Lecturer 3 & 4

JOAN KIRUI:
Business Entrepreneurship,
The Process of New Ventures creation
NEW VENTURE START-UP
• In starting up a business, it is important that you know
about: (a) The definition of start-up; (b) The phases in start-
up; and (c) The advantages and disadvantages of start-up.
• (a) The definition of start-up;
• A start-up venture is a venture that is recently formed. It is
a process where the entrepreneur creates a completely
new business starting from scratch. Some of these
businesses are created as follows:
• Many entrepreneurs start-up their business by themselves.
• Usually entrepreneurs will use their own funds from their savings
or by borrowing from others.
• An entrepreneur who wants to start-up his business usually needs
to have lots of experience, knowledge, skills and interest in the
field involved.
• Start-up business usually involves the invention of new products or
services
PHASES IN NEW VENTURE START-UP

• Any new venture goes through three types of phases.

They are:
• (a). Pre start up phase- It start with an idea
inception and ends when the doors are ready and open
for business
• (b). Start up phase- It begins with the introduction of
sales activities and ends up with the establishment of a
concrete business
• (c). Post start up phase- It ends when the venture is
terminated, closed or the entrepreneur has no control
over the surviving business entity
ENTREPRENEURIAL START-UP PROCESS
The entrepreneurial start-up process includes
five key components.
a. The entrepreneur
b. The opportunity identification
c. The environment
d. Start-up resources
e. The new venture organization
 The Entrepreneurial Process
Stabilit
2. Identify
y
opportuniti
es

Maturi
ty
1. 4.New
Entrepreneur( venture
s) start-up
High
growth
3.
Accessing
resources
Seed/
Startup
 1. IDENTIFY OPPORTUNITIES
• Opportunity defined
-An opportunity is a favorable set of circumstances that creates the need for a
new product, service, or business idea
• Difference between an opportunity and an idea
-An idea is defined as “something imagined or pictured in the mind.” the
difference is that an idea may or may not represent an opportunity.
• Most of the entrepreneurial ventures are started in one of the two
ways:
-Some ventures are internally stimulated. An entrepreneur decide to start a firm,
searches for and recognize an opportunity, then start a business.
-Other ventures are externally stimulated. An entrepreneur recognize a problem
or opportunity gap and creates a business to fill it.
OPPORTUNITY IDENTIFICATION cont’d
• Opportunity identification is a process that involves the search for
and discovery of business opportunity
• Business opportunity is a favorable set of circumstances that creates a
need for a new product, service or business. However opportunities
mostly offer a limited “window of opportunity”-(time period for
market entrance which can close quickly).
• A business opportunity exists when there is demand for goods and
services to meet the needs and wants of community.
• An opportunity has four essential qualities (attractive, timely, durable,
and anchored in a product, service, or business that creates or adds
value for its buyers or end users.
 OPPORTUNITIES FOR EMPLOYED WORKERS
• There are two options that employed workers are assumed to
choose from,
• A “conventional” career versus an “entrepreneurial” option
is a process of moving from conventional labour option to
entrepreneurial option is known as start-up
• The reverse process of moving from entrepreneurial option
back to the conventional labour option is fall-out.
• Two forces are said to work driving the employed workers from
conventional labour option to the entrepreneurial option:
• Thus, It’s referred to as pull and push factors
 Start-up

Convention
Entreprene
al labor
urs
option

fall-out
 Pull factors
• Pull factors are those which encouraged employed workers to become
entrepreneurs by virtue of the attractiveness of entrepreneurial option.
“come on in the water is lovely aspect”.
• Some important pull factors include:
• The financial reward of entrepreneurship
• The freedom to work for oneself
• The sense of achievement to be gained from running one’s own
ventures
• The freedom to pursue a personal innovation
• A desire to gain a personal standing achieved by entrepreneurs
 Push factors
• Push factors on the other hand are those which encouraged
entrepreneurship by making the conventional option less attractive.
“get out the kitchen is too hot aspect”
• Push factors include:
• The limitation of financial reward from conventional jobs
• Being unemployed in an established economy
• Job insecurity
• Career limitations and setbacks in a conventional job
• The inability to pursue a personal innovation in a conventional job
• Being a “misfit” in an established organization
WAYS TO IDENTIFY AN OPPORTUNITY (THE
ENVIRONMENT)
• 1. Observing Trends/or changing environmental trends
• Trends create opportunities for entrepreneurs to pursue. The first approach to
identifying opportunities is to observe trends and study how they create
opportunities for entrepreneurs to pursue. There are ways that entrepreneurs
can get and handle changing environmental trends.
• i). They can carefully study and observe them
• ii). They can purchased customized forecasts and market analyses from
independent research firm
• The most important trends are:
• Economic forces.
• Social forces.
• Technological advances.
• Political action and regulatory change.
• It’s important to be aware of changes in these areas.
 Economic Forces
• Economic forces (economy, disposable income, consumer spending
pattern)
• Economic trends help determine areas that are ripe for new startups
and areas that startups should avoid.
• Economic forces affect consumers’ level disposal income.
• When studying how economic forces affect opportunities, it is
important to evaluate who has money to spend and who is trying to cut
cost.
• In increase in the number of women in the work place and their related
increase in disposal income is largely responsible for the number of boutique
clothing stores targeting professional women that have opened in the past
several years
• Many large firms are trying to cut costs. Entrepreneurs have taken advantage
of this trend by starting firms that help other firms control costs.
Social Forces
• Social forces (social and cultural trends, demographic changes, what
people think is “in”)
• Social trends alter how people and businesses behave and set their
priorities. These trends provide opportunities for new businesses to
accommodate the changes.
• Changes in social trends provide opening for new businesses on an
ongoing basis
• Examples of Social Trends are:
• The continual proliferation of fast-food restaurants, isn’t happening because
people love fast-food. It happens because people are busy, and have disposal
income.
• Similarly, Sony Walkman was developed not because consumers wanted small
radios but because people wanted to listen to music while on the go
• Emphasis on alternative forms of energy.
 Technological Advances
• Technological advances (new technologies, emerging technologies,
new used of old technologies)
• Advances in technology frequently create business opportunities.
• Given the rapid pace of technological change, it is vital that
entrepreneurs keep on top of how technologies affect current and
future business opportunities.
• Entire industries have emerged as the results of technological
advances
• Example includes the computer industry, the internet,
biotechnology, and digital photography.
• Once a new technology is created, a new business form to take the
technology to a higher level.
• For example RealNetworks was started to add audio capability to
the internet.
 Political Action and Regulatory Changes
• Political and regulatory changes (new changes in political arena. New laws and
regulations)
• Political and regulatory changes provide the basis for new business opportunities
• For example, laws that protect the environment have created opportunities for
entrepreneurs to start firms that help other firms comply with environmental
laws and regulations.
• Similarly, many entrepreneurial firms have been started to help companies to
keep all their records, including e-mails messages and electronic documents
for some several years
• How do I check my KRA penalties?
• How do I reprint my KRA PIN certificate?
• For example during political campaign in Kenya there are so many business
opportunities like printing materials (t-shirts, posters, rebranding of motor
vehicles etc.)
 2. SOLVING A PROBLEM
Recognize problems and find ways to solve it
• Problem can be recognized by observing the
challenges that people encounter in their daily lives.
Solution to the problem represented a business
opportunities.
• Identifying business opportunities simply involves noticing a
problem and finding a way to solve it.
• These problems can be pinpointed through observing trends and
through more simple means, such as intuition, serendipity, or
change.
• Some business ideas are clearly initiated to solve a problem.
• For example, Symantec corp. created Norton antivirus software to
guard computers against viruses.
 3. FINDING GAPS IN THE MARKETPLACE
• Gaps in the Marketplace
• A third approach to identifying opportunities is to find
a gap in the marketplace
• A gap in the marketplace is often created when a
product or service is needed by a specific group of
people but doesn’t represent a large enough market
to be of interest to mainstream retailers or
manufacturers.
• Recognize a need that customers have that is not being
satisfied
• Opportunities occurs whenever there is need and
want to fulfil. The term “needs” refers to basic needs
that the consumer must have to live while the term
“wants” refers to personal desire for something that
IDEA GENERATION
• Idea generation from entrepreneurship point of view
clearly refers to either the discovery of a business idea
or the development of an idea into a more feasible
business concept over time. The IDEA could be a:
• Plan, proposal, suggestion, opinion, or belief. A better
informed entrepreneur would have bigger chances at
recognizing emerging opportunities and makes these
ideas happen or come to life
• An Idea is a notion or an impression that create
excitement in the mind of a would be entrepreneur,
which seems like business opportunity, but often people
confuse ideas with opportunities.
Q. • Assume the entrepreneur has an idea and goes
ahead to realize that product/service and introduce
to the customers and the customers reject the
products/service. Why?
• Customers does not buy product/service,
customers buy solutions to problems
• Good idea starts with a problem
Finding an Idea… Find a trend,
complaint, problem or
pain

Get creative on how

to capitalise on it
IDEA DEVELOPMENT PROCESS
1. Idea
generati
on
6. 2. Screening
Launch

3.
5.
Developi
Testing ng
4.
Researc
h
IDEA DEVELOPMENT PROCESS CONT’D
1. Ideas generation
Finding the right business idea. Seeing what others do
not.
Sources: Work experience, Interest/hobby, Chance
happening (serendipity), similar business, family and
friends, technology
2. Screening ideas
Deciding which ideas to pursue and which to discard.
Consider which idea(s):
• Best meets the needs of customers
• Generates the highest profit
• Best fits with the goals of the business
•
IDEA DEVELOPMENT PROCESS CONT’D
3. Developing an idea
This depends on the product or service:
• Developing a prototype (sample/example)
• Creating the product design
• Creating the product
• Developing the packaging
• Deciding on a name for the product or service
• Obtaining a patent, design right or a trademark
IDEA DEVELOPMENT PROCESS CONT’D
4. Research and planning
Collecting information about a market place to
determine whether or not there is a demand for a
product or service
• Business plan Describe proposed venture
• Explain why an opportunity
• Outline marketing plan
• Operational & financial details
• Managers’ skills and abilities
5. Testing an idea
Through focus groups, by giving free samples, by
attending fairs and markets etc.
6. Launching an idea
This is usually supported by an appropriate marketing
Sources of New Ideas
• Finding the right business ideas can be difficult and
frustrating. There are a number of ways to generate a
business ideas ranging from:
• Consumers
• Informally monitor potential ideas and needs.
• Formally arrange for consumers to express their opinions.
• Existing Products and Services
• Analysis uncovers ways to improve offerings that may result in a
new product or service.
• Distribution Channels
• Channel members can help suggest and market new products.
SOURCES OF NEW IDEAS (CONT’D.)

• Federal Government
• Files of the national and county Government Office can
suggest new product possibilities.
• New product ideas can come in response to government
regulations.
• Universities and other research organizations
• A formal endeavor connected with one’s current employment.
• An informal lab in a basement or garage.
 SOURCES OF IDEAS (cont’d)
• Reading books, • Industry newsletters
newspapers, magazines • Competitors
• Radio, TV • Franchises
• Networks • Patent brokers
• Observation • Licensing
• Friends/Colleagues • Personal research and
• Creative thinking development
seminars • Former employers &
• Active listening Current employers
• Hobbies • consultants
 TECHNIQUES OF GENERATING NEW IDEAS
• Focus Groups
• A moderator leads a group of 8 to 14 participants through an
open, in-depth discussion in a directive or nondirective
manner.
• An excellent method for generating and screening ideas and
concepts.
• Brainstorming
• Brainstorming is a method of generating ideas and sharing
knowledge to solve a particular commercial or technical
problem, in which participants are encouraged to think
without interruption.
• Brainstorming is a group activity where each participant
share their ideas as soon as they come to mind. At the
conclusion of the session, ideas are categorized and ranked
for follow-on action.
• During brainstorming sessions their should be:
• No criticism of ideas
TECHNIQUES OF GENERATING NEW IDEAS
(CONT.)
• Brainwriting
• A form of written brainstorming.
• Participants write their ideas on special forms or cards that
circulate within the group.
• Problem Inventory Analysis
• Consumers are provided with a list of problems and are asked
to identify products that have those problems.
• Results must be carefully evaluated as they may not actually
reflect a new business opportunity.
2. ACCESSING RESOURCES
• Accessing resources is the stage in which the entrepreneur
identifies and acquires the financial, human, and capital
resources needed for the venture startup, etc.

• Entrepreneurs contemplate the following:

• Identify potential investors
• Apply for loans, grants and financial assistance
• Hire employees
 ACCESSING RESOURCES cont’d
• Bootstrapping: operating a business as frugally as
possible and cutting all unnecessary expenses,
accomplished by borrowing, leasing, and partnering to
acquire resources
• Bootstrapping – doing more with less, Preferably use
others’ resources
• Bootstrapping involves:
• hiring as few employees as possible
• leasing anything you can
• being creative
• Bootstrapping entrepreneurs can also ask suppliers to allow
for longer payments terms, ask customers to pay in
advance, or sell their accounts receivable to a factor.
• Factor is an agent who handles an entrepreneur’s accounts
ACCESSING RESOURCES (START-UP MONEY)
cont,d
• New ventures have no track records to prove it survive.
For this reason, it’s hard to get investors
• The main resources for start-up money is usually
personal resources
• Friends, family, among others
• Savings, credit cards, loans, investments.
• To finance new business, entrepreneurs can use banks,
financial companies, investment companies and
government grants. There are 2 broad types of
financing for new ventures:
• Debt financing
• Equity financing
ACCESSING RESOURCES (cont’d)
• Debt financing - Obtaining borrowed funds for the
company.
• Asset-based financing; requires some asset to be used as a
collateral.
• Borrowed funds plus interest need to be paid back.
• Equity financing - Obtaining funds for the company in
exchange for ownership. (e.g investor might invest ksh.
50,000 for a 25% ownership stake) through;
• Personal savings, Love money (friends, family), Private
investors, (business angels), Venture capitalists
• Does not require collateral.
• Offers investor some form of ownership position.
• Other resources
• Team members with complementary skills
 ADVANTAGES AND DISADVANTAGES OF START-UP
Disadvantages
• Advantages
• (a) It requires a lot of time, money and
• (a) The freedom of making own
additional effort to search for a strategic
decisions like answering all questions location, obtain license, purchase
such as when, how, and what type of machines, find new suppliers, hire and
products or services. train new worker to perform advertising
• (b) The opportunity of using one’s idea activities.
and developing own image by • (b) In the initial stage of the venture, the
identifying with the customer’s emotion. entrepreneur will obtain minimal profits
• (c) The freedom to select the ideal or losses because of the large
location, plant, equipment, products or expenditure on numerous items related
services, employees, suppliers and to start-up.
bankers. These opportunities can • (c) There is no history of business
determine the success of a venture. records in which the entrepreneur can
• (d) The ability to avoid any undesirable forecast sales, expenditures and profits.
precedents, policies, procedure and • (d) There are no ready customers, the
legal commitments of existing firms. entrepreneur needs a lot of effort to
• (e) Will not affect the reputation of the attract new customers, and sales expand
business because it is a new venture. very slowly and it will take a long time
before the business brings in profits.
• (f) Ability to make changes to business.
• (e) The difficulty of obtaining loans from
financial institutions because these
institutions have less confidence in the
TYPES OF NEW VENTURES
• Lifestyle or part-time firms (e.g., lifestyle firms, micro-
businesses):
• Usually pursued part-time and only until “something better comes
along”
• Sometimes allows founder(s) to pursue a special interest or hobby
• Traditional small businesses (e.g., SMEs, salary-substitutes
businesses):
• Allow founders to earn a salary similar to a traditional job
• No high growth aspirations and usually only one office location
• Original founder(s) maintain control over the firm
• Plan to operate the firm indefinitely
• High-growth ventures (e.g., entrepreneurial firms):
• Founder(s) intend to grow the firm in scale (multiple sites)
• Target markets are generally at the national or international level
• Founders usually do not maintain control over the firm indefinitely and
hand it over to more qualified individuals when it grows to a certain
CHALLENGES OF STARTING AN ENTREPRENEURIAL VENTURES

• Financial issues:
• The most common complication faced by young entrepreneurs is
when they encounter financial problem during starting up a business
and assumed instant profitability.
• A limited budget and a restricted cash flow can be detrimental to
your start up as lack of funds can contribute to a lot of other issues
• Time management:
• A business start-up required a strong will and tremendous time
commitment adding to the stress and woes of fledging business.
• Meeting time demand may be stressful for you and may affect your
personal life and build up pressure on your neck
• Market problem;
• you may have a remarkably unique idea for a business but it can all
go under the drain if you do not research about the demand and user
requirement
• Launching too early or launching too late may also be contributing
factor to the downfall of a business. The key is to analyze the market
situation and work accordingly
CHALLENGES OF STARTING AN ENTREPRENEURIAL
VENTURES
• Weak team
• A business is never a one man show, your team is going to be
your strength in the coming years, and if they don’t hold you
up, your business can be severely affected.
• A weak management team with poor strategies and
executions will lead to a weaker infrastructure of your
company resulting in low-market value and diminishing
reverence
• Legal issues
• Many start up fail to survive because of legal challenges, it is
essential to be aware of licensing and permit required to set
up a company abiding by the legislative laws of that country
• Not being able to understand the legal requirement of a
certain city, state, or county can cause serious complications
for you and your company.