Developing a Business Plan: Recognizing the Potential Market Prepared by: Ms. Marialyn E. De Vera How will you recognize your potential market? THE ENTREPRENEURIAL PROCESS • The entrepreneurial process is step-by-step procedure in establishing any kind of business that an entrepreneur has to undergo. It is composed of four aspects. 1. OPPORTUNITY SPOTTING AND ASSESSMENT ❖This is the beginning of the process and is considered the most difficult. Entrepreneurs at this point take note of interesting trends in their environment. ❖Consumers are reliable sources of opportunity information because market needs originate from them. ❖Other major sources of opportunity are the glaring problems in the environment, problems encountered by co-entrepreneurs, new trends, processes, and developments in the environment. ❖Other minor sources are feedback from distribution or business partners such as retailers, wholesaler, manufacturers, and technical people that the entrepreneur is working with. 2. DEVELOPING A BUSINESS PLAN ❖Entrepreneurs should formulate a business plan when they have already spotted and assessed the opportunities for a market. A business plan is a comprehensive paper that details the marketing, operational, human resource, financial strategic direction, and tactics of the business. 3. DETERMINING THE CAPITAL NEEDED ❖A big idea can never be translated into reality if the entrepreneurs resources are limited. Therefore, it is mandatory in the entrepreneurial process to calculate the resources needed to establish the business and compare this against the entrepreneurs current resources. 4. RUNNING THE BUSINESS ❖This is the part where the entrepreneur should use the resources allocated for the new venture. The business plan prepared in step 2 should already have been implemented. ❖The entrepreneur should have a control and monitoring system to serve as a check and balance of the formulated plans. SCANNING THE MARKETING ENVIRONMENT ❖The starting point of any new venture that involves understanding and knowing the intricacies of the macro environment, micro environment, and internal environment. ❖With this process of scanning the general environment, an entrepreneur can recognize various opportunities and at the same time understand thoroughly the arena where the future business will operate. Macro environment - is the condition that exists in the economy as a whole, rather than in a particular sector or region. In general, the macro environment includes trends in the gross domestic product (GDP), inflation, employment, spending, and monetary and fiscal policy. 1. Demographic Forces - Demographic forces relate to people. The name refers to the term Demography. The latter refers to the study of human populations. This includes size, density, age, gender, occupation and other statistics. 2. Economic Forces - relate to factors that affect consumer purchasing power and spending patterns. For instance, a company should never start exporting to a country before having examined how much people will be able to spend. 3. Socio-Cultural Forces - factors that affect society’s basic values, preferences and behavior. The basis for these factors is formed by the fact that people are part of a society and cultural group that shape their beliefs and values. Many cultural blunders occur due to the failure of businesses in understanding foreign cultures. 4. Technological Forces - factors that create new technologies and thereby create new product and market opportunities. 5. Ecological Forces - are important since they are about the natural resources which are needed as inputs by marketers or which are affected by their marketing activities. Important trends in the ecological environment are the growing shortage of raw materials and the care for renewable resources. 6. Political Forces - his involves laws, government agencies and pressure groups. These influence and restrict organizations and individuals in a society. Therefore, marketing decisions are strongly influenced and affected by developments in the political environment. Before entering a new market in a foreign country, the company should know everything about the legal and political environment. The Elements of Micro Environment Micro environment – it refers to the environment comprising of all the actors of an organization’s immediate environment which influences the performance of the company, as they have a direct bearing on the firm’s regular business operations. The Elements of Micro Environment Competition is what keeps the firm thriving. Competitors are the rival sellers operating in the same industry. It must be noted that the nature and intensity of competition highly influence the firm’s products and services. Product Differentiation is something that helps the firm to beat the cut-throat competition in the market. Suppliers are the one who provides inputs such as material, components, labor and other stock of goods to the firm, which is required to undertake manufacturing activities. when there is uncertainty as to the supply constraints, it usually builds pressure on the firms and they are required to maintain high inventories, which leads to cost increases. The Elements of Micro Environment Customer, the success of the organization greatly depends on how effectively the firm fulfils the needs and wants of the customers, which is profitable to the firm and also provides value to the customer. The firm needs to analyze what the customers expect from their products and services so that the firm can satisfy them. Intermediaries refer to marketing intermediaries which cover agents, merchants, distributors, dealers, wholesalers, etc. that participate in the company’s supply chain, in stocking and transporting the goods from their source location to their destination. The Elements of Micro Environment Shareholders are the real owners of the company who invest their money in the company’s business, by purchasing the shares, for which they are paid a dividend every year as a return. Shareholders have the right to vote in the company’s general meeting. Employees, Placing the right person at the right job and retaining them for the long term by keeping the staff motivated is very important for the strategic planning process. Training and development act as a guide to the firm’s employees which ensures an up-todate workforce. The Elements of Micro Environment Media, we all know the power of media these days, it can make or break an organization or its products/services overnight. Management of media whether electronic media, press media or social media is really important not just to create a positive and clean image of the company and its products in front of the audience but also to support the firm in building a good reputation in the market. The right use of media can do wonders for the company and boost its sales. Internal Environment Internal Environment – it comprises all the factors that are within the area or premise of the business. Internal Environment – the business still need proper monitoring to ensure the potential of the company to surpass future challenges. Internal Environment of business - includes physical assets, technological capabilities, human, financial and marketing resources, management structure, relationship among various constituents, goods, objectives and value system prevailing. Factors of Internal Environment Factors of Internal Environment 1. Value System/Culture of the Firm Culture may be defined as the beliefs, customs or arts, of a particular society, group, place or time. It is also collective behavior of individuals that are part of a certain organization. The culture prevalent to the firm may or may not strengthen the profit maximation. Culture adds to the success of a certain business. Value system consists of all those components that are a part of regulatory frameworks, such as culture, climate, work processes, management practices and norms of the organization. The employees should perform the activities within the purview of this framework. 2. Vision, Mission and Objectives: The company’s vision describes its future position, mission defines the company’s business and the reason for its existence and objectives implies the ultimate aim of the company and the ways to reach those ends. 3. Organizational Structure: The structure of the organization determines the way in which activities are directed in the organization so as to reach the ultimate goal. These activities include the delegation of the task, coordination, the composition of the board of directors, level of professionalization, and supervision. 4. Corporate Culture: Corporate culture or otherwise called an organizational culture refers to the values, beliefs and behavior of the organization that ascertains the way in which employees and management communicate and manage the external affairs. 5. Human Resources: Human resource is the most valuable asset of the organization, as the success or failure of an organization highly depends on the human resources of the organization. 6. Physical Resources and Technological Capabilities: Physical resources refers to the tangible assets of the organization that play an important role in ascertaining the competitive capability of the company. Further, technological capabilities imply the technical know-how of the organization. Quiz Recitation 1. An organization refers to the values, beliefs and behavior of the organization that ascertains the way in which employees and management communicate and manage the external affairs. Corporate Culture 2. The business still need proper monitoring to ensure the potential of the company to surpass future challenges. Internal Environment 3. These influence and restrict organizations and individuals in a society. Political Forces 4. A comprehensive paper that details the marketing, operational, human resource, financial strategic direction, and tactics of the business. Business Plan 5. Reliable sources of opportunity information because market needs originate from them. Consumers 6.What keeps the firm thriving? Competition 7. The most valuable asset of the organization, as the success or failure of an organization highly depends on the human resources of the organization. Human Resources 8. It can make or break an organization or its products/services overnight. Media OPPORTUNITY ❖ Is an entrepreneurs business idea that can potentially become a commercial product or services in the future. THE 3S OF OPPORTUNITY SPOTTING AND ASSESSMENT ❖Seeking the opportunity ❖Screening the opportunity ❖Seizing the opportunity S1: SEEKING THE OPPORTUNITY ❖The first step and is the most difficult process of all due to the number of options that the entrepreneur will have to choose from. ❖It involves the development of new ideas from various sources as follows: 1. MACROENVIRONMENTAL SOURCES A. STEEPLED- This is a mnemonic for Sociocultural, Technological, Economic, Environment, Political, Legal, Ethical, and Demographic factors. This represents the general environment where the entrepreneur can identify business opportunities from and where the future business is about to operate. B. INDUSTRY- This is the source of current trend on what is happening in the industry where the future business will belong to. For example: The entrepreneur should be fully acclimated on what is happening with the rice industry if he or she wants to establish a rice retailing business. C. NEW DISCOVERY OR KNOWLEDGE- These are new trends that can be the core business model of a new venture. For example: The influx of mobile application necessitates businesses to have this platform as one of their transaction channels. D. FUTURISTICS OPPORTUNITIES These are projected new opportunities that can possibly affect the new business while it is running. For example: Sari-sari stores in the future will be able to incorporate financial transactions such as accepting bills payment and process remittances. 2. MICROMARKET A. CONSUMER PREFERENCES, INTERESTS, AND PERCEPTIONThese are the current needs and wants of potential customers that should be discovered right away by a budding entrepreneur. ❖NEED is recognized when a customer believes that there is a difference between his or her current situation versus his or her desired condition. ❖WANT is the other hand, is recognized when a customer believes that there is a specific product or service that can perfectly suit the need. B. COMPETITORS- Recognizing and understanding potential competitors will aid the entrepreneur to develop a product or service that is unique and will surely stand out from the competition. The 4Ps of marketing (product, place, price, and promotion). C. UNEXPECTED OPPORTUNITIES FROM CUSTOMERS- Oftentimes, the most brilliant ventures come from the most unexpected opportunities. It may happen in unlikely situations, unlikely places, and with unlikely people. D. TALENTS, HOBBIES, SKILLS, AND EXPERTISE- Business opportunities do not just come from outside forces, but also from within the entrepreneur. The entrepreneurs talents, hobbies, skills, or expertise can be a source of business opportunity. For example: If the entrepreneur is an artist, why not sell his or her paintings? If he or she is a musician, why? Not put up a bar and perform there? If he o she is an expert in home interior design, why not make it a business? E. IRRITANTS IN THE MARKETPLACE SUCH AS DETERRENTS, PROBLEMS, COMPLAINTS, AND DELAYSGenerally, entrepreneurs see opportunities in situations where there is a recurring problem or sometimes when there is no more hope in solving the problem. F. LOCATION- Often, entrepreneurs just have to look at their ecosystem and they will be able to spot a business opportunity right away. METHODS OF GENERATING IDEAS 1. FOCUSED GROUP DISCUSSION (FGD)- In this method, a moderator handles a very open, free-flowing, and in-depth discussion with a group of people who can provide insightful ideas about a new product or service that will fill a market need. 2. BRAINSTORMING- Similar to an FGD, brainstorming is an activity that allows the participants to share creative ideas using the following rules: ✔(a) no destructive criticism or judgment is allowed. ✔(b) wilder ideas are accepted. ✔(c) more ideas are preferred. ✔(d) improvement of others ideas is allowed. In short, brainstorming is a fun discussion with lenient rules. 3. BRAINWRITING OR INTERNET BRAINSTORMING This is exactly the same as brainstorming except that the channel used is not face-to-face, but in writing or online. The results of brainwriting or internet brainstorming usually take longer, as the answers depend on the availability of the participants in answering the questionnaires online. 4. PROBLEM INVENTORY ANALYSIS- This methods is similar to the FGD except that the participants are already given an inventory of product or service problems. The participants will just identify from the list fiven the compelling problems of a potential products or service insteadof generating the ideas from them. S2 – Screening the opportunity Opportunity Screening • It is a process of cautiously selecting the best opportunity. The selection will depend on the entrepreneur’s internal intent, • the main objective that the business will accomplish in the entrepreneur’s life and the external intent, which will address the compelling needs of the target market. • Risk Appetite - refers to the entrepreneur’s tolerance of business risk. • The crafting of a business plan starts only when entrepreneurs already said no to many opportunities and said yes to one forceful opportunity, to which they will devote their time and resources. The entrepreneur should say no to an opportunity if it does not contain any of these business opportunity elements: ✔Has superior value to customers ✔Solves a compelling problem, issue, a need, or a want ✔is a potential cash cow ✔Matches with the entrepreneur’s skills, resources, and risk appetite Opportunity Screening Matrix (OSM) aims to assist entrepreneur concretize the evidence that the chosen opportunity (or opportunities) is well worth pursuing. The 12 Rs of Opportunity Screening 1. 2. 3. 4. Relevance to vision, mission, and objectives of the entrepreneur. Resonance to values. Reinforcement of Entrepreneurial Interests Revenues – determine the sales potential of the products or services you want to offer. 5. Responsiveness to customer needs and wants. 6. Reach – attainment of rapid growth 7. Range – potentially lead to a wide range of possible product or service offerings 8. Revolutionary Impact – “next big thing” or a game-changer that will revolutionize the industry 9. Returns – high returns on investment 10. Relative Ease of Implementation – easy to implement 11. Resources Required – fewer resources is better than those requiring more resources 12. Risks S3: SEIZING THE OPPORTUNITY Opportunity Seizing ✔is the last step in opportunity spotting and assessment. ✔the “pushing through” with the chosen opportunity. Innovation ✔is the process of positively improving an existing product or service. ✔it is a key driver for economic growth. Three (3) types of Innovations according to the degree of distinctiveness: 1. Breakthrough innovation ❑may also include inventions, occur infrequently as these establish the platform on which future innovations in an area are developed. ❑must be protected by patent, a trade secret, or a copyright. ❑Examples: Internet, computer, or airplane 2. Technological innovation ❑occur more frequently than breakthrough innovations. ❑are technological advancements of an existing product or service. These innovations need to be protected too. ❑Examples: wireless fidelity or Wi-Fi, laptop, and jet airplane. 3. Ordinary innovations ❑occur ordinarily as the name implies. ❑are commonly originating from market analysis and technology pull instead of a technology push. ❑ This means that the market has a strong influence in the implementation of an innovation. ❑Examples: unlimited Internet plans of telecommunications companies, a wireless mouse, andairbus for economical travelers. The last process, called the seizing process, involves refining and developing this opportunity. The refining process is called product or service planning and development process. Four (4) stages: 1. Idea stage – in this stage, the entrepreneur determines what are the feasible products and/or services that will perfectly suit the opportunity. Market evaluation Assessment of the value of new products/services Elimination of unappealing products/services 2. Concept stage – the developed idea will undergo a consumer acceptance test. This test includes getting the initial reactions of the primary target market and the distribution channel. Conversational interviews Four (4) stages: 3. Product development stage – in this stage, the entrepreneur leverages on the information generated from the prospective customers via the concept stage. Determine actual reactions from prospective customers Conduct consumer panel 4. Test marketing stage – this stage validates the work done from the first three stages to measure success in the commercialization of the product or service. Actual sales results Once the 3S of opportunity spotting and assessment have been diligently done, the entrepreneur should now be ready to prepare a comprehensive business plan that covers marketing, operations, and financial plans.