[Entrep] Interactive Module 2 PDF

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[Entrep] Interactive Module 2...

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Chapter 2: Opportunity Seeking, Screening, and Seizing Module Content:

Lesson 1:

Opportunity Seeking

Lesson 2:

Opportunity Screening

Lesson 3:

Opportunity Seizing

Pretest: Direction: Write the correct answer on the space provided before the number. ________________1. Entrepreneurs create value by introducing new products or services or finding better ways of making them. ________________2. Entrepreneurs may totally change the prevailing business paradigm by rendering it obsolete through the introduction of disruptive technologies, processes, and systems. ________________3. Allows the entrepreneur to see things in a very positive and optimistic light in the midst of crisis or difficult situations. ________________4. Driven by passion, they are drawn to find fulfillments in the act and process of discovery. ________________5. Refers to the ability of the entrepreneur to sense without using the five senses. This is also known as intuition. ________________6. Refers to the big macro forces that affect the area, the industry, and the market, which the enterprise belongs to. ________________7. Includes the demographics and cultural dimensions that govern the relevant entrepreneurial endeavor. ________________8. Governance system of the country or the local area of business. These factors are important influencers in evaluating the attractiveness of any political domain where the entrepreneurial intends to locate and do business in. ________________9. Supply and demand forces mainly drive the macroeconomic environment. ________________10. Includes all natural resources and the ecosystem, habitat of men, animals, plants and materials. 2.1 Opportunity Seeking Entrepreneurs are innovative opportunity seekers. They have endless curiosity to discover new or different ideas and see weather these ideas will work in the marketplace. This is what separates entrepreneurs from the ordinary businessman whose main objectives is simply to earn profits from producing, buying, and selling goods. Entrepreneurial Mind Frame, Heart Flame, and Gut Game Entrepreneurial Mind frame allows the entrepreneur to see things in a very positive, and optimistic light in the midst of crisis or difficult situations. Instead of being discouraged, the entrepreneur is able to use these problematic situations as inspiration in creating something innovative. In fact, in Chinese writing, the word Crisis is composed of two characters. The first character means danger and the second character means opportunity. Entrepreneurial Heart flame is one commonality between an inventor and an entrepreneur, it is their surging passion. Entrepreneurial Gut game is the final ingredient. This refers to the ability of the entrepreneur to sense without using the five senses. This is also known as intuition. Macro Environmental Sources of Opportunities Macro Environment refers to the “big or macro forces” that affect the area, the industry, and the market, which the enterprise belongs to. They influence how business should be conducted, how customers will behave, how supply and demand will

move, how different competitors would position themselves, and how the cost of doing business will proceed. The macro environment forces can be divided into five categories composed of the Social, Political, Economic, Ecological, and Technological dimensions or SPEET. 1. Socio – Cultural Environment These include the demographics and cultural dimensions that govern the relevant entrepreneurial endeavor. Taking this aspect into consideration helps the entrepreneur assess the trends and dynamics of the bi e consumer population, their beliefs, tastes, customs, and traditions. It looks at social structure and shifts in social status and behavior. 2. Political Environment The political environment defines the governance system of the country or the local area of business. It includes all the laws, rules, and regulations that govern business practices as well as the permits, approvals, and licenses necessary to operate the business. Specifically, it regulates the use of natural resources; the disposal of wastes. The taxation of income; the importation of goods and services; the accounting and reporting of business financial statements; public and private education; health programs; use of public funds; and other such concerns. It includes the establishment of vital infrastructures, logistical access, and interventions that affect the cost of doing business, These factors are important influencers in evaluating the attractiveness of any political domain where the entrepreneur intends to locate and do business in. 3. Economic Environment Supply and demand forces mainly drive the macroeconomic environment. They are the same factors that drive the interest and foreign exchange rates that fluctuate with the movement of the market forces. In any country, the income levels and the purchasing power of its people as well as the competitiveness (of uncompetitiveness) of its industries and enterprises are sources of opportunities. However, in any opportunity, there is always a threat that lurks behind it. In this case, the entrepreneur must be able to think critically through each and every single economic event that impacts his ot her enterprise. For example, a very fast-growing demand for housing may lead to the overbuilding of houses. This threat is what house financing institutions are afraid of.

4. Ecological Environment The ecological environment includes all natural resources and the ecosystem, habitat of men, animals, plants, and minerals. There is a growing awareness in the world today that will make this factor more and more important for countries, industries, and businesses. The threats of ecological degradation have generated countless opportunities such as smoke and spill detectors, filters and screens, pollution counters, and energy saving devices. Opportunities abound for greener, cleaner, and healthier products, whose objectives are to save the planet and prolong lives. 5. Technological Environment New scientific and technological discoveries, which often lead to the launch and commercialization of new products with superior attributes or to rendering the old ones obsolete, are the entrepreneur's nightmares. In such cases, the entrepreneur is left with no choice but to invest in new technologies in order to keep up with competition. Technology does not only come in the form of advanced machinery or equipment, but it can also be in the form of new systems, new processes, or new products. Table 2.1. Examples of Relevant Opportunities and Threats to a Fast Food Chain Factors Opportunities to the Enterprise 1. Social  Increasing double income  Increased customer base for the fast

Threats to the Enterprise

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earners in the family (i.e. mother and father are both working) Trend toward healthier food choices 2. Political Tax Exemption for 13th month pay and other bonuses up to 70, 000.00 passed by Congress 3. Economic ASEAN Integration 2015 (countries that belong to ASEAN trading at zero tariff)

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food chain More healthy product offerings are demanded by customers.

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Increased purchasing power of the customers leading to higher retail sales

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Opportunity for the enterprise to expand to other ASEAN markets

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4. Ecological Increased usage of eco bags and environment – friendly containers

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Opportunity to start an advocacy toward a ‘greener’ operation (not limited to usage of eco – friendly containers/packaging)

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5. Technological Increased usage smartphones to disseminate important information (e.g., news, weather, traffic updates)

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Greater usage of apps delivery orders via smartphones, which may help increase market reach

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Smaller suppliers’ difficulty coping with greater competition posed by foreign rivals; might lose small but reliable suppliers Additional costs incurred by new packaging may decrease profitability

Potential for online customer disappointments and netizen bashing due to the service delivery brought about by intermittent technical glitches.

Industry Sources of Opportunities Participants in an industry include: 1. Rivals or competitors in a particular type of business (e.g., Jollibee vs. McDonald, Coca-Cola vs. Pepsi, Samsung Galaxy vs. Apple’s iPhone, etc.). True rivals competitors are those competing for the same or similar markets. 2. Suppliers of input (e.g., fuel, electricity, raw materials) to rivals as well as supplier, of machinery and equipment, suppliers of manpower and expertise, and supplies of merchandise. 3. Consumer market segments being served by rivals or competitors. 4. Substitute products or services, which customers shift or turn to, 5. All other support and enabling industries. The value-added chain follows the product chain but concentrates on the ‘value’ added from one stage of the product to the other-a value that Is given by the market price differential between stages of production. The differential would include the additional costs of processing the product from one stage to the next and the profit margins added on each stage by the processor (or distributor). A good example of the value-added chain would be a cup of designer coffee. At farm gate prices, one would get a few pesos out of a bag of freshly picked coffee beans. The coffee beans will then get processed and packaged by the coffee manufacturer. Cost and profit margins are added before selling the product to distributors. Once it gets in the hands of the distributors, the latter will have to market and sell the finished product to coffee shops for a few more pesos added to cover for the logistical and transportation costs incurred. The coffee shops will then proceed to concoct their own versions of designer coffees. The fancier the coffee gets, the more expensive a cup of designer coffee becomes, Figure 2.1 shows the relationship between product and value added chain. :

Micromarket Micromarket refers to the specific target market segment of a particular enterprise. These are the target customers that represent the immediate customers of an enterprise, meaning those who are currently buying the goods or services offered by the enterprise and its direct competitors. It likewise pertains to a clearly defined location or specific customer group that an enterprise wishes to serve. The need for segmentation would be crucial in micromarket analysis because the definition of value for money differs from group to group. If they do not differ, then the entrepreneur is better off by aggrupating rather than segmenting. For example, the Makati office crowd has several choices where to eat. Observing the behavior of customers during lunch would indicate what groups of customers prefer fast food establishments, what group brings their own pack lunches, and what group goes for casual dining, Several opportunities can be spotted by the entrepreneur, such as opening up a new food outlet or offering food delivery services to a particular office crowd. Consumer Preferences, Piques, and Perceptions Consumer preferences, piques, and perceptions can be sources of opportunities. Consumer preferences refer to the tastes of particular groups of people. Some examples are the clothes people wear, the food they eat, the music they listen to, and the movies they watch. The consumers’ age, culture, and status affect their preferences. In contrast, Consumer dislikes refer to the things that irritate customers. Either way, the entrepreneur can explore opportunities brought about by consumer preferences or dislikes. For example, if consumer trénds show a rising preference for “fast casual” dining, then this would be, an opportunity worth exploring. If customers show great annoyance at standing in long queues in fast food outlets, then sit-down “fast casual” dining could be a great opportunity. There are times when the product Is not changed by the enterprise but what changes is the way consumers perceive the product. A classic example is Listerine mouthwash. It was first offered as a surgical antiseptic and, later, a cure for athlete’s foot during the war. Because of the many choices that customers have to struggle with every day, a product or service must be able to win the battle for the customer’s mind. First, awareness of the new product or service must be generated. This is followed by arousing the customers’ interest to buy, going to the evaluation of the product, and finally, the decision to purchase the product. After a customer purchased the product, there is a need to build brand loyalty and retain the customer for a long time to get a bigger share of his or her wallet, not just his or her mind. Product Chain

Value-Added Chain Raw Material’s Prices and Additional cost and profits

Raw Material

Semi-Processing

Semi-Processing

Semi – processed goods prices and additional costs and profits

Fully Processed Products/Services Prices of Processed Goods

The 12Rs of Opportunity Screening 1. Relevance to vision, mission, and objectives of the entrepreneur. The opportunity must be aligned with what you have as your personal vision, mission, and objectives for the enterprise you want to set up. 2. Resonance to values. Other than vision, mission, and objectives, the opportunity must match the values and desired virtues that you have or wish to impart. 3. Reinforcement of Entrepreneurial Interests, How does the opportunity resonate with the entrepreneur's personal interests, talents, and skills? 4. Revenues In any entrepreneurial endeavor, it is important to determine the sales potential of the products or services you want to offer. Is there a big enough market out there to grab and nurture for growth? 5. Responsiveness to customer needs and wants, If the opportunity that you want to pursue addresses the unfulfilled or underserved needs and wants of customers, then you have a better chance of succeeding. 6. Reach, Opportunities that have good chances of expanding through branches, distributorships, dealerships, or franchise outlets in order to attain rapid growth are better Opportunities. 7. Range. The opportunity can potentially lead to a wide range of possible product or Service offerings, thus, tapping many market segments of the industry, 8. Revolutionary Impact. If you think that the opportunity will most likely be the “next big thing” or even a gamechanger that will revolutionize the industry, then there is a big potential for the 9. Returns. It is a fact that products with low costs of production and operations but are sold at higher prices will definitely yield the highest returns on investments. Returns can also be intangible; meaning, they come in the form of high profile recognition or image projection, 10. Relative Ease of Implementation. Will the Opportunity be relatively easy to implement for the entrepreneur or will there be a lot of obstacles and competency gaps to overcome? It is important to determine the sales t to offer. Is there a big enough market 11. Resources required. Opportunities requiring fewer resources from the entrepreneur may be more favored than those requiring more resources. 12. Risks. In an entrepreneurial endeavor, there will always be risks. However, some opportunities carry more risks than others, such as those requiring more resources. Technology Assessment and Operations Viability There are at least four target customer expectations affecting the scale and complexity of an enterprise’s operations. 1. Quantities Demanded. This would determine the needed capacity of operations. 2. Quality specifications demanded. This would dictate the following: (a) Quality of input or raw materials (b) Quality assurance process in transforming input to output (c) Quality output that meet the operations, standards set; and (d) Quality outcomes for the customers who will be looking for specific results. 3. Delivery expectations. Knowing how much, how frequent, and when to deliver to customers. 4. Price expectations. The selling price of the product or service would be evaluated by the customers according to the value they would receive (in terms of quality, delivery, and quantity) and this value added should be matched against competitors.

Investment Requirements and Production/Servicing Costs There are three investments that need to be funded: 1. Pre – Operating Costs. These are costs related to the preparation for the launch of the business. These include the pre – feasibility study, in – depth feasibility study, market research, product development, organizational development, and initial promotional costs. 2. Production/Service facilities Investment. This refers to the long – term investment for the actual business establishment, including investment in land, buildings, machinery, equipment, computers, software, furniture, vehicles, etc. If the business would be renting or leasing space, the leasehold improvement (renovation) would also be part of the facilities investment. 3. Working Capital Investment. This includes the investment needed to operationalize the business, composed of cash, accounts receivable and inventories (raw materials, work – in – process, and finished goods). The entrepreneur must see to it that he or she has enough cash to cover the inventories to be purchased (or manufactured), the accounts receivable to accommodate customers, and the operating expenses to be incurred. These operating expenses would include the following: a. Employee salaries, wages, and benefits b. Rent and lease expenses c. Utilities d. Transportation e. Fees and Licenses f. Commissions g. Office Supplies, etc. Financial Forecasts and Determination of Financial Feasibility Financial forecasting calls for the creation of the four critical financial statements namely: (1) Income Statement (2) Balance Sheet (3) Cash Flow Statement (4) Funds Flow Statement Income Statement Is a financial Statement that measures an enterprise’s in terms of revenue and expenses over a certain period. Simply put the formula: REVENUES – EXPENSES = INCOME OR PROFIT (LOSS) Balance Sheet Assets represent all the investments in the enterprise including all initial investments that you considered in the pre – feasibility study. These include cash (on hand and in bank), accounts receivable, inventory of goods, equipment and machinery, facilities, vehicles, etc. Stockholders’ equity represents the investors’ investments in stock (or shares) of the business. The balance sheet equation is: ASSETS = LIABILITIES + EQUITY Payback Period How long it will take for him or her to get back what he or she has invested in the enterprise. PAYBACK PERIOD = TOTAL INVESTMENT ANNUAL NET INCOME AFTER TAXES

Return on Sales (ROS) ration where the entrepreneur calculates how much profit in the enterprise is earning for each peso sold. RETURN ON SALES = NET PROFIT AFTER TAXES SALES Return on Investments RETURN ON ASSETS or RETURN ON INVESTMENTS = NET PROFIT AFTER TAXES TOTAL ASSETS/INVESTMENTS

Challenge yourself. Opportunity Seeking in the Digital Era Answer the following questions as best as you can. Write down your answers on a separate sheet of paper. 1. Social media has been very active in terms of spreading the word about practically anything and everything. As a budding entrepreneur, how can you take advantage of this trend to churn out potential opportunities? List down potential business opportunities that you see.

Pretest: Direction: Write the correct answer on the space provided before the number. ________________1. Entrepreneurs create value by introducing new products or services or finding better ways of making them. ________________2. Entrepreneurs may totally change the prevailing business paradigm by rendering it obsolete through the introduction of disruptive technologies, processes, and systems. ________________3. Allows the entrepreneur to see things in a very positive and optimistic light in the midst of crisis or difficult situat...