UNIT I_Environmental Scanning.pptx

Introduction
 Entrepreneur-
- An entrepreneur takes the initiative to start the business activities, by exploring and
analyzing or Identification of business opportunities
- He also bears the related risks.
- The real entrepreneur is not risk centered, rather he is opportunity centered.
- The entrepreneurs explore economic and business opportunities and remain ready to
take advantage of those opportunities.
 Business Opportunity-
- Business opportunity is a favorable situation for doing business.
- It is important for an entrepreneur to recognize and exploit those opportunities

Introduction
 An entrepreneur is a person who foresees the opportunity and tries to explore it
by introducing a new product, a new method of production, a new market, a new
source of raw material, or a new combination of factors of production.
 Thus, in terms of Identification of business opportunities, the entrepreneur is a
person who always discovers changes, reacts to that, and takes its advantages, as
an opportunity.

Introduction
 How to select the right opportunity?
1. Identify your business and personal goal
2. Research your favorite industry
3. Identify promising industry segment
4. Identify problem areas and brainstorm solutions
5. Compare possible solutions with your objectives and opportunities in the market
place
6. Focus on the most promising opportunities

Introduction
 Example: - Paper boat could understand that there are many players who offer
variety of drinks/ juices to the consumers. So, the basic problem here is not the
availability of juices rather it is something else. They came to know that people
miss their childhood, they wish to connect with those memories again. They wish
to live with those memories. It was the moment when they thought to offer not
only a drink to the people rather a moment to connect with their childhood
memories.

Best Way to Identify Business Idea
 Go where the problems are/ identify the problems
 Go to the people
 Live with them
 Listen to them
 Learn from them
 What are the existing solutions?
 Study the competitors
 Review the ideas which are getting huge funding
 Check out ideas from successful entrepreneurs
 Look at your own problems
 Look at existing businesses and try removing a step from the process (Online payment system e.g., Paytm)
 Be quick (windows of opportunities) Be quick but never rush as it can leads to big mistakes and poor work

Need Assessment
 Does your business idea resolve someone's pain, discomfort, frustration, or
dissatisfaction?
- The marketing concept starts with identifying the customer need, developing a
product/service that resolves the issues of the customer and delivering the value
proposition through integrated efforts.
- Today, the market is customer-centric.
- It is very much essential to understand the specific problems of the customer and
offer a specific solution in the form of a product / service.
- The more successful you are in addressing problems, the better chance you will
have at launching a new business.

Need Assessment
 How many such people are out there?
- Problems are many but are they potential to become your business opportunities?
- Every problem has to be measured in terms of the number of people suffering
from it.
- If you pay attention, you would have noticed, a super market store stocks and
displays the products which are frequently purchased by many people.
- When there are more buyers for your product/service, they shall share your costs
and you can actually serve them at a lesser cost.

Need Assessment
 How much will they pay for it?
- In a developing country like ours, the purchasing power (or) the ability to pay is a
major deciding factor.
- It is important to analyze whether your target group of customers have money to
pay for your product/services.

The Nature of Entrepreneurial Start-ups

An entrepreneurial venture brings something to the marketplace.
 Three primary characteristics
1. Innovative
2. Value-creating
3. Growth-oriented

WHAT IS OPPORTUNITY?
 “Opportunity is defined as a situation that enables an entrepreneur to offer
marketable products or services to interested buyers or end users”
 An opportunity may be the chance to meet a market need (or interest or want)
through a creative combination of resources to deliver superior value

From Market Need to Successful
Enterprise

TYPES OF SITUATIONAL FACTORS
 Product or service is still not in existence
 Product or service is already in the market but failed to satisfy the customers – so
need to be improved

EMERGENCE OF OPPORTUNITY
 when people decide they have certain needs and want to be satisfied, or when
people discovered a problem of some kind that can be helped by a product or
service.
 The presence of unfulfilled needs and want and/or problems alerts the
entrepreneur to the potential opportunity.
 The entrepreneur later creates a business that is able to fulfill the needs or want
and/or solve the problem.

OPPORTUNITY IDENTIFICATION
 Opportunity identification is a process that involved the search for and discovery
of business opportunities

APPROACH TO OPPORTUNITY
IDENTIFICATION
 Observe changes in the environment
 Recognize a need that customers have that is not being satisfied
 Recognize problems and find ways to solve it

OBSERVING CHANGES IN THE
ENVIRONMENT
 Changes in the environment give rise to needs and wants and/or problems, and an
opportunity emerges
 Important environment forces to observe include:
1. Economic forces
2. Social forces
3. Technological advances
4. Political and regulatory statues

RECOGNIZE NEEDS AND WANTS
 Opportunity occurs whenever there is a need and want to fulfill.
 The term “needs” refer to basic needs that the consumer must have in order to live
while the term “wants” refers to a personal desire for something that is more than
a basic need.
 Example- Shelter is a basic requirement (need) but if someone whishes to have a
bungalow or a pent house then it becomes want.

Examples of How Changes in the
Environment Provides Openings for

RECOGNIZE PROBLEM AND FIND
SOLUTION
 Problems can be recognized by observing the challenges that people encounter in
their daily lives.
 Solution to the problem represented a business opportunity

Opportunity Identification Process

Challenges of New Venture Strategies
 Developing the Vision and Business Idea-
- Developing a business idea is usually the first challenge faced by every
entrepreneur when starting a business from scratch.
- Finding the right business opportunity or creatively developing an idea is
certainly not an easy task.
- Identifying a problem > seeing an opportunity in the problem > Coming up
with a solution > Forging the opportunity into a business idea > Integrating
the solution into a business plan
- In the late 70s and early 80s, while IBM saw increase in demand for their
mainframe computers, Steve Jobs envisioned a personal computer in every
home and Bill Gates envisioned the need for easy to use software for
personal computers.

 Abandoning another career-
- Walking away from a promising, steady long-term opportunity for something
unpredictable is scary -- especially if you’ve never run a business before.
- If you’re going to dedicate yourself to starting and nurturing a business to
success, it’s going to be nearly impossible to simultaneously manage another
career

 Raising Capital for Startup-
- An entrepreneur is the only one that knows business idea to the core.
- Trying to convince investors about something that doesn't exist is definitely
a challenge.
- Trying to make them understand that they are trustworthy is difficult.
- Most investors want to invest in already established businesses with minimal
risk and they want to be sure that they get returns for the risk they took.
- Most brilliant business ideas never scale through the venture capital stage
because the entrepreneur is either not prepared or lacks what it takes to
raise the needed capital

 Assembling a Business Team-
- Most brilliant ideas and products never get funded because the entrepreneur
is trying to raise capital as an individual.
- A business team is a vital, yet often ignored key to raising venture capital
successfully.
- An efficient strategic business team should comprise as banker, financial
adviser, accountant, attorney or legal adviser and any other specialist that
will be of tremendous impact to the business.

 Finding the Right Business Location
- Finding a good business location at the right place is definitely not easy.
- An efficient location that has a rapidly growing population, good road
network and other amenities at a good place

 Finding Good Employees
- Finding a good employee who will be passionate about delivering his or
her services is
- Employees are the representatives to business customers and the outside
world. They are a reflection of the business culture and ethics.
- If an employee is bad or rude to customers, it is going to portray a bad
image for the company.

 Finding Good Customers
- A good customer will be loyal to the company and will be willing to forgive if
the business make a mistake and apologize.
- A good customer will try to do the right thing that will benefit both himself and
company mutually.
- Bad customers will always look for loopholes in the company's policy to exploit
and make a few gains.
- Bad customers will always try to exploit the company's goodwill and look for
ways to rip off the company.
- Bad customers are responsible for bad debts.
- Good customers build business and bad customers will always try to liquidate
business.

 Dealing with Competition
- Competition is a benchmark for creativity, the main engine that stimulates
innovation and production of quality products at great prices.
- Without competition, there will be no innovation and without innovation, the
world will be stagnant.

 Unforeseen Business Challenges and Expenses-
- Unexpected challenges can come in the form of:
1. Unexpected law suits
2. Inconsistent government policy
3. Not being able to make payroll
4. Unpaid bills and taxes
5. Unexpected resignation of staff from sensitive office
6. Bad debts from customers
7. Loss of market share
8. Inadequate stock or inventory
9. Increase in Business Expenses

 Keeping Up With Industrial Changes and Trends
- Change in trends is a challenge an entrepreneur must be prepared for when
starting a small business
- Seasoned entrepreneurs know that trend is a friend and are always willing to
swiftly adjust their business to the current trend.

 Exiting the Business
- When building a business from scratch, an entrepreneur is going to face the
challenge of determining the exit strategy
- Most entrepreneurs run their business without any plans to exit and even if they
have an exit strategy, they find it difficult to implement it.
- Before starting a business, it is advisable to plan an exit.
- Lack of an exit plan is the primary reason why most businesses crumble after
the death of the founder.
- An exit strategy is very important to the long term survival of a business.
- Most smart entrepreneurs will use a certain benchmark as a target and once
this specific target is reached, they exit the business (Annual sales, Annual
Turnover, Customer base, subscribers or number of users etc. )

 Overestimating- Another challenge entrepreneurs face is overestimating their
initial success. One company in 1 year made millions and you can also do the
same.
 Focus- They attempt to sell their product or service to too wide of a
market. They spend too much time building their product without validating
that what are the marketplace’s wants & needs and will actually pay for it.
 Passion and Purpose- They decide to start their own company because they
want unlimited income potential, to be their own boss and holder of their own
destiny. Yet as they work on building their business they realize they lack
passion for what they are doing.

Critical Factors For New Venture
Development
 Relative uniqueness of the venture
 Relative investment size at start-up
 Expected growth of sales and/or profits as the venture moves through its start-up
phase
 Availability of products during the prestart-up and start-up phases
 Availability of customers during the prestart-up and start-up phases

Development
 Venture uniqueness is further characterized by the length of time a non-routine
venture will remain non- routine.
 A new venture’s range of uniqueness can be considerable, depending on the
amount of innovation required during prestart-up.

Development
 Investment - The capital investment required to start a new venture can vary
considerably.
 Another finance-related critical issue is the extent and timing of funds needed to
move through the venture process.
 Will industry growth be sufficient to maintain break¬ even sales to cover a high
fixed-cost structure during the start-up period?
 Do the principal entrepreneurs have access to substantial financial reserves to
protect a large initial investment?
 Do the entrepreneurs have the appropriate contacts to take advantage of various
environmental opportunities?

Development
 What is the growth pattern anticipated for new-venture sales and profits?
 What is the expected growth pattern for sales?
 What type of venture is this?
1. Lifestyle venture: small business, autonomy, comfortable living
2. Small profitable venture: autonomy, grow, make profits, control
3. High-growth venture: significant sales growth, attract big
investments or an IPO on the stock market

Development
 Product Availability - Product availability refers to the availability of a salable good
or service, at the time the venture opens its doors.
 The availability of a salable good or service at the time the venture opens its
doors.
 Lack of product availability in finished form can affect the company's image

Development
 Customer Availability – Venture risk is affected by customer availability for start-up
 A critical consideration is how long it will take to determine who the customers
are, as well as their buying habits.

Sources Of Finance For New Venture
 One of the biggest challenges faced by entrepreneurs looking to start their
own business is funding.
 There’s an old saying that you have to spend money to make money.
 Without capital, an entrepreneur won’t be able to buy inventory, cover
payroll or the many other expenses associated with launching a business’s
operations.

 Personal Saving
 Friends and Family
 Angel Investors
 Venture Capital
 Business Loans
 Incubators
 Grants and Subsidies
 Crowdfunding
 Bartering

 Personal Savings
- Most entrepreneurs fund their business using their own personal savings
(also called Bootstrapping).
- According to American Express, this is the single most common source of
capital for entrepreneurs.
- Most entrepreneurs wait until they have at least some money saved in their
personal bank account before starting a business.
- Personal savings, however, isn’t always enough to cover 100% of an
entrepreneur’s expenses.
- Therefore, it’s often used in conjunction with other funding sources.

 Patient Capital
- Patient capital (also called "love money") is money loaned by a spouse,
parents, family or friends.
- The money will be repaid later as your business profits increase.
- When borrowing patient capital, entrepreneurs should be aware that family
and friends rarely have much capital.
- Also, a business relationship with family or friends should never be taken
lightly

 Angel Investing
- Angel investing has become a popular method of funding among
entrepreneurs.
- With angel investing, an angel provides large sums of money to an
entrepreneur so that he or she can start their own business.
- The angel may provide this funding in exchange for stock shares of the
entrepreneur’s business, or they may require the entrepreneur to pay back
the funding with interest.
- It is also known as a private investor, seed investor or angel funder is a high-net-
worth individual who provides financial backing for small startups or
entrepreneurs, typically in exchange for ownership equity in the company

Just for Information
 Equity shares are long-term financing sources for any company.
 These shares are issued to the general public and are non-redeemable in nature.
 Investors in such shares hold the right to vote, share profits and claim assets of a
company.

 Venture Capital
- In many ways, venture capital is the same as angel investing.
- They both involve funding from a private investor or investment firm.
- The difference, however, is that angels typically invest more money than venture
capitalists, and angels invest in early-stage businesses.
- Its a form of private equity and a type of financing that investors provide
to startup companies and small businesses that are believed to have long-term
growth potential.
- Venture capital generally comes from well-off investors, investment banks, and any
other financial institutions.
- However, it does not always take a monetary form; it can also be provided in the form
of technical or managerial expertise.
- Venture capital is typically allocated to small companies with exceptional growth
potential, or to companies that have grown quickly and appear poised to continue to
expand.

 Bank Loans
- Although they can be difficult to secure, bank loans remain a time-tested
funding option for entrepreneurs.
- If an entrepreneur has good credit, they may be eligible for a small
business loan.
- In the United States for example, loans governed by the Small Business
Administration (SBA) do not have a minimum amount, but they do have a
maximum amount of $5 million.

 Incubators
- Business incubators (or "accelerators") generally focus on the high-tech
sector by providing support for new businesses in various stages of
development.
- However, there are also local economic development incubators, which are
focused on areas such as job creation, revitalization and hosting and sharing
services.
- A start-up incubator is often a company, university or other organization
that ponies up resources - laboratories, office space, or consulting - in
exchange for equity in young companies when they are most vulnerable.

 Government Grants
- Many government agencies provide financing such as grants and subsidies
that may be available to a start-up business.
- Often governmental websites provide a comprehensive listing of various
government programs at the federal and state level.

 Crowdfunding Campaign
- While not as popular as the other methods listed here, crowdfunding is still
a viable funding option used by entrepreneurs.
- As explained by the U.S. SBA, this involves seeking an investment from a
large pool of collectors, typically over the internet.
- It’s called “crowdfunding” because the investments come from a large
“crowd” of people.
- In comparison, angel investments come from a single investor or investment
firm.
- Crowdfunding is a great platform for innovative product that could have
mass appeal.

 Bartering
- Exchanging goods or services as a substitute for cash can be a great way
to run on a little wallet.
- An example would be negotiating free office space by agreeing to support
the computer systems for all the other office tenants.
- Another common example is exchanging equity for legal and accounting
support.

Finance Problems in Business
1. Lack of Cash Flow
 Without sufficient available capital, you can’t afford to pay your bills let alone
invest in efforts that will help you grow the business.
 If your business credit isn’t horrible, you can probably get approved for fast
business funding that can provide the cash flow needed to start paying your dues
and making moves again.
 Every business does better when it isn’t strapped for cash, which brings us to our
next common cause.

2. Bootstrapping
 There are two opposing schools of thought when it comes to funding a business –
fund everything out of pocket (bootstrapping) or get investors and lenders to
fund the business for you.
 While bootstrapping has its advantages, it is one of the fastest ways to find your
company backed against the wall financially.
 Ideally, you’ll want to use a balanced approach, covering most of the expenses out
of pocket but then still utilizing external funding to provide a safety cushion.
 Studies show that bootstrapped businesses are twice as likely to fail than those
that are funded externally.

3. Excessive Ad Spending
 Many businesses can fall into the trap of spending too much money on promotion
without actually studying the art of advertising in-depth.
 Untargeted ads can often turn out to be a waste of funds, and simply pouring
more money into an advertising budget is not the solution.
 Likewise, outsourcing everything to a marketing agency might not be in your best
interest either as they can charge huge fees and won’t necessarily provide
enhanced results.
 Instead, take time to learn advertising yourself so that you can make more
informed decisions with your ad spend.

4. Poor Accounting Practices
 Accounting and budgeting are the two most crucial aspects of financial
management in business, so inefficient processes and oversights in either of these
areas can lead to a great deal of trouble.
 While you don’t necessarily need to pay a professional accountant, you should at
least take some courses on how to use popular accounting software.

5. Unnecessary Expenditure
 Finally, the one issue that most businesses with financial problems have in
common is excessive expenditure commitments.
 Newer companies like to make themselves look more successful than they actually
are, which can lead to having an oversized office, fancy company vehicles, cell
phones, a decked out waiting room, top of the line equipment, and a bunch of
other unnecessary spend lavishly that only creates debt and overhead.
 Take a humble, minimalist approach and you’ll be rewarded with more cash flow to
spend on things that actually matter.

Homework
 Find out Pitfalls in New venture

UNIT I_Environmental Scanning.pptx

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UNIT I_Environmental Scanning.pptx