LECTURE

ON

Business Idea, Business Plan and enterprise

What is a Business Idea?
What are Sources of Business Ideas?
Roles of Creativity and Innovation in Idea Generation
 What is a Business Idea?
 A business idea is the response of a person or persons,
or an organization to solving an identified problem or to
meeting perceived needs in the environment (markets,
community, etc.). ƒ
 Finding a good idea is the first step in transforming the
entrepreneur’s desire and creativity into a business
opportunity.
 A business idea is a concept that can be used for
financial gain that is usually centered on a product or
service that can be offered for money.
 An idea is the first milestone in the process of building a
successful business.
Sources of Business Ideas
 Roles of Creativity and Innovation in Idea Generation
 Creativity is the ability to bring something new into existence.
 Innovation is the translation of an idea into application, which has
a commercial value.
 Creativity is a prerequisite for innovation.
 It can be developed by any individual who has a concern for
excellence and is willing to work hard.
 A creative person develops new alternatives and offers innovative
solutions.
 It is through their creative thinking find solutions to problems,
handle adversity and exercise control over business.
 Creativity helps not only in doing different things but also in
doing the things differently.
 Generation of ideas is not enough; the business ideas
must stand the scrutiny from techno-economic,
financial and legal perspectives.
 The business plan should be prepared that will serve as
the road map for effective venturing, whether you may
require institutional funding (in which case it is
necessary to do so) or not.
 Feasibility Analysis
 Feasibility study involves an examination of the operations,
financial, HR and marketing aspects of a business before the
venture comes into existence.
1. Market Analysis
 A market is the arena for interaction among buyers and sellers.
 It is a study of knowing who are your customers.
 So, you need information on consumption trends, past and
present supply position, production possibilities and
constraints, imports and exports competition, cost structure,
elasticity of demand, consumer behavior, intentions,
motivations, attitudes, administrative, technical and legal
constraints impinging on the marketing of the product.
2. Financial Analysis
 The objective of financial analysis is to ascertain whether the
proposed project will be financially viable in the sense of
being able to meet the burden of servicing debt and whether
the proposed project will satisfy the return expectations of
those who provide the capital.
 While conducting a financial appraisal certain aspects has to
be looked into like: investment outlay and cost of the project,
means of financing, projected profitability, break- even point,
cash flows of the project.
3.Technical Analysis
 The issues involved in the assessment of technical analysis of the proposed
project may be classified into those pertaining to inputs, process and outputs.
 Input Analysis: Input analysis is mainly concerned with the identification,
quantification and evaluation of project inputs, that is, machinery and materials.
 Process Analysis: It refers to the production/operations that you would perform
on the inputs to add value.
 Usually, the inputs received would undergo a process of transformation in several
stages of manufacture.
 Where to locate the facility, what would be the sequence, what would be the
layout, what would be the quality control measures, etc. are the issues that you
would learn in greater details in subsequent lessons.
 Output Analysis: this involves product specification in terms of physical features
such as color, weight, length, breadth, height; functional features; chemical
material properties; as well as standards to be complied with such as industry
level standard and country level standard.
4. Economic Analysis
 Economic analysis is the study of costs- and- benefits.
 In regard to the feasibility of the study the entrepreneur is
concerned whether the total cost of the product is justifiable in
comparison with the price at which it will sell at the market place
and the benefits of the product or service for the community in
general.
5. Legal and Administrative Analysis
 The entrepreneur has to be sure of the administrative and legal
issues involved in the business project which is going to be
selected.
 These include, choice of the form of business ownership,
registration and clearances and approvals from the diverse
authorities, about patents and trademarks, product licensing.
 The Business Plan
 It is a written document describing all relevant internal and external
elements and strategies for starting a new venture.
 It communicates your idea to others, serves as a “selling tool,” and
provides the basis for your financing proposal.
 It includes:
 functional plans such as research and development,
manufacturing, marketing, finance, and human resources
 expected results
 critical risks
 Plans are part of any business operation.
 Planning is a process that never ends for a business.
 It is extremely important in the early stages of any new venture
when the entrepreneur will need to prepare a preliminary
business plan.
Who Should Write The Plan?
 The business plan should be prepared by the entrepreneur.
 Lawyers, accountants, marketing consultants, and
engineers are useful in the preparation of the plan.
Scope and Value of the Business Plan-Who Reads
the Plan?
 The following parties may read a business plan and hence
prior to its preparation the business plan should consider
those parties who determine its scope and value.
 employees
 investors
 bankers
 venture capitalists
 suppliers
 customers
 advisors and consultants.
 Who is going to read the plan often affects the actual content
and focus of the business plan.
 There are three very essential perspectives that should be considered
in preparing the business plan.
 These are:
1. The entrepreneur
 The entrepreneur should thoroughly understand what the venture is
all about as well as the technology and creativity involved in the
venture.
2. The market
 You must also try to view your business through the eyes of the
customers.
 Consider whether there are enough customers to buy the product or
use the service.
3. The investor
 From an investor’s perspective, sound financial projections that
indicate the feasibility of the venture is better be included in the
business plan.
 Benefits of Business Plan
Specifically for the entrepreneur
 The time, effort, research, and discipline needed to put together a
formal business plan force the entrepreneur to view the venture
critically and objectively.
 The competitive, economic, and financial analysis included in the
business plan subject the entrepreneur to close analysis of his or her
assumptions about the venture’s success.
 Since all aspects of the business venture must be addressed in the
plan, the entrepreneur develops and examines operating strategies
and expected results for outside evaluators.
 The business plan quantifies objectives, providing measurable
benchmarks for comparing forecasts with actual results.
 The completed business plan provides the entrepreneur with a
communication tool for outside financial sources as well as an
operational tool for guiding the venture towards success.
Specifically for the Financial Sources
 Since different sources of finance like banks want to know the
ability of their clients to pay back the money that the borrower is
borrowed.
 One of the most relevant documents that can make them approve the
ability of a client is the business plan.
 Hence, in this regard, business plans are highly reviewed and
evaluated by the financial sources of businesses since they get the
following information in the business plan.
 Details of the market potential and plans for securing a share of that
market.
 The venture’s ability to service debt or provide an adequate return
on equity.
 Critical risks and crucial events with a discussion of contingency
plans.
 A clear, concise document that contains the necessary information
for a thorough business and financial evaluation of the feasibility of
the new venture.
The Structure of a Business Plan
 When developing any business plan it is necessary to be convinced that
planning is a key aspect in the business development process.
 Planning assists entrepreneurs to articulate both their long-term and short-
term goals for the proposed new business.
Specifically a business plan does the following:
 Increases the probabilities of business success.
 Clearly defines the activities for the successful operation of the business.
 Identifies all the resources available to the business and how they will be
combined to obtain maximum benefits.
 Identifies standards of performance for each segment of business
operations which can be compared with actual performances.
 This serves as a control mechanism to keep the business operations on
course.
 Lay out of a Business Plan
1.Title Page
2.Table of Contents
3.Executive Summary
4.Body of the Plan
 The Company description
 The Product/Service Offering
 Industry Analysis
 Market Analysis
 The Marketing Plan
 The Production/Operations Plan
 The Management Team
 Implementation Schedule and Risks Associated with the Venture
 The Financial Plan
5.Appendices
Section 1: Executive Summary
 The executive summary is a short overview of the entire business
plan.
 It provides a busy reader with everything that needs to be known
about the new venture’s distinctive nature.
 An executive summary shouldn’t exceed two single-space pages.
Section 2: Company Description
 The main body of the business plan begins with a general description of the
company.
 Items to include in this section:
 Company history.
 Mission statement.
 Products and services.
 Current status.
 Legal status and ownership.
 Key partnerships (if any).
Section 3: Industry Analysis
 This section should being by describing the industry the business
will enter in terms of its size, growth rate, and sales projections.
 Items to include in this section:
 Industry size, growth rate, and sales projections.
 Industry structure.
 Key success factors.
 Long-term prospects.
Section 4: Market Analysis
 The market analysis breaks the industry into segments on the
specific segment (or target market) to which the firm will try
to appeal.
 Items to include in this section:
 Market segmentation and target market selection.
 Buyer behavior.
 Competitor analysis.
Section 5: Marketing Plan
 The marketing plan focuses on how the business will market
and sell its product or service.
 Items to include in this section:
 Overall marketing strategy.
 Product, price, promotions, and distribution.
Section 6: Management Team and Company Structure
 The management team of a new venture typically consists of
the founder or founders and a handful of key management
personnel.
 Items to include in this section:
 Management team.
 Board of directors.
 Board of advisers.
 Company structure.
Section 7: Operations Plan
 Outlines how your business will be run and how your product or
service will be produced.
 Items to include in this section:
 Business location.
 Facilities and equipment
 Flow charts of production process, etc.
Section 8: Product (or Service) Design and Development
Plan
 If you’re developing a completely new product or service, you need
to include a section that focuses on the status of your development
efforts.
 Items to include in this section:
 Development status and tasks.
 Challenges and risks.
 Intellectual property ( patents, copyright and trademarks).
Section 9: Financial Projections
 The final section of a business plan presents a firm’s projected
financial projections.
 Items to include in this section:
 Sources and uses of funds statement.
 Assumptions sheet (include income, expense assumptions, and the
inventory)
 Balance sheets (company's assets, liabilities and shareholders' equity)
 Cash flows (movements of money into and out of a business).
ENTERPRISE
 Enterprise
 An enterprise is the business organization that is
formed and which provides goods and services, creates
jobs, contributes to national income, exports and
overall economic development.
 An enterprise is a conceptual organization of people
and entities which interact with one another at certain
times and at certain places with the intent of
accomplishing something.
 It is about spotting opportunities, creating new ideas
and having the confidence and capabilities to turn these
ideas into working realities.
 It can be classified as private, public, formal, informal, individual,
community, local, foreign, small, large, business, social,
manufacturing and service, consumer goods or industrial goods.
 The key difference between all types of enterprise lies in the
rewards they provide.
 Business ventures provide profits as rewards, while non-business
ventures provide other types of rewards that could be either
physical or psychological.
 Entrepreneurs engage in enterprises depending on what kind of
rewards they expect from them.
 Enterprises in a community have the potential to benefit from each
other, that means Output from one enterprise normally becomes
input for other enterprises, and this helps in money circulation
among the enterprises within the community.
 The synergistic nature of all enterprises in a community creates an
environment where there are lots of opportunities to be exploited
by enterprising persons.
 It is up to these persons’ to identify the opportunities available and
exploit them.
 Almost all communities have lots of unexploited opportunities that
can create more advantages for everyone.
 Men and women acquire different skills that lead to different
careers.
 They are applied in trade, services, manufacturing, food processing,
recreation, information and communication, and other forms of
enterprises.
 The existence of many types of enterprise in your community offers
you opportunities to apply the skills you have acquired.
 All types of skill learnt have a chance to be applied if opportunities are
sought in all types of enterprise.
 It is normal for men and women to consider the compatibility of
personal values, interests and expectations with the type of enterprise
they desire.
To develop an enterprise you consider,
 The first step is to evaluate the various enterprises in your community
and note their potential.
 The next step is to identify how your skills match the various possible
enterprises.
 You can, therefore, do what you can, with what you have, where you
are, and still succeed.
Differences between Business and Non-Business Enterprises

Business enterprise Non-Business Enterprises

• Profits are a primary motive
• Products/services must be
demanded
• Products/services are sold in a
market
• Various types of human needs
are catered for
•Products/services people may
want
• Market situation need not be
present

• Products/services must be paid • Products/services may not

in full necessarily be paid in full
 The relationship among an Entrepreneur,
Entrepreneurship and Enterprise
 The term entrepreneur is used to describe men and women who establish
and manage their own business.
 The process involved in creating and starting an enterprise is called
entrepreneurship.
 Entrepreneurship is an abstraction whereas entrepreneurs are tangible
people.
 Entrepreneurship is a process and an entrepreneur is a person.
 Entrepreneurship is the outcome of complex socio-economic,
psychological and other factors.
 The entrepreneur is the key individual central to entrepreneurship who
makes things happen.
 An enterprise is the business organization that is formed and which
provides goods and services, creates jobs, contributes to national income,
exports and overall economic development
Entrepreneur vs. Intrapreneur
 An entrepreneur is someone who designs and launches a new business,
which means that they will take on all of the rewards and risks that come
with running a business.
 Intrapreneur is an individual who uses their entrepreneurial skills to
create and develop a new project in the company that they already work at,
which eliminates many of the risks that come with running a business as
an entrepreneur.
 An entrepreneur develops their own business with a new concept or idea
that they've cultivated.
 An Intrapreneur is an employee of a company who uses their
entrepreneurial skills within the business to innovate in company processes,
services, and products.
 The objective of entrepreneur to bring something new to the market.
 The objective of intraprenuer is to directly enhance the sustainability and
strength of the company that they work for.
 Distinction Between an Entrepreneur and A Manager

ENTREPRENEURS MANAGERS
1. Status: 1. Status:
 An entrepreneur is the owner of  A manager is just an employee in the
his/her enterprise. enterprise which is owned and run by
 He/she makes his/her own entrepreneur.
investment and owns his/her business. 2. Target:
2. Target:  The main goal or motive of a manager
 The main target of an entrepreneur is is give his services to an enterprise set
to start his/her venture by setting up up by someone else i.e. an
as a sole-trader or firm or a company. entrepreneur.
ENTREPRENEURS
3. Decision making: All of the
policies and strategic decisions, like
those comprising of expansion
diversification, take-over etc are
taken by the entrepreneur.
4.Rectification of wrong
decisions: The wrong decisions
taken by the entrepreneur may not
be rectificable and may result in
losses or even closure of the unit.
MANAGERS
3. Decision making: While all
those managerial, operational
decisions which would have
impact on the short-and medium-
term results are taken by the
managers.
4. Rectification of wrong
decisions: Whereas the wrong
decisions taken by the managers
can be amended and rectified by
the entrepreneur.
 ENTREPRENEURS
8. Qualification: An entrepreneur
doesn’t need to have distinct
degree from a reputed university.
9. Rewards: The reward of an
entrepreneur is the profit earned
by him.
MANAGERS
8. Qualification: On the other
hand, a manager now a days need
to possess degree in the stream of
management theory and practice.
9. Rewards: A manager gets his
monthly salary as his reward for the
services rendered by him.
 Business Failure factors
 The following are some of the major factors, which cause most business failures.
 Poor operations management
 The manager lacks the ability to operate a business.
 Overseeing, designing, controlling the process of production of goods and/or services;
with the responsibility of ensuring that business operations are efficient using as few
resources as needed and effective meeting customer requirements.
 Lack of experience
 Many owners start businesses in industries in which they have no experience.
 You have to understand your industry, the skills required to offer your products and
services.
 If you don’t know about these basic skills, educate yourself and talk to others who are
successfully running their own businesses
 Poor financial management
 Many owners start with too little money and with little or no understanding of
financial spreadsheet applications.
 You have to create and use a realistic business budget, and not constantly drain the
business income on personal spending.
 Poor credit practices
 Owners often sell on credit to meet (or beat) the competition and find
that they lack the additional working capital required or the ability to
collect receivables.
 Failure to plan
 The lack of a strategic plan to guide the business in the long run
 Unplanned and uncontrolled growth
 Growth is natural and healthy, but unplanned growth can be fatal to a
business.
 Inappropriate location
 Owners who choose a business location without proper analysis,
investigation, and planning often fail.
 Too often, owners seek “cheap” sites and locate themselves straight
into failure.
Quiz (5%)
1. Define business idea and mention some sources business idea
2. What is intraprenuer?
3. List the factors that cause business failure.