UNIT TWO– FROM IDEAS TO A SUSTAINABLE BUSINESS

UNIT INTRODUCTION
Now that you have an understanding of what entrepreneurship is, it is time to learn the
fundamentals of the entrepreneurship process. In this unit you will explore what it takes to
recognise a business opportunity and develop an idea into a business concept. There are
many factors to consider in starting a business. Good planning can help create sustainable
business.

UNIT OBJECTIVES
Upon completion of this unit you should be able to:
1. Explain the major steps in the entrepreneurial process.
2. Identify and assess potential business opportunities.
3. Generate a business idea.
4. Identify how potential business opportunities can be turned into a sustainable
business concept.

ASSIGNMENTS AND ACTIVITIES

There are short activities throughout this unit that guide you in developing your business
idea. In Unit Four, you will develop this business idea into a business model.

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 TOPIC 2.1 – THE ENTREPRENEURIAL PROCESS
TOPIC INTRODUCTION
In Unit 1 we were introduced to two models of entrepreneurship. In the first we examined
the Canadian Foundation for Economic Education Model. The model describes eight major
processes: self‐discovery; identifying opportunities; generating and evaluating ideas;
planning; raising start‐up capital; start‐up; growth; and harvest. In the second model
Nieman, Hough, and Nieuwenhuizen described four phases in the entrepreneurial process:
identify and evaluate the opportunity; develop a business plan; determine the resources
required; and start and manage the business. This topic will build upon those ideas and
provide a detailed description of the entrepreneurial process.

TOPIC OBJECTIVES
Upon completion of this topic you should be able to describe the major steps in
the entrepreneurial process.
ATTRIBUTION
The information described in this topic was downloaded from the University of Central
Arkansas and was originally published in: Hisrich, R.D., M. P. Peters & D. A. Shepherd.
(2005). Entrepreneurship. 6 ed. New York: McGraw‐Hill Irwin. Goto:
http://www.sbaer.uca.edu/publications/entrepreneurship/pdf/01.pdf.

THE ENTREPRENEURIAL PROCESS

The process of starting a new venture is embodied in the entrepreneurial process, which
involves more than just problem solving in a typical management position. An
entrepreneur must find, evaluate, and develop an opportunity by overcoming the forces
that resist the creation of something new. The process has four distinct phases: (1)
identification and evaluation of the opportunity, (2) development of the business plan,
(3) determination of the required resources, and (4) management of the resulting
enterprise. (NOTE: This is very similar to the Nieman, Hough, and Nieuwenhuizen model
discussed earlier).
Although the phases proceed progressively, no one stage is dealt with in isolation or is
totally completed before work on the other phases occurs. For example, to successfully
identify and evaluate an opportunity (phase 1), an entrepreneur must have in mind the
type of business desired (phase 4).
IDENTIFY AND EVALUATE THE OPPORTUNITY
Opportunity identification and evaluation is a very difficult task. Most good business
opportunities do not suddenly appear, but rather result from an entrepreneur’s alertness to
possibilities, or in some case, the establishment of mechanisms that identify potential
opportunities. For example, one entrepreneur asks at every cocktail party whether anyone
is using a product that does not adequately fulfill its intended purpose. This person is
constantly looking for a need and an opportunity to create a better product. Another

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 entrepreneur always monitors the play habits and toys of her nieces and nephews. This is
her way of looking for any unique toy product niche for a new venture.
Although most entrepreneurs do not have formal mechanisms or identifying business
opportunities, some sources are often fruitful: consumers and business associates,
members of the distribution system, and technical people. Often, consumers are the best
source of ideas for a new venture. How many times have you heard someone comment, “If
only there was a product that would…” This comment can result in the creation of new
business. One entrepreneur’s evaluation of why so many business executives were
complaining about the lack of good technical writing and word‐processing services resulted
in the creation of her own business venture to fill this need. Her technical writing service
grew to 10 employees in two years.
Due to their close contact with the end user, channel members in the distribution system also
see product needs. One entrepreneur started a college bookstore after hearing all the students
complain about the high cost of books and the lack of service provided by the only bookstore
on campus. Many other entrepreneurs have identified business opportunities through a
discussion with a retailer, wholesaler, or manufacturer’s representative. Finally, technically
oriented individuals often conceptualize business opportunities when working on other
projects. One entrepreneur’s business resulted from seeing the application of a plastic resin
compound in developing and manufacturing a new type of pallet while developing the resin
application in another totally unrelated area—casket mouldings.
Whether the opportunity is identified by using input from consumers, business associates,
channel members, or technical people, each opportunity must be carefully screened and
evaluated. This evaluation of the opportunity is perhaps the most critical element of the
entrepreneurial process, as 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. The risks reflect the market, competition, technology,
and amount of capital involved. The amount of capital needed provides the basis for the
return and rewards. The methodology for evaluating risks and rewards frequently indicates
that an opportunity offers neither a financial nor a personal reward commensurate with
the risks involved. One company that delivered bark mulch to residential and commercial
users for decoration around the base of trees and shrubs added loam and shells to its
product line. These products were sold to the same customer base using the same
distribution (delivery) system. Follow‐on products are important for a company expanding
or diversifying in a particular channel. A distribution channel member such as Wal‐Mart,
Service Merchandise, or Courts prefers to do business with multi‐product, rather than
single‐product, firms.

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 Finally, the opportunity must fit the personal skills and goals of the entrepreneur. It is
particularly important that the entrepreneur be able to put forth the necessary time and
effort required to make the venture succeed. Although many entrepreneurs feel that the
desire can be developed along the venture, typically it does not materialize. An
entrepreneur must believe in the opportunity so much that he or she will make the
necessary sacrifices to develop the opportunity and manage the resulting organization.
Opportunity analysis, or what is frequently called an opportunity assessment plan, is one
method for evaluating an opportunity. 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.
An opportunity assessment plan 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. The assessment of the opportunity requires answering the following
questions:
What market need does it fill?
What personal observations have you experienced or recorded with regard to
that market need?
What social condition underlies this market need?
What market research data can be marshalled to describe this market
need? What patents might be available to fulfill this need?
What competition exists in this market? How would you describe the behaviour of
this competition? What does the international market look like?
What does the international competition look like?
Where is the money to be made in this activity?

DEVELOPING A BUSINESS PLAN

A good business plan must be developed in order to exploit the defined opportunity. This is
a very time‐consuming phase of the entrepreneurial process. An entrepreneur usually has
not prepared a business plan before and does not have the resources available to do a
good job. A good business plan is essential to developing the opportunity and determining
the resources required, obtaining those resources, and successfully managing the resulting
venture.
A typical business plan includes the following:

Assessment of the business

environment. A competitor’s analysis.
Description of the business strategic direction.
A detailed description of the potential business (i.e. the products and services,
legal structure, governance of the business, etc.).

Introduction to Entrepreneurship Page | 27

 The management and decision making structure.
The business organization and major appointments.
Marketing and sales plan with multi‐year sales
projections. A human resource management plan.
A resource and infrastructure plan. A
performance management plan. A
detailed multi‐year financial plan.
Timelines for implementation of the plan.
Other issues important to business implementation and growth.
More about the business planning process will be discussed later in the course. The
requirement to create a detailed business plan will be part of the Business Plan
Development course which is the final course that you will complete in the
certificate programme.
DETERMINE 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 variety of resources needed (including human
resources). The downside risks associated with insufficient or inappropriate resources
should also be assessed. Acquiring the needed resources in a timely manner while giving
up as little control as possible 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, which may require some portions of
ownership to be relinquished to the business investors. 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.

MANAGE THE ENTERPRISE

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 and
effectively managed. 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.

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TOPIC SUMMARY
This section provided more detail about the process and procedures that need to be
completed to successfully plan and launch a new business enterprise. Each of the four
entrepreneurial phases builds upon the decisions made in the previous phase. As you can
see the process is systematic and logical. One cannot easily jump right into the business
planning process until they have identified and validated an appropriate and needed
opportunity.