The Entrepreneurial

Process

LEARNING OUTCOMES:
At the end of this lesson, the students will be able
to do the following:

Explain the different stages in the entrepreneurial process;

Evaluate opportunities before starting an enterprise, and

Discuss the process of identifying an opportunity.

INTRODUCTION:

Welcome to the Lesson 2 of Module 1! People become entrepreneurs with the thought in mind that
they wanted to be their own bosses, pursue their own ideas, and realize financial rewards. In this lesson, we
will try to further examine this idea by learning the model of entrepreneurial process. You will learn how a
business idea is being generated as well as on identifying the business opportunities before you could be
able to realize the establishment of your own enterprise. Enjoy learning!

ACTIVITY: Let’s Check!

Problem solving is a necessary skill of entrepreneurs. Practice this skill by citing three problems
observed in the society and how entrepreneurs can fix it. Write in detail your explanation.

Problem Explanation
1.

2.

3.
ANALYSIS:

Do you think you have

the skills to be an
entrepreneur? Please
explain.

ABSTRACTION:

The entrepreneurial process “is a course of action that involves all functions, activities and actions
associated with identifying and evaluating perceived opportunities and the bringing together of resources
necessary for the successful formation of a new firm to pursue and seize the said opportunities
(Bygrave, 1997; Cornwall & Naughton, 2003).”
This model in Figure 2.0 shows that the process starts with innovation followed by triggering event,
implementation and growth. This further shows how a person could get the idea through his
experiences or his relentless search. Pursuing the idea also depends on factors like family, friends,
career status, opinion leaders, economic conditions and resources. The triggering event is the situation
that somehow forced and led the person to pursue the idea. These situations could include changes in
job status. Many were fired and forced to do entrepreneurial activities and eventually became
successful. This triggering event could have different forms for different people. The implementation
is also influenced by several environmental conditions like policies, competition, resources and other
personal reasons. The growth stage of the Model of Entrepreneurial Process is also influenced by
personal and organizational elements. Organizational elements could include team performance,
organizational structure and culture among others.

Moreover, these stages required several activities and demanded a number of skills. Table 4.0 below
shows the respective activities and skills from each stages.

Table 4.0. Activities and skills in each stage of the entrepreneurial process.
Stages Activities Skills
Stage 1 (Decision 1. Getting the idea 1. Technical skills
to Become an 2. Opportunity identification 2. Communication
Entrepreneur) (idea/scanning the environment, identifying
the opportunity, developing the
opportunity, evaluating the opportunity and
evaluating the team)
3. Opportunity development 3. Problem solving
4. Opportunity evaluation 4. Motivation (need for
achievement)
5. Assessment of the entrepreneurial team 5. Adaptability to change
6. Time management skills
7. Financial management
8. Human resources
9. Marketing
10. Networking
Stage 2 1. Motivation to become an entrepreneur 1. Technical skills (T/S)
(Developing 2. Planning 2. Problem solving
Successful
Business Ideas) 3. Gathering resources 3. Numeracy and literacy
4. Communication skills
5. Motivation (need for
achievement)
6. Adaptability to change
7. Learning abilities
8. Decision-making skills
9. Negotiating skill
10. Financial management
 11. Human resources
12. Legal
13. Marketing
14. Networking
15. Planning
16. Role model interpretation
17. Ability to gather and
control resources
18. Calculated risk taking
Stage 3 (Moving 1. improving organizational capabilities 1. Technical skills (T/S)
from an Idea to an 2. implementing a management style in 2. Problem solving
Entrepreneurial order to grow managerial competencies
Firm [Skills
required for 3. setting up production processes 3. Decision making skills
success])
4. setting up structures and systems 4. Motivation (need for
achievement)
5. ensuring quality control 5. Time management
6. waste elimination and cost effectiveness 6. Negotiating skills
activities
7. dealing with distributors and suppliers 7. Communication skills
8. selling to customers 8. Adaptability to change
9. collecting the finance 9. Learning abilities
10. resolving operational problems 10. Business systems
management
11. fending off competitors 11. General management
12. steering the organization towards its 12. Financial management
goals and determining the key variables for
success
13. Human resources
management skills
14. ICT skills
15. Marketing
16. Networking
17. Operational
18. Planning
19. Value chain management
20. Creativity
21. Innovation
22. Opportunity recognition
23. Role model interpretation
 24. Ability to gather and
control resources
25. Calculated risk taking
Stage 4 1. Market expansion 1. Technical Skills (T/S)
(Managing and 2. Technological change 2. Problem solving
Growing an
Entrepreneurial 3. Garnering resources 3. Adaptability to change
Firm) 4. Operations 4. Learning abilities
5. Organizational development 5. Numeracy and literacy
6. Motivation (need for
achievement)
7. Time management
8. Communication skills
9. Negotiating skills
10. Decision making skills
11. Business systems
management
12. General management
13. Financial management
14. ICT skills
15. Marketing
16. Networking
17. Operational
18. Research and
development
19. Creativity
20. Innovation
21. Opportunity recognition
22. Ability to gather and
control resources
23. Calculated risk taking

From the above table, it can be noticed that only the motivation as a skill is considered
important in all of the stages in the entrepreneurship process. Moreover, marketing is deemed important
in all stage except in stage 2. The gathering of resources started to become an important skill from stage
2 until stage 4. Opportunity identification is considered important in stage 1 and 4. Furthermore, human
resources management, financial management and technical skills are deemed necessary in stage 3 and
4. Creativity can be seen as an important skill for stage 1 and 3. Lastly, communication, operations and
innovation skills are considered key skills in stage 3.

The Opportunity Identification

 The opportunity identification in the stage 1 of the entrepreneurial process includes opportunity
identification.

1. Idea/scanning the environment. This involves macro scanning and micro scanning. Micro
scanning is done when one is studying the micro environment which involves the
environment that has a direct impact on the business being planned. These environments could
influence the daily undertakings of your business but the effects are usually not long-lasting. The
micro environment includes customers, suppliers, intermediaries, competitors and the general
public. On the other hand, the macro-environment is composed of environments that the
company can't control but can be really easily affected by it. Business establishments are
usually encouraged to track these environments for patterns and updates. The macro-
environment of the firm includes demographic forces, economic factors, technological factors,
legal factors, political factors, geographic factors, cultural factors etc.
2. Identifying the opportunity. The entrepreneur is encouraged to understand the difference
between challenges and opportunities. Opportunities can come from personal experiences or
from observations gathered as a result of research. The goal here is to seek better ways of
surviving the existing competition.
3. Developing the opportunity. The timely adaption of opportunities fit for the target market
can be a good ticket to succeed. Kodithuwakhu & Rosa (2002:434) defined this stage as the
process of combining resources in order to pursue the identified market opportunities. A
systematic research in order to refine the ideas of an entrepreneur is necessary in this stage.
4. Evaluating the opportunity. This screening and evaluation part is critical. A professionally
evaluated product or service is essential before taking the risk. Several authors suggested
ways in order to evaluate a business idea. The table below is suggested by several authors
((Timmons, 1999:109; Rwigema & Venter, 2004:171; Gartner et al, 1999:223; Carter et al,
1996:157). It is encouraged that an entrepreneurs must answer each questions in Table 5.0.

Table 5.0 Questions in evaluating an opportunity.

Business factor Questions for evaluation
Product or service • Description of the product or service, its differentiator, purpose and the
need it fills
• What competitive advantage / benefits does the product have?
• What is the required customer care support for this product/service?
• Is the company able to produce product and supply required aftercare
support?
Market opportunity • Where is the market demand? What is the target market? Is it generic or
a niche?
• Industry characteristics (growth rates, change, entry barriers).
• What market share can the product reasonably expect today? In 2, 5 or
10 years?
• Timing and length of the window of opportunity?
• What competition exists in this market? Substitutes? How big is their
turnover?
• How accessible are the desired distribution channels?
Costing and pricing • How much will it cost to develop the product and commercialize it?
• Where will the funds come from?
• How do the pricing, costs and economies of scale compare with
competitors?
• How easy is it to acquire equipment, skills and other inputs required?

Profitability • Where is the money to be made in this activity? What are the gross
margins?
• Would the return on investment be acceptable? What is the payback
period?
• What are the cash flow patterns and the source of working capital?
Capital • How much capital (people, operating expense and assets) is required to
requirements start?
• What are the long-term capital needs?
• How much of the required capital is secured and where will the rest
come from?
• What securities are available to guarantee the required funds?
• Is there a list of potential funders? In case the funders withdraw their
capital?
Issues and risks • What risks (real and perceived) are inherent with the product/service?
• Industry based risks e.g. is the market on a decline?
• Are there plans for surviving the death of the lead entrepreneur?
• Unreliable forecasts? Inadequate cash flow?
• Inability to grow with the demand or cope with shrinking sales?
• Supplier and value chain management?

1. Evaluating the team. A team with strong skills can pursue opportunities better. After
evaluating an opportunity, it is essential to check on the people who will make the idea into a
reality. Bygrave (1997) and Gartner et al (1999) suggested to evaluate the team using the
questions in Table 6.0 below.

Table 6.0 Questions in evaluating a team.

Business factor Questions for evaluation
Focus • Is the founder really an entrepreneur, bent on building a company?
• Does the entrepreneur (or his team) have some experience (work or industry)?
• Do they really like this product/sector? Do they really want this?
• Can the team create products to suit that market need?
• How stressful is the opportunity for the team?

Selling • Does the team have the necessary selling and closing skills?
Management • Who will work full time? Do your managers represent competitive advantage?
• Does the team have the necessary management and technical skills?
• If the required skills are not available, can they be acquired at competitive
rates?
• How is their relationship with the entrepreneur, commitment and motivation?
 Ownership • Have the critical decisions about ownership and equity splits been resolved?
• Are the members committed to these?
• Does the owners have enough financial capital for required own
contributions?

APPLICATION: Let’s try it!

 Discuss major highlights and understanding you have

gained from this lesson in entrepreneurial process.
 Present your own view and beliefs about the most
important stage of the entrepreneurial process.

Well-done! So you have successfully completed the

activities and tasks for lesson 2. It is expected that you
have gained insights and meaningful experience in this
lesson. Now, you are already prepared to move to lesson 3
of this module. So? Enjoy and keep working!