Chapter Two: Business Opportunities,

Feasibility Analysis and Business Planning

2. 1 Identifying and Recognizing Opportunities
 An entrepreneur identifies business
opportunities from the market while others see
problems.
Most authors agree that the initial stage in the
entrepreneurial process is the identification and
refinement of a viable economic opportunity that
exists in the market.
 Cont…
 The opportunity identification and evaluation
stage can be divided into five main steps namely;
1.Getting the idea/scanning the environment,
2. Identifying the opportunity,
3. Developing the opportunity,
4. Evaluating the opportunity and
5. Evaluating the team.
 1. Scanning the Environment/ Getting the Idea

While scanning the environment it may be

provide you with idea and business opportunities.
Idea is a thought or suggestion about a possible
course of action.
opportunity is a favorable time or set of
circumstances for doing something.
2. Opportunity Identification
It is ability to see, to discover and exploit
opportunities that others miss.
It is the process of seeking out better ways of
competing.
 3. Opportunity Development

It is the process of combining resources to pursue a

market opportunity identified.
This involves systematic research to refine the idea to
the most promising high potential opportunity that
can be transformed into marketable items.
4. Opportunity Evaluation
A professional executed evaluation can tell whether
the specific product or service has the returns needed
to justify the investment and the risk to be taken.
It allows the entrepreneur to assess whether the
specific product or service has the returns needed
for the resources required.
 Cont….
This evaluation process involves looking at the
creation and 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 differential advantage in its competitive
environment.
 5. Assessment of the Entrepreneurial Team

Regardless of how right the opportunity may

seem to be, it will not make a successful business
unless it is developed by a team with strong skills
Team factor Questions for evaluation
o Is the founder really an entrepreneur, bent on building a company?
Focus: o Does the entrepreneur (or his team) have some experience (work or industry)?
o Do they really like this product/sector? Do they really want this?
o Can the team create products to suit that market need?
o How stressful is the opportunity for the team?

o Does the team have the necessary selling and closing skills?
Selling:
o Who will work full time? Do your managers represent competitive advantage?
Management: o Does the team have the necessary management and technical skills?
o If the required skills are not available, can they be acquired at competitive
rates?
o How is their relationship with the entrepreneur, commitment and motivation?

o Have the critical decisions about ownership and equity splits been resolved?
Ownership: o Are the members committed to these?
o Does the owners have enough financial capital for required own
contributions?
 2.2 Finding Gaps in the Market Place
 Entrepreneurs look at unfulfilled needs of a
society or find a sector where the demand for a
product is higher than the supply.
 2.3 Business Idea Development
A business idea is a short and precise description
of the basic operation of an intended business.
There are three types of business ideas.
1. Old Idea – Here an individual copies an existing
business idea from someone.
2. Old Idea with Modification – In this case the
person accepts an old idea from someone and
then modifies it in some way to fit a potential
customer’s demand.
3. A New Idea – This one involves the invention of
something new for the first time
 2.3.1 Business Idea Identification
Before you start a business, you need to have a
clear idea of the sort of business you want to run.
To identify promising business idea
among others, it is important to consider
the following:
 A. The Need will Your Business Fulfill for the Customers

 It might be a good idea to start a waste collection and

recycling service in this area.
 Not only would the owner of this restaurant need the service,
but many other residents in the area might need it as well.
 Cont….

B. Good or Service will your Business Sell

Depending on your skills and the needs of the
customers, you should decide which good or service
your business will sell.
Also, keep in mind that they must be goods or
services that people are willing to pay for and at a
price that will allow you to make a profit.
C. Identifies Potential Customer
D. Strategy for Selling Goods or Services
E. Relation between Business and Environment: Your
business can only be sustainable in the long run if it
works in harmony with the social and natural
environment.
 2.3.2. Methods for Generating Business Ideas
1. Learn from successful business owners
2. Draw From Your own and Other People Experience
3. Survey Your Local Business Area
4. Scanning Your Environment: think about: Natural resources, Characteristics and skills of people in the
local community, Import substitution, Waste products, Publications, Trade fairs and exhibitions
5. Brainstorming: opening up your mind and thinking about many different ideas.
6. Focus Group discussion

7. Problem Inventory Analysis: a list of problems in general product category. It is a method of obtaining

“New Idea” and solutions by focusing on problems.

8. Free Association: First, a word or phrase related to the problem is written down, then another and

another, with each new word attempting to add something new to the ongoing thought processes,

thereby creating a chain of ideas ending with a new product/service idea emerging.

9. Forced Relationships: process of forcing relationships among some product combinations. It is a

technique that asks questions about objects or ideas in an effort to develop a new idea.

10. Attribute Listing: list the attributes of an item or problem and then look at each from a variety of
 2.3. 3. Business Idea Screening

 Idea screening is the process to spot good ideas and eliminate poor one.
The 3 approaches to screen the business idea generated are:
1) Macro screening: is aimed screening down ideas to 10.
The common criteria are:
 Are my own competencies (see strength detector) sufficient?
 Can I finance it to a large extent with my own equity?
 Will people buy my product/service (i.e. is it needed and can people afford it)?
2. Micro Screening: is aimed screening down ideas into 3.
The common criteria used for screening are:
 Solvent demand
 Availability of raw materials
 Availability of personal skills
 Availability of financial resources
3. Scoring the Suitability of Business Idea:
 When there are more than one possible business ideas and one needs to decide which
one to follow, we use score business ideas (e.g., BI1, BI2, BI3) by assigning a rating from
 2.4. BUSINESS PLAN
 It is a written document describing all relevant internal and
external elements and strategies for starting a new venture.
 It is a road map for starting and running a business.
 It includes: functional plans, expected results and critical
risks.
A business plan should;
 Lay-out your basic idea of the venture,
 Describe where you are now,
 Indicate where you want to go, and
 Outline how you propose to get there.
• Above all, a business plan should explain the key
variables of success or failure, thereby helping you
prepare for both
 2.4.1. Business Planning Process

The various steps involved in business planning

process are discussed here below:
1. Preliminary Investigation
Before preparing the plan entrepreneur should:
Review available business plans (if any).
Draw key business assumptions on which the plans
will be based (e.g. inflation, exchange rates,
market growth, competitive pressures, etc.).
Scan the internal and external environment
Seek professional advice from a friend/relative or a
person who is already into similar business (if any).
2. Opportunity Identification and Idea Generation
 Opportunity identification and business idea
generation is the first stage of business planning
process.
 It involves generation of new concepts, ideas,
products or services to satisfy demand.
3. Environmental Scanning: which is carried out to
analyze the prospective strengths, weakness,
opportunities and threats of the business
enterprise.
 4. Feasibility Analysis

 It is checking whether some idea will work or not

A) Industry analysis
 Industry is a collection of firms which produce
homogenous or functionally similar products.
Example: the beverage industry contains firms
that manufacture bottled water, alcoholic
drinks, coffee and tea, energy drinks etc.
 The entrepreneur need to identify the type of
industry to enter to.
Products in the same industry directly compete
by influencing demand
 Cont…

There are three basic types of Industry analysis

1. Porter’s five forces analysis
2. Broad factor analysis; which involves the
political, economical, socio-demographic and
technological
3. SWOT analysis
 Porter’s Five forces model
POTENTIAL
ENTRANTS

Threat of new
entrants

INDUSTRY
Bargaining power COMPETITORS Bargaining power
of suppliers of buyers
Bargaining power
of BUYERS
SUPPLIERS

Rivalry among
existing firms

Threat of substitute new

products or services

SUBSTITUTES

Competitive Strategy, Porter, M.E., McMillan, 1980

B) Market Analysis: knowing who are your
customers 7Ps (Pdt/svs; Place; Promotion; Price;
People; Process: Physical evidence)

C) Financial Analysis: check about investment

outlay and cost of the project; means of financing;
projected profitability; break- even point; cash flows
of the project; investment worthiness judged in
terms of various criteria of merit; and projected
financial position.
D) Technical analysis: deals about inputs, process and
outputs
 Input Analysis: identification, quantification and
evaluation of project inputs, that is, machinery and
materials.
 Process Analysis: production/operations that you
would perform on the inputs to add value (e.g. facility
location, layout, quality controls, etc)
 Output Analysis: product specification in terms of
physical features 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.
25/12/2023 By: Semu B. (PhD) 21
E) Economic analysis: is the study of costs- and- benefits
(Overall costs to benefits)
F) Ecological Analysis: environmental concerns such as
pollutions, wastes, damage caused by the project to the
environment …
G) Legal and Administrative Analysis: being sure about 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.
 The findings of the feasibility analysis may be compiled in a
project report.
 And then registration should take place and submitted in a
prescribed form.
 In addition, documents such as the memorandum of association or the
contract of partnership; A notice published in a news paper announcing
the establishment of the business organization.
 5. Report Preparation

It is a written document that describes step-by-

step, the strategies involved in starting and
running a business.
 2.4.2. USERS OF A BUSINESS PLAN

The users of a business plan will vary based on its

function.
The business plan has two major functions,
1st it provides a clearly articulated statement of goals
and strategies for the entrepreneur and those called as
internal users (Firm’s management/entrepreneurs &
Employees)
2nd it serves as a selling document to be shared with
outsiders those called as outside users such as
investors, customers, suppliers, government officials,
lenders (banks, micro financing institutions) and
interested parties.
24
 2.4.2. DEVELOPING A WELL-CONCEIVED BUSINESS PLAN
Outline of a Business Plan
1. Preliminary Section/ Introductory page
• Cover page, Table of contents, Executive summary
2. The Business:
4. Funding Requirement:
5. Description of the venture (Product or Service)
6. Marketing plan
7. Production/ Operational Plan
8. Organizational and human resource plan
9. Financial plan
10. Assessment of risk
11. Appendix
1. Introductory Page 3. The Business
• Name and address of business • It will discuss the objective
• Name(s) and address(s) of of the business,
principals • A brief history about the
• Nature of business past performance of the
• Statement of financing company (if it is an old
needed company),
• Statement of confidentiality • what would be the form of
of report
ownership
2. Executive Summary
• It would label the address
 It should be in brief (not more
of the proposed
than two or three pages) yet it
should have all the factual
headquarters.
details about the project that
can improve its marketability.
 4. Funding Requirement:
A careful, well-planned funding requirement
should be documented.
It is also necessary to project how these
requirements would be fulfilled.
Debt equity ratio should be prepared, which
can give an indication about how much
finance would the company require and how it
would like to fund the project.
 5. Description of Venture
Product (S)
 Size of business
Office equipment and personnel
It also gives details about the patents,
trademarks, copyrights, franchises, and licensing
agreements.
The Plan:
A. Operational Plan:
It would give information about
(i) Plant location:
(ii) Plan for material requirements, inventory
management and quality control are also drawn
for identifying further costs and intricacies of
the business.
 B. Marketing Plan
 Pricing
 Distribution (Place)
 Promotion
 Product forecasts
C. Organizational Plan
 It indicates the pattern of flow of responsibilities
and duties amongst people in the organization,
 It provides details about the manpower plan that
would be required to put life into the business
and
 It would also enlist the details about the laws that
would be governed in managing the employees
of the organization.
 Identification of partners or principal share
holders
 Authority of principals
 9. Assessment of Risk
 Evaluation of weakness of business
 New technologies
 Contingency plans
10. Financial Plan
Pro forma income statement
Cash flow projections
Pro forma balance sheet
Break-even analysis
Sources and applications of funds
 11. Exit Strategy:
 It provide details about how the organization would
be dissolved,
 what would be the share of each stakeholder in case
of winding-up of the organization.
 It further helps in measuring the risks involved in
investing.
12. Appendix
 Letters from customers
 Market research data
 Leases or contracts
 Price lists from suppliers