describes the direct and indirect competition, highlighting their market share,
resources, product and market focus, goals and strategies, strength and weaknesses and
competitive advantage. This section also analyses all the key entry barriers, and anticipates
competitor’s reaction to the new idea. It is therefore necessary to show how your product is
unique.
 Marketing and sales strategy: Describes how the new idea will generate revenue,
describing the distribution strategy, the pricing strategy and the payment terms.
 Production/ operating requirements: describes how and where the company will
manufacture, source or create and deliver the final product.
 Management and personnel: lists the key managers, their titles, responsibilities, relevant
background, experience skills and costs to the company.
 Regulation and environment al issues: outlines all non-economic issues and forces that
may affect the implementation of the new idea such as government regulations,
environmental considerations, and any other political and regulatory issues.
 Critical Risk Factors: describes the most likely risks currently and in future that can impact
on the implementation of the idea, and how each of those risks will be mitigated
 Timing Considerations: sketches the major events in the implementation of the idea by
listing the timetable for each activity, demonstrating the relationships between different
events.
 Financial Projections: Analyses the key underlying assumptions and the logic governing
the projections made. This includes preparation of a balance sheet projection, income
statement projection cash flow projections, the cost benefit analysis and the most likely
financing stages and funding sources and uses.
 Capital Requirements and strategy: indicates the equity required, the sources to tapped,
and when investors are expected to see a return on their investment.
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 Final recommendations: These should be honest short and direct, and are not normally a
straight yes or no, but rather “Yes, but…” or “No, but….”
PLANNING FOR THE EXPLOITATION OF AN OPPORTUNITY
A good plan must be developed in order to exploit the defined opportunity. This is a very time-
consuming phase of the entrepreneurial process. A good plan is essential to developing the
opportunity and determining the resources required, obtaining those resources, and successfully
managing the resulting venture. This is often referred to as a business plan
What is a Business Plan?
Planning a new business is like planning an introduction ceremony. Before leaving for the
spouse’s home in a distant village, the entourage has to prepare a roadmap and determine the
best route to reach the village home. A time table is prepared to outline travel arrangements and
scheduled stops. The expected costs of the expedition are determined and contingencies are
made for expected problems such as; traffic jams, bad weather or car problems that could prevent
the expedition from going as planned. This enables members of the expedition to visualise
exactly what they can and can’t do, based on time and budget constraints; and increases the
chances of its success.
A business plan does the same for developing or expanding a business. It is more than just the
production of a document, it is the process through which you research, learn about, analyse, and
understand your business and your goals. It is an operating tool to help manage the business, and
enable it to achieve greater success; and although it may not guarantee success, lack of a good
business plan, almost certainly, reduces the chances of success.
Uses of a Business Plan
If well prepared and regularly updated, a business plan is a valuable management tool that
serves a variety of purposes that include:
 Communication: It serves as a basis for discussion and communication with third parties
such as shareholders, banks, investors, and other interested parties that need to learn or
understand your business better. Instead of meeting and explaining to each stakeholder, a
business plan can communicate most of the details required by the stakeholder thus saving
the entrepreneur’s valuable time. The business plan can also provide more consistent and
focused communication about the business over time than the entrepreneur.
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 Feasibility reassessment: A written business plan forces an entrepreneur to clarify, focus,
and research business or project development needs and to think through all the key issues –
such as the potential demand for its products or services, the nature of the competition, entry
barriers, the unique selling proposition of the new or improved products or services,
resources required, key employees, relevant technologies and strategic partners, raising
funds, projected start-up costs, marketing strategies, and the like. This helps to support
decision-making based on researched facts rather than personal sentiments.
 Attracting debt or equity financing: Potential investors and lenders require well-
formulated and realistic business plans to make decisions regarding a firm’s financing
request. No professional lender or investor will provide funding on business proposals based
on word of mouth. Concrete plans that are clearly conceptualised, analysed, presented and
defended in a business plan stand a greater chance of success.
 Strategic guidance: A business plan is a reference document that provides management
with an objective basis for making day-to-day decisions that are consistent with the firm’s
long term strategic plans, and for judging future business decisions and results.
 Benchmarking: It provides a framework against which actual performance can be
measured and reviewed; and for determining whether the business is on track to meet its
goals and objectives with the available resources in a set timeframe.
 Serving as an Internal-planning tool.
 The Business plan breaks down the business into small, understandable pieces rather than
one complex "idea" that’s very difficult to examine and evaluate. This serves as a basis for
exposing risks and opportunities, Increasing knowledge of customer needs and competitor
strength and weaknesses through focusing on a firm’s marketing position (competitive
advantage), Identifying resource conflicts, and supplying a method for developing logical
financial projections.
 Creating a timeline for business evolution.
 Evaluate strengths and weaknesses and identify viable alternative strategies
Developing a Business Plan
It is not uncommon for entrepreneurs to hire consultants to write their business plans. However,
in order to reflect their vision and mission, entrepreneurs are always advised to write their own
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business plans and own up the contents and major assumptions of their business plans.
Consultants are in any case still needed to refine and format the final document for presentation.
A business plan should at all times be designed for a particular business idea, for a particular
business at some specified time period to provide a realistic view of the expectations and long-
term objectives of the entrepreneur.
Contents of a Business Plan
The contents of a business plan should be tuned to a particular entrepreneur’s circumstances,

needs and goals. It is for this reason that standard business plans do not exist in the real world,
however a basic foundation against which modifications can be made will include:
1. A cover/title page:
2. A table of contents:
3. Executive Summary: The executive summary is an overview of the entire business plan. A
stakeholder who may be too busy or lazy to read an entire business plan may sometimes only
read the executive summary to make a decision. Therefore, the executive summary must
adequately cover the major points of the business plan in one or two pages.
4. Introduction: Includes a brief history of the firm’s operations and information on current
business activities. This will include brief notes on the firm’s beginning, expansion, products
and current operations. The firm’s mission and vision statements are also included to show
what the company wants to offer its customers and its future goals. It should also include a
general description of the proposed business venture, the steps already being taken to get the
venture started, and the reasons behind the company’s decision to enter the venture. This
information provides a potential lender or investor with an idea of the company’s track
record and growth potential.
5. Situational Analysis: Is normally the largest part of a business plan, which tries to show the
firm’s competitive advantage in the proposed new venture, what needs to be developed or
reorganized to accommodate a new venture, and considerations for factors beyond the direct
control of the business. The situational analysis is normally divided into two parts, namely:
internal assessment and external assessment.
6. Business Proposition: The business proposition defines where the entrepreneur wants to be
in the next few years by clearly stating his or her goals and objectives in terms of sales
16
turnover, market share, quantity of annual sales, return on investment, profits, and debt
repayments over a given time span.
7. Action Plan: Describes how the entrepreneur expects to set out to achieve the objectives that
he or she has set by outlining the product or service to be produced, how the product or
service is expected to be packaged, promoted and priced and sold; and where the product will
be sold.
8. Financial Analysis: Involves forecasting the financial well being of the new venture over a
few (typically three to five) years. Projected (forecasted) financial statements give some
prediction of how the business will fare financially over a given time span. These forecasts
require complete and accurate production cost information, a good idea of the costs
associated with meeting regulatory and licensing requirements, marketing costs, and a good
estimate of predicted sales volume. Using this information, cash flow, profitability, and
solvency of a business can be estimated. The financial statements Include:
 The balance sheet, which lists assets and liabilities at the beginning of the venture.
 The Projected Income Statement in which the projected sales and expenses for the
upcoming year are outlined. The yearly projected debt payments and depreciation of
assets from the income statement result in adjustments to values of both liabilities and
assets listed in the balance sheet. Profits either service debts, purchase equipment, are
retained as cash, or are distributed to the business owners. These also will result in
adjustments to year’s end balance sheets.
 The Projected cash flow statements - forecast the cash incomes and outlays throughout
the year. They define times when cash surpluses may exist and times when the business
may experience cash shortages. Determining the highs and lows of a venture’s cash
position will help the manager determine when to use extra cash to service debts, when to
hold on to cash for expected future cash shortages, and when to consider short-term loans
to meet cash shortages.
9. Evaluation and Measurement
10. Contingency Plan
A good business plan includes many details. It can take a great deal of time gathering detailed
data, interpreting it and presenting it clearly. However, this forces you to address issues that are
often easy to put off in the daily operation of your business; and will put you in a better position
17
to make daily decisions. As you proceed through the business plan, remember that statements
should be supported with data whenever possible. Data adds creditability. It is often advisable to
use charts and graphs to present the data to make it more easily understood.
DETERMINE AND ACQUIRE THE RESOURCES REQUIRED
The resources needed for addressing the opportunity must also be determined. This process starts
with an appraisal of the entrepreneur’s present resources. Any resources that are critical need to
be differentiated from those that are just helpful. Care must be taken not to underestimate the
amount of, and variety of resources needed. The risks associated with insufficient or
inappropriate resources must also be assessed.
Acquiring the needed resources in a timely manner is the next step in the entrepreneurial process.
An entrepreneur should strive to maintain as large an ownership position as possible, particularly
in the start-up stage. As the business develops, more funds will probably be needed to finance the
growth of the venture, requiring more ownership to be relinquished. Alternative suppliers of
these resources, along with their needs and desires, need to be identified. By understanding
resource supplier needs, the entrepreneur can structure a deal that enables the recourses to be
acquired at the lowest possible cost and the least loss of control.
What are Resources?
Resources are defined as any store of value that can be used to assist in production or enhancing
productivity. Resources have to be available in adequate proportions and within the required
timing in order to support entrepreneurship. Most people tend to equate resources to money, and
many times, money and resources are used interchangeably. It is therefore not uncommon to hear
people arguing that they cannot exploit opportunities available to them because they lack
resources, when actually they are talking about money. Yet, money is only a small component of
resources that may or may not be important in the exploitation of an entrepreneur’s
opportunities. In this section, we will try to explore the various forms of resources available to
the entrepreneur.
The Human Resource
Human resource is defined as an individual’s investment in personal productivity. It is a

person’s ability to add value by doing work. This resource is developed through education,
training and past work experience. This resource is commonly used as a tradable resource that
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can be sold to employers, when one is employed. However, it is also a resource that can be
developed and exploited by entrepreneurs.
Entrepreneurs who recognise their human resource exploit opportunities in their areas of
expertise, and use their expertise to grow and prosper as entrepreneurs. For example, a graduate
engineer possesses a resource in doing certain engineering work that other people without his
training cannot perform. This is the resource that people who employ the engineer will be
paying for. However, when starting out in business, this same resource could be of considerable
advantage, and can be used by the entrepreneurial engineer.
Entrepreneurs also need to appreciate, attract, manage and control the human resource that the
entrepreneur does not possess. For example, our engineer could be lacking the marketing skills to
market his product or service. He will need to get someone with the necessary marketing
expertise. Although such expertise is often hired using money, it is not uncommon for
entrepreneurs to attract the expertise without using money.
The Cultural Resources
Cultural resource is a competence in a society’s high status culture that may include art, music,
dance, literature, furniture, architecture, cuisine and fashion. Possession of such a competence
represents a resource that can be turned to the owners’ advantage. An obvious example of a
cultural resource is when one produces music which a section of the population considers to be
of status, such people will be willing to buy the music. This becomes a resource to the musician.
In the same way, your looks, beauty, smile, hairstyle, dress code, academic certificates, family
name, etc… are all examples of cultural resources if the people around you attach status and
class to them.
A cultural resource is attained in the home and school environment and through interaction with
other people. This resource gives prestige and recognition on the individual that possesses it. It is
this prestige and recognition that enables the owner to get jobs, marriages and business contacts.
This is differentiated from the human resource that results in improved productivity. The
implication is that one’s education can provide both enhanced productivity, which is a human
resource, and prestige and recognition through titles and certificates, a cultural resource. Both of
these resources can be converted into money or used directly to exploit opportunities. A medical
clinic run by a qualified medical doctor will most probably charge higher fees than that run by a
nurse. Few people will consider the nurse’s experience and abilities in curing diseases – a human
19
resource. Rather, most people will concentrate on the doctor’s title, a cultural resource, and pay a
higher fee with little consideration of the healing capability.
It is not uncommon for people with means to take their wives to deliver in Europe – a simple
procedure that has been performed even by traditional birth attendants with little or no education.
Although most people will argue that they are looking for quality services, the reality is that a lot
is paid for status – a cultural resource. Take a look at the things you buy everyday. How many of
these are necessities, and how much do they cost? How many not – so - necessary – things do
you buy in order to fit in a given community?
Values, attitudes, skills and characteristics of a particular group, community or nation also
constitute a cultural resource that is transmitted through socialization. For example, people who
have lived or worked with entrepreneurs gain the values, attitudes and characteristics of an
entrepreneur – a cultural resource – that can help them to become an entrepreneur. Some cultures
create values of trust and commitment. Because of this trust, they can operate businesses even
without money, but on the strength of their trust. In a culture devoid of trust, people are always
suspicious of each other, and go into great expenses to avoid being defrauded. People could
insist on being paid up front before delivery if there is lack of trust, but goods and services could
be exchanged without prior payment if there is adequate trust between the parties.
Social resource
Social resource is an individual’s store of value that can be used to improve production and
productivity through the network of people that one interacts with. Most entrepreneurs make
extensive use of social networks of friends and relatives when starting and running their
businesses. The social resource can be inherited or acquired, but is always enhanced through
increased use and renewal. Your family is a potential resource that you inherit at birth. Your
family also has friends who also become your friends by virtue of their relationship to your
family. These can always come to your assistance when and if required. As you grow, you can
decide to enhance the relationships by continuously using and contributing to it. Otherwise, you
erode it through misuse and neglect. However you also create and develop you own set of new
friends who constitute another set of social resources that can also be enhanced or eroded in the
same manner.
Cultivation and development of the social resource involves mutual exchange of favours with
other people. These favours are the ones that increase the productivity of the entrepreneur, thus
20
turning the relationship into a resource. It is important to note that Ugandans have very strong
social relationships of direct and extended family settings, clans, communities, and tribes. These
relationships are very visible and useful in times of celebration of rites of birth, marriage, death
etc…however, our social networks are very weak and unhelpful in matters related to business
and financial support. For example, how many of your friends who can easily contribute to your
wedding can contribute when you want to raise start-up capital. How many of the friends you
hangout with can buy shares in a company that you want to start?
TIME
Time is a resource that all of us possess in relative abundance, but few of us appreciate as a
resource. Many things can be achieved when the only investment being time. If my only
possession in the world today is 10 turkeys, I cannot wakeup tomorrow owning 100 turkeys.
However, if I invested 2 years in this project, I could be able to accumulate 100 turkeys. This
example can easily be repeated for many other investments. Time therefore becomes a resource
which if well invested can produce value beyond anyone’s imagination.
Financial resources
Financial resources are the most recognisable resources in business circles, and too many are
considered the most important resources in a business
Sources of Business Resources
Sources of resources that can be used both for start-up and expanding existing businesses can be
broadly categorised into
Internal sources
These are the accumulated resources within the business firm, and are the commonest and most
reliable resources available to the entrepreneur. If they are financial resources, they are normally
referred to as Equity funds. However, these internal resources may not necessarily be financial
in nature. They include the accumulated human, social, and cultural resources possessed by all
the people within the firm. Such internal sources of resources include:
1. The entrepreneur’s accumulated cultural, social, financial and human resources,

including but not limited to the entrepreneurs financial savings and assets that can be
sold or mortgaged to raise funds for the venture.
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2. Love Resources – These are human, social, cultural or financial resources obtained from
friends, family or relatives who neither expect any form of pay back nor any form of part
ownership of the venture as a result of their contribution. Such resources when
contributed become part of the owner’s equity.
3. Retained Earnings and new learning – retained earnings are a proportion of profits not
appropriated as cash dividends. Such cash is retained in the business to finance
operations and growth. The amount of funds available through retained earnings is
limited by two main factors namely; the level of profit and the entrepreneur’s ability to
fore go the cash dividends. New learning are human, social and cultural resources that
are discovered by the entrepreneur and the firm, which will ultimately be used to benefit
the enterprise in future.
External sources
Although the resources as earlier listed can all be categorised in the same manner, we usually
concentrate on the financial resources as we
Startup Capital
There are two types of startup capital: debt and equity. With debt you don’t have to give up any
ownership of the business, but you have to pay current interest and eventually repay the
principal; with equity you have to give up some of the ownership to get it, but you may never
have to repay it or even pay a dividend. So you must choose between paying interest and giving
up some of the ownership.
What usually happens, in practice, depends on how much of each type of capital you can raise.
Most startup entrepreneurs do not have much flexibility in their choice of financing. If it is a very
risky business without any assets, it will be impossible to get any bank debt without putting up
some collateral other than the business’s assets—most likely that collateral will be a personal
asset. Even if entrepreneurs are willing to guarantee the whole loan with their personal assets, the
bank will expect them to put some equity into the business, probably equal to 25% of the amount
of the loan.
Most entrepreneurs start their businesses using their own savings and labor; and often find
themselves with all their personal net worth tied up in the same business. In most cases, after
they have exhausted their personal savings, entrepreneurs turn to family, friends, and
22
acquaintances. Then someone - usually referred to as a business angel - who knows something
about the entrepreneurs, or the industry, or both, invests some personal money in return for
equity. When the company starts selling products, it may be able to get credit from a bank. If the
company is growing quickly in a large market, it may be able to raise capital from a formal
venture capital firm in return for equity. Further expansion capital may come a public stock
offering.
Many would-be entrepreneurs sometimes fail to start their ventures because they fail to raise
sufficient money to get started. This is because a lot of upcoming entrepreneurs are not realistic
about the amount of money they can reasonably expect to raise for their startups. It is therefore
very important to note that many successful companies start with very little capital.
Profit Potential
Any business must make enough money to justify the entrepreneur’s investment. This is called a
profit, which is the balance after all normal business expenses have been accounted for,
including a fair salary for the entrepreneur. In the long term, this is the most important source of
resources for any business enterprise.
The cash flow that a business generates should never be confused with profit. It is common for
rapidly growing businesses to have a negative cash flow from operations even when generating
reasonably high profits. This results from the inability of a business to generate enough cash flow
to sustain its ever-growing needs, which necessitates new borrowing or raising new equity
capital. Entrepreneurs therefore to make careful cash-flow projections so as to predict the future
need of their investments. Future equity investments will dilute the percentage ownership of the
founders, and if the dilution becomes excessive, there may be little reward remaining for the
entrepreneurs.
Hence, entrepreneurs should invest as little as possible to start their businesses and make sure
that their firms will be able to pay them a “dividend” big enough to yield an appropriate annual
rate of return. For income tax purposes, that dividend may be in the form of a salary bonus or
fringe benefits rather than an actual dividend paid out of retained earnings. Of course, the
company must be generating cash from its own operations before that dividend can be paid. For
entrepreneurs, happiness is a positive cash flow.
MANAGE THE ENTERPRISE
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After resources are acquired, the entrepreneur must use them to implement the business plan.
The operational problems of the growing enterprise must also be examined. This involves
implementing a management style and structure, as well as determining the key variables for
success. A control system must be established, so that any problem areas can be quickly
identified and resolved. Some entrepreneurs have difficulty managing and growing the venture
they created. Everybody has ideas. Ideas are relatively easier to come by compared to inventions.
It takes knowledge, time, money and effort to refine an idea into a workable invention. Turning
an invention into an innovation -- a new product launched into, and accepted by, the marketplace
-- takes even more effort and a little luck. Inventors are individuals who conceive a new
product, process or service. Typical inventors have neither the interest nor the resources to
commercialise their inventions. Innovators are people seek to commercialise inventions.
Innovation may be defined as a complex series of activities, beginning with an idea and followed
by a succession of interwoven steps -- research and development, financing, marketing and
production. Innovation is only completed when the market accepts a product, process, or service.
Entrepreneurship is identified with innovation. Innovation does not always mean inventing
something physical (Technological Innovation), but could involve redefining the way something
is done (Social Innovation). Innovation is the specific instrument of entrepreneurship. It is the act
that gives resources the capacity to create wealth. Innovation creates resources. There are no
resources until entrepreneurs find a use for it through innovation.
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Entrepreneurial Process

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Entrepreneurial Process

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THE ENTREPRENEURIAL PROCESS

Creativity as a source of opportunities

Why we often fall short of Creativity

EVALUATING THE OPPORTUNITY – Feasibility Study

What is a feasibility study

 Will a concept work or not?

Objectives of a feasibility study

 Showing the facts and figures needed to aid in decision-making

Highlights of a feasibility study

 Performance: A project can be justified if it results in improved performance characterised

 Technical feasibility: investigates if the idea can be implemented considering the

Feasibility Study Outline

PLANNING FOR THE EXPLOITATION OF AN OPPORTUNITY

What is a Business Plan?

Uses of a Business Plan

Developing a Business Plan

Contents of a Business Plan

The contents of a business plan should be tuned to a particular entrepreneur’s circumstances,

9. Evaluation and Measurement

10. Contingency Plan

DETERMINE AND ACQUIRE THE RESOURCES REQUIRED

What are Resources?

The Human Resource

Human resource is defined as an individual’s investment in personal productivity. It is a

The Cultural Resources

Sources of Business Resources

1. The entrepreneur’s accumulated cultural, social, financial and human resources,

MANAGE THE ENTERPRISE

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