CU-MBA-SEM-II-Entrepreneurship-Second Draft (1)

up companies. Venture capital can be visualized as ―your ideas and our money‖ concept of developing business. Venture capitalists are people who pool financial resources from high- net-worth individuals, corporate, pension funds, insurance companies, etc. to invest in high risk - high return ventures that are unable to source funds from regular channels like banks and capital markets. The venture capital industry in India has really taken off in. Venture capitalists not only provide monetary resources but also help the entrepreneur with guidance in formalizing his ideas into a viable business venture. Five critical success factors have been identified for the growth of VC in India, namely:  The regulatory, tax and legal environment should play an enabling role as internationally venture funds have evolved in an atmosphere of structural flexibility, fiscal neutrality and operational adaptability.  Resource raising, investment, management and exit should be as simple and flexible as needed and driven by global trends.  Venture capital should become an institutionalized industry that protects investors and invitee firms, operating in an environment suitable for raising the large amounts of risk capital needed and for spurring innovation through start-up firms in a wide range of high growth areas.  Venture capital should become an institutionalized industry that protects investors and invitee firms, operating in an environment suitable for raising the large amounts of risk capital needed and for spurring innovation through start-up firms in a wide range of high growth areas.  In view of increasing global integration and mobility of capital it is important that Indian venture capital funds as well as venture finance enterprises are able to have global exposure and investment opportunities  Infrastructure in the form of incubators and R&D need to be promoted using government support and private management as has successfully been done by countries such as the US, Israel and Taiwan. This is necessary for faster conversion of R&D and technological innovation into commercial products. With technology and knowledge-based ideas set to drive the global economy in the coming millennium, and given the inherent strength by way of its human capital, technical skills, cost competitive workforce, research and entrepreneurship, India can unleash a revolution of wealth creation and rapid economic growth in a sustainable manner. However, for this to happen, there is a need for risk finance and venture capital environment which can leverage innovation, promote technology and harness knowledge-based ideas. The venture capital industry in India is still at a nascent stage. With a view to promote innovation, enterprise and conversion of scientific technology and knowledge-based ideas into commercial production, it is very important to promote venture capital activity in India. 51 CU IDOL SELF LEARNING MATERIAL (SLM)

India‘s recent success story in the area of information technology has shown that there is a tremendous potential for growth of knowledge-based industries. This potential is not only confined to information technology but is equally relevant in several areas such as bio- technology, pharmaceuticals and drugs, agriculture, food processing, telecommunications, services, etc. Given the inherent strength by way of its skilled and cost competitive manpower, technology, research and entrepreneurship, with proper environment and policy support, India can achieve rapid economic growth and competitive global strength in a sustainable manner. A flourishing venture capital industry in India will fill the gap between the capital requirements of Manufacture and Service based startup enterprises and funding available from traditional institutional lenders such as banks. The gap exists because such startups are necessarily based on intangible assets such as human capital and on a technology-enabled mission, often with the hope of changing the world. Very often, they use technology developed in university and government research laboratories that would otherwise not be converted to commercial use. However, from the viewpoint of a traditional banker, they have neither physical assets nor a low-risk business plan. Not surprisingly, companies such as Apple, Exodus, Hotmail and Yahoo, to mention a few of the many successful multinational venture-capital funded companies, initially failed to get capital as startups when they approached traditional lenders. However, they were able to obtain finance from independently managed venture capital funds that focus on equity or equity-linked investments in privately held, high-growth companies. Along with this finance came smart advice, hand-on management support and other skills that helped the entrepreneurial vision to be converted to marketable products. A similar investor preference for start-up IT companies is being seen, though not of the same magnitude. Yet, it is apparent that investors are willing to take higher risks for a potentially higher reward by investing in start-up companies. Until 1998, the venture creation phenomenon for the IT sector in India had been quite unsatisfactory. Some experts believe that India lacks strong anchor companies like HP and Fairchild, which funded the start-ups of early Silicon Valley entrepreneurs. Others believe that Indian entrepreneurs are not yet globally connected and are often unwilling to share equity with a quality risk capital investor. There was also a perception that startups in India do not typically attract the right managerial talent to enable rapid growth. Finally, exit options were considered to be few, with the general feeling that entrepreneurs were unwilling to sell their start-ups even if it was feasible. As a result, much of the risk capital available was not quickly deployed. However, since March 1999, things have been changing dramatically for the better. The venture capital phenomenon has now reached a take-off stage in India. Risk capital in all forms is becoming available more freely. As against the earlier trend, where it was easy to raise only growth 52 CU IDOL SELF LEARNING MATERIAL (SLM)

capital, even financing of ideas or seed capital is available now. The number of players offering growth capital and the number of investors is rising rapidly. The successful IPOs of entrepreneur-driven Indian IT companies have had a very positive effect in attracting investors. The Indian government initiatives in formulating policies regarding sweat equity, stock options, tax breaks for venture capital along with overseas listings have all contributed to the enthusiasm among investors and entrepreneurs, as has the creation of the dot.com phenomenon. In India, the venture capital creation process has started taking off. All the four stages - including idea generation, start-up, growth ramp-up and exit processes - are being encouraged. However, much needs to be done in all of these areas, especially on the exit side. 5.2 STEPS FOR SETTING UP BUSINESS ENTERPRISE The procedure in setting up of a business unit is a time consuming, complex and complicated activity. It involves various steps, procedures and formalities. The following steps are involved in process of setting up a new business enterprise: 1. Identification of business opportunity. 2. Generation of business idea. 3. Feasibility Study. 4. Preparation of a business plan. 5. Launching the enterprise. Identification of business opportunity: This is the first step in setting up of a business unit Entrepreneur is an opportunity seeker. As observed by Albert Einstein “In the middle of every difficulty lies opportunity”. He perceives an opportunity and strives to translate the opportunity into an idea. Opportunities do not come suddenly. The entrepreneur must show alertness to grab opportunities when they come. The opportunities must be carefully scrutinized and evaluated. The process of identifying opportunity involves identifying the needs and wants of the customers, scanning the environment, understanding the competitor’s policy etc. To identify the right business opportunity, an entrepreneur needs to consider the following:  Identify Market Inefficiencies  Remove Key Hassles  Customers Desire to Experience Something New  Pick a Growing Sector/Industry  Product Differentiation  Cash Flow Considerations 53 CU IDOL SELF LEARNING MATERIAL (SLM)

 Listen to your potential clients and past leads. When you're targeting potential customers listen to their needs, wants, challenges and frustrations with your industry.  Listen to your customers.  Look at your competitors.  Look at industry trends and insights. 5.3 GENERATION OF BUSINESS IDEA This is the most important function of an entrepreneur. The ideas that provide value for the customer, profit for the entrepreneur and benefit for society and can be transformed into products of services are called business ideas. Idea is generated through vision. Idea generation is a critical skill in entrepreneurship and involves insight, observation, experience, education, training etc. It involves lot of creativity on the part of entrepreneur and generally arises from an opportunity in the market. The various sources of information for business ideas can be personal experience, observing markets, prospective consumers, developments in other nations, government organizations and trade fairs & exhibitions. This can be done through environmental scanning and market survey. An entrepreneur is not someone with clever ideas but someone who has the ability to turn that idea into a real business. An entrepreneur conceives the idea of launching the project and program the structure of business. Converting a business idea into a commercial venture is at the heart entrepreneurship. The entrepreneur than undergoes detailed investigation of an idea. He analyzes the idea to find out the feasibility whether the project is profitable of not. An entrepreneur must show the initiative to develop the idea and implement it in practical sense. Note: here we need to understand what is meant by innovation and creativity and how important they are for generation of business idea in entrepreneurship. Role of Innovation and Creativity: Innovation may be defined as exploiting new ideas leading to the creation of a new product, process or service. Innovation deals with coming up with creative idea and turning that idea into process. It may be defined as the process of doing new things or doing old things in new ways. Entrepreneurship is a source of innovation. Creativity means to come up with new ideas, concepts, process and products. In other words, it means the ability to bring something new in existence. Entrepreneurship process involves innovation and creativity. Entrepreneurs are innovators. They constantly develop new ideas, concepts and process to survive in a competitive business world. Entrepreneurship is an art of finding creative solutions to the problems. Innovation and creativity are essential for sustainable growth and economic development. 54 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 5.1 Stages in Creativity Process Stages in creativity Process In the nutshell we can say that, Ideas evolve through a creative process whereby a person with imagination germinates ideas, nurtures them and develops them successfully. 5.4 FEASIBILITY STUDY After the selection of a worthy idea, an entrepreneur undertakes various researches relating to market selection, competition, location, machinery and equipment’s, capital, customer preferences etc. to test the feasibility of the project. A feasibility study is an evaluation of a proposed project. It is the study of the project to find out whether the project is profitable or not. In other words, feasibility study involves an examination of the operations. Project has to be viable not only in technical terms but also in economic and commercial terms too. The objective of financial analysis is to ascertain whether the proposed project will be financially viable. Feasibility study is a detailed investigation of the proposed project to determine whether the project is financially, economically and technically viable or not. Feasibility Study contains the comprehensive, detailed information about the business structure, availability of resources and whether the business will run efficiently or not. Feasibility study is conducted in the following areas: Market/ commercial Feasibility: 55 CU IDOL SELF LEARNING MATERIAL (SLM)

It involves study of market situation, current market, anticipated future market, competition, potential buyers, etc. Technical Feasibility: This study involves study of technological aspects related to the business, like location of the business, layout, infrastructure, plant and equipment, effluent treatment and discharge, foreign collaboration, transportation, resource availability etc. Financial Feasibility: Financial feasibility denotes the financial aspects of the business. This study helps to understand requirement of start-up capital, sources of capital, returns on investment, etc. It helps to assess the financial health of the business. Socio- economic Feasibility: This study is important to determine the extent to which the project is meeting its social economic objectives of development. It involves social cost-benefit analysis for testing national profitability. It helps to know the contribution of the project towards employment generation, income distribution, foreign exchange savings, development of backward regions, etc. Preparation of Feasibility Report: Feasibility report is the final conclusion drawn about the business after conducting the feasibility study. The feasibility report includes the confirmation of the proposed project. It gives the detail about technical, economic and financial, environmental, socio-cultural and operational aspects of the project. It is a formal document prepared by the experts. It gives the information on the authenticity of the feasibility study. The feasibility report answers the question ‘the plan must be implemented or not’. The feasibility report contains information on: a. It helps him to determine the viability of the venture. b. It provides guidance to the entrepreneur in planning realistic goals. c. It helps to identify possible roadblocks. d. It is a pre-requisite to obtain finance. 5.5 PREPARATION OF BUSINESS PLAN Inthis step an entrepreneur prepares a good business plan, the designs and creates the organisational structure for implementation of his plan. This plan is further used to achieve the realistic goals. 56 CU IDOL SELF LEARNING MATERIAL (SLM)

A business plan, as defined by Entrepreneur, is a “written document describing the nature of the business, the sales and marketing strategy, and the financial background, and containing a projected profit and loss statement.” It serves as the blueprint for how you will operate your business. It is an effective means of defining your goals and the steps needed to reach them. Need and purpose of a business plan: A business plan spells out your purpose, vision and means of operation. It also serves as your company's resume, explaining your objectives to investors, partners, employees and vendors. It serves the following purposes:  Maintaining Business Focus.  Securing Outside Financing.  Understanding consumers and competitors.  Fueling Ambitions and Mapping Growth.  Enlightening Executive Talent or to understand employee needs. Contents of a business plan: Executive Summary Your executive summary should appear first in your business plan. It should summarize what you expect your business to accomplish. A good executive summary is compelling. It reveals the company’s mission statement, along with a short description of its products and services. It might also be a good idea to briefly explain why you’re starting your company and include details about your experience in the industry you’re entering. Company Description The next section that should appear in your business plan is a company description. It’s best to include key information about your business, your goals and the customers you plan to serve. Your company description should also discuss how your business will stand out from others in the industry and how the products and services you’re providing will be helpful to your target audience. Market Analysis Ideally, your market analysis will show that you know the ins and outs of the industry and the specific market you’re planning to enter. In that section, you’ll need to use data and statistics to talk about where the market has been, where it’s expected to go and how your company will fit into it. In addition, you’ll have to provide details about the consumers you’ll be marketing to, such as their income levels. Further information about markets, pricing systems, methods of distribution, sales forecast, etc. to be enclosed. 57 CU IDOL SELF LEARNING MATERIAL (SLM)

Competitive Analysis A good business plan will present a clear comparison of your business to your direct and indirect competitors. You’ll need to show that you know their strengths and weaknesses and you know how your business will stack up. If there are any issues that could prevent you from jumping into the market, like high upfront costs, it’s best to say so. This information will go in your market analysis section. Description of Management and Organization: Following your market analysis, your business plan will outline the way that your organization will be set up. You’ll introduce your company managers and summarize their skills and primary job responsibilities. If you want to, you can create a diagram that maps out your chain of command. Don’t forget to indicate whether your business will operate as a partnership, a sole proprietorship or a business with a different ownership structure. If you have a board of directors, you’ll need to identify the members. Breakdown of Your Products and Services If you didn’t incorporate enough facts about your products and services into your company description (since that section is meant to be an overview), it might be a good idea to include extra information about them in a separate section. Whoever’s reading this portion of your business plan should know exactly what you’re planning to create and sell, how long your products are supposed to last and how they’ll meet an existing need? It’s a good idea to mention your suppliers, too. If you know how much it’ll cost to make your products and how much money you’re hoping to bring in, those are great details to add. You’ll need to list anything related to patents and copyright concerns as well. Marketing Plan In your business plan, it’s important to describe how you intend to get your products and services in front of potential clients. That’s what marketing is all about. As you pinpoint the steps, you’re going to take to promote your products, you’ll need to mention the budget you’ll need to implement your strategies. Sales Strategy In this section of business plan, one needs to decide, how will you sell the products you’re building? That’s the most important question you’ll answer when you discuss your sales strategy. It’s best to be as specific as possible. It’s a good idea to throw in the number of sales reps you’re planning to hire and how you’ll go about finding them and bringing them on board. You can also include sales targets. Manufacturing and Operational Plan In your business plan, the operations plan section describes the physical necessities of your business' operation, such as your physical location, facilities, and equipment. Depending on 58 CU IDOL SELF LEARNING MATERIAL (SLM)

what kind of business you'll be operating, it may also include information about inventory requirements, suppliers, and a description of the manufacturing process. An operations plan is helpful for investors, but it's also helpful for you and employees because it pushes you to think about tactics and deadlines. Financial Projections In the final section of your business plan, you’ll reveal the financial goals and expectations that you’ve set based on market research. You’ll report your anticipated revenue for the first 12 months and your annual projected earnings for the second, third, fourth and fifth years of business. The following schedules and statements to be included: Start up projections, income statement, cash flow statement, balance sheet and break-even analysis. Appendices and Exhibits In addition to the sections outlined above, at the end of your business plan, include any additional information that will help establish the credibility of your business idea, such as marketing studies, photographs of your product, permits, intellectual property rights such as a patent, credit histories, resumes, marketing materials, and/or contracts or other legal agreements pertinent to your business. 5.6 LAUNCHING THE ENTERPRISE AND MANAGING THE BUSINESS At this step the entrepreneur fulfills some legal formalities. He hunts for suitable location, design the premises and install machinery. All the statutory formalities are to be met. i. Acquiring license. ii. Permission from local authorities. iii. Approvals from banks and financial institution. iv. Registration etc. Once the project is set up, the entrepreneur must try to achieve the target of a business plan. This involves setting up of an appropriate business process. Only proper management can ensure achievement of goals. The entrepreneur must be capable of turning his ideas into reality. He should also have the foresight to anticipate changes to avail of opportunities and meeting threats likely to arise in the near future. 5.7 PROBLEMS IN SETTING UP OF A BUSINESS The factors that affect the growth of business are explained below in detail: Lack of legal knowledge: 59 CU IDOL SELF LEARNING MATERIAL (SLM)

The entrepreneur should have adequate legal knowledge to handle legal affairs efficiently. Lack of legal knowledge on the part of entrepreneurs may affect smooth conduct of business. He should have knowledge regarding Factories Act, Wages & Salaries Act, and Workers Compensation Act etc. Lack of experience: An entrepreneur should have enough experience to manage the business efficiently. Lack of adequate experience may create major problems and adversely affect the experience. The major hurdle that the new entrepreneurs face is the availability of resources to carry out such a business. The most important is the allocation of funds that comes in the form of money to research and development. Lack of finance: Finance is the life blood of every business. To start up a new venture requires adequate capital. It is required to meet business expenses like purchase of raw material, payment of wages and salaries; payment of interest on loans etc. Lack of finance can create hurdles in setting up of a business unit. Lack of technology: Technology is never constant; it keeps on changing. Sophisticated technology helps in increasing the production capacity and quality of the products. Lack of suitable technology can hamper the reputation of the firm. Adoption of suitable technology can prove beneficial to the business success and vice versa. Problem of human resource: Organisation is made up of people and people make an organisation. A firm requires skilled, qualified and talented employees. Lack of competent staff is another major issue for a business unit. Problem of data: Entrepreneurship is based on research work. The Entrepreneur need to conduct a survey for gathering information regarding market condition, competition, technology, consumer etc. the data collected may not be accurate and precise. At times it is incorrect and outdated. This hampers the survival of a business. Problem of marketing: The Entrepreneur should have marketing knowledge. This helps to face cut-throat competition in all sectors. Lack of marketing efforts and knowledge with respect to product, pricing, distribution and promotion hampers the Entrepreneurial growth. India is attractive for risk capital: 60 CU IDOL SELF LEARNING MATERIAL (SLM)

India certainly needs a large pool of risk capital both from home and abroad. Examples of the US, Taiwan and Israel clearly show that this can happen. But this is dependent on the right regulatory, legal, tax and institutional environment; the risk-taking capacities among the budding entrepreneurs; start-up access to R&D flowing out of national and state level laboratories; support from universities; and infrastructure support, such as telecoms, technology parks, etc. Steps are being taken at governmental level to improve infrastructure and R&D. Certain NRI organizations are taking initiatives to create a corpus of US$150m to strengthen the infrastructure of IITs. More focused attempts will be required in all these directions. Recent phenomena, partly ignited by success stories of Indians in the US and other places abroad, provide the indications of a growing number of young, technically-qualified entrepreneurs in India. Already there are success stories in India. At the same time, an increasing number of savvy, senior management personnel have been leaving established multinationals and Indian companies to start new ventures. The quality of enterprise in human capital in India is on an ascending curve. The environment is ripe for creating the right regulatory and policy environment for sustaining the momentum for high-technology entrepreneurship. Indians abroad have leapfrogged the value chain of technology to reach higher levels. At home in India, this is still to happen. By bringing venture capital and other supporting infrastructure, this can certainly become a reality in India as well. India is rightly poised for a big leap. What is needed is a vibrant venture capital sector, which can leverage innovation, promote technology and harness the ongoing knowledge explosion. This can happen by creating the right environment and the mindset needed to understand global forces. When that happens, we would have created not ‗Silicon Valley' but the ‗Ind Valley' - a phenomenon for the world to watch and reckon with. A viable venture capital industry depends upon a continuing flow of investment opportunities capable of growing sufficiently rapidly to the point at which they can be sold yielding a significant annual return on investment. If such opportunities do not exist, then the emergence of venture capital is unlikely. In the U.S. and Israel such opportunities occurred most regularly in the information technologies. Moreover, in every country, with the possible exception of the U.S., any serious new opportunity has to be oriented toward the global market, because few national markets are sufficiently large to generate the growth capable of producing sufficient capital gains. Since Independence, the Indian government strove to achieve autarky and the protection of Indian markets and firms from multinational competition guided nearly every policy – the information technology industries were no exceptions. The protectionist policy had benefits and costs. The benefit was that it contributed to the creation of an Indian IT industry; the cost was that the industry was backward despite the excellence of its personnel. Due to this lack of foreign investment and despite the presence of skilled Indian personnel, India was a technological backwater even while East Asia progressed rapidly. 61 CU IDOL SELF LEARNING MATERIAL (SLM)

In terms of experience, India contrasted favorably with most developing countries, which had small, inefficient stock markets listing only established firms. However, although these stock markets provided an exit opportunity, they did not provide the capital for firm establishment. Put differently, accessible stock markets did not create venture capital for startups; they merely provided an opportunity for raising follow-on capital or an exit opportunity. Other institutional sources of funds .India has a strong mutual fund sector that began in 1964 with the formation of the Unit Trust of India (UTI), an open-ended mutual fund, promoted by a group of public sector financial institutions. Because UTI‘s investment portfolio was to consist of longer-term loans, it was meant to offer savers a return superior to bank rates. In keeping with the risk-averse Indian environment, initially UTI invested primarily in long- term corporate debt. However, UTI eventually became the country‘s largest public equity owner as well. This was because the government controlled interest rates in order to reduce the borrowing costs of the large manufacturing firms that it owned. These rates were usually set well below market rates, yet UTI and other institutional lenders were forced to lend at these rates. In response, firms started issuing debt that was partially convertible into equity in order to attract institutional funds. The largest single source of funds for U.S. venture capital funds since the 1980s has been public and private sector pension funds. In India, there are large pension funds but they are prohibited from investing in either equity or venture capital vehicles, thus closing off this source of capital. In summation, prior to the late 1980s, though India did have a vibrant stock market, the rigid and numerous regulations made it nearly impossible for the existing financial institutions to invest in venture capital firms or in startups. Nearly all of these institutions were politicized, and the government bureaucrats operating them were risk- adverse. On the positive side, there was a stock market with investors amenable to purchasing equity in fairly early-stage companies. It was also possible to bootstrap a firm and/or secure funds from friends and family – if one was well connected. However, no financial intermediaries comfortable with backing small technology-based firms existed prior to the mid-1980s. It is safe to say that little capital was available for any entrepreneurial initiatives. An entrepreneur aiming to create a firm would have to draw upon familial capital or bootstrap their firm. An Indian venture capital industry is struggling to emerge and given the general global downturn, the handicaps existing in the Indian environment are threatening. As we have seen, many of the preconditions do exist, but the obstacles are many. Some of these can be addressed directly without affecting other aspects of the Indian political economy. Others are more deeply rooted in the legal, political, and economic structure and will be much more difficult to overcome without having a significant impact on other parts of the economy. A number of these issues were addressed in a report submitted to SEBI in January 2000 from its Committee on Venture Capital. SEBI then recommended that the Ministry of Finance adopt many of its suggestions. 62 CU IDOL SELF LEARNING MATERIAL (SLM)

In June 2000, the Ministry of Finance adopted a number of the Committee‘s proposals. For example, it accepted that only SEBI should regulate and register venture capital firms. The only criterion was to be the technical qualifications of their promoters, whether domestic or offshore. Such registration would not impose any capital requirements or legal structure – this is very important, because it would allow India to develop a legal structure suitable to its environment, while offering tax pass-through for all firms registered as venture capital firms with SEBI. This was an important achievement of the Committee‘s report. However, the proposed guidelines continued to prohibit finance and real estate investments. Whether this type of micromanagement is good policy seems dubious. Also, registered venture capital funds must invest 70 percent of their paid-in capital in unlisted equity or equity-related, fully convertible instruments. Similarly, related-company transactions would be prohibited, and not more than 25 percent of a fund‘s capital could be invested in a single firm. In the U.S. most of these provisions are not law, but are codified in the limited partnership contracts and accepted as common sense. Rather than letting the market decide which venture capital firms are operating responsibly, the Indian government continues to specify a variety of conditions. 5.8 ENVIRONMENTAL SCANNING Environmental scanning is the art of systematically exploring the external environment to: (i) Better understand the nature and pace of change in that environment, and (ii) Identify potential opportunities, challenges and likely future developments relevant to your organisation. Environmental scanning explores both new, strange and weird ideas, as well as persistent challenges and trends today. Environmental scanning is what Choo (1998) calls formal searching, using formal methodologies for obtaining information for a specific purpose. It is systematic. It is much more than reading newspapers or industry journals, or checking the latest statistics about your market. It is about exploring both present certainty and future uncertainty, and moving beyond what we accept as valid ways of doing things today. Most people in management positions in organisations would say that they scan the environment, and indeed, nearly all of us are doing some form of scanning in our personal and professional lives every day – whether we realise it or not. For strategy purposes, however, environmental scanning needs to be formal and systematic, and focused around a particular interest or critical decision being faced by the organisation. It is an activity usually undertaken as part of a broader strategy development process. Without a structured approach to scanning, you will just be aimlessly scanning the web, and luck will be the only determinant of whether or not you find something useful. Aim of Environmental Scanning: 63 CU IDOL SELF LEARNING MATERIAL (SLM)

The aim of environmental scanning is to identify relevant information for your organisation, both trends and weak signals of change appearing on the horizon, in order to broaden and deepen thinking about strategic options. It is about ensuring that there are no surprises in the future operating environment for your organisation – that is, avoiding organisational myopia. Scanning is of most value when it is focused or anchored around issues of current concern to your organisation. Alternatively, there may be a fork-in-the-road decision that needs to be made in the near future, and you need to get more information about the likely implications of your options before you make a decision. At the end of the scanning process, you are aiming to have a report that details relevant trends in the external environment that are likely to have a significant impact on the way you do business in the future, and the implications of those trends on your organisation’s strategy today. Scanning should aim to provide information to inform the development of flexible strategy that readies your organisation to respond quickly to the changing environment rather than react to it. As one step in a broader strategy development process, scanning helps organisations to create their preferred future, rather than end up as an extra in someone else’s future. 5.9 SUMMARY  Venture capitalists are professional investors who specialize in funding and building young, innovative enterprises.  Venture capitalists are long-term investors who take a hands-on approach with all of their investments and actively work with entrepreneurial management teams in order to build great companies which will have the potential to develop into significant economic contributors  Venture capital can be visualized as ―your ideas and our money‖ concept of developing business.  Venture capital should become an institutionalized industry that protects investors and invitee firms, operating in an environment suitable for raising the large amounts of risk capital needed and for spurring innovation through start-up firms in a wide range of high growth areas.  Infrastructure in the form of incubators and R&D need to be promoted using government support and private management as has successfully been done by countries such as the US, Israel and Taiwan.  A flourishing venture capital industry in India will fill the gap between the capital requirements of Manufacture and Service based startup enterprises and funding available from traditional institutional lenders such as banks. 64 CU IDOL SELF LEARNING MATERIAL (SLM)

 The successful IPOs of entrepreneur-driven Indian IT companies have had a very positive effect in attracting investors.  Generation of Idea :This is the most important function of an entrepreneur  An entrepreneur conceives the idea of launching the project and program the structure of business.  Feasibility Study contains the comprehensive, detailed information about the business structure, availability of resources and whether the business will run efficiently or not.  The objective of financial analysis is to ascertain whether the proposed project will be financially viable.  Feasibility study is a detailed investigation of the proposed project to determine whether the project is financially, economically and technically viable or not.  Feasibility Study contains the comprehensive, detailed information about the business structure, availability of resources and whether the business will run efficiently or not.  A business plan, as defined by Entrepreneur, is a “written document describing the nature of the business, the sales and marketing strategy, and the financial background, and containing a projected profit and loss statement.”  A business plan spells out your purpose, vision and means of operation. It also serves as your company's resume, explaining your objectives to investors, partners, employees and vendors 5.10 KEYWORDS  Innovation: Innovation may be defined as exploiting new ideas leading to the creation of a new product, process or service.  Creativity: Creativity means to come up with new ideas, concepts, process and products. In other words, it means the ability to bring something new in existence  Feasibility Study: A feasibility study is an evaluation of a proposed project. It is the study of the project to find out whether the project is profitable or not  Technical Feasibility: This study involves study of technological aspects related to the business, like location of the business, layout, infrastructure, plant and equipment, effluent treatment and discharge, foreign collaboration, transportation, resource availability etc.  Financial Feasibility: Financial feasibility denotes the financial aspects of the business. This study helps to understand requirement of start-up capital, sources of capital, returns on investment, etc. It helps to assess the financial health of the business  Socio- economic Feasibility: This study is important to determine the extent to which the project is meeting its social economic objectives of development. It involves social cost-benefit analysis for testing national profitability. 65 CU IDOL SELF LEARNING MATERIAL (SLM)

 Feasibility Report: Feasibility report is the final conclusion drawn about the business after conducting the feasibility study. 5.11 LEARNING ACTIVITIES 1. “Entrepreneurs are made or born.” Give your views. ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ 2: Discuss the concept of entrepreneurship as Leadership, Risk taking, Decision-making and Business Planning ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- 5.12 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define Technical Feasibility? 2. Define Feasibility Report? 3. Define Socio- economic Feasibility 4. Define Financial Feasibility 5. Define Feasibility Study. Long Questions 1. Define the term ‘Planning’. Discuss importance and objectives of planning in administration of the business. 2. What do you mean by promotion of a venture? Explain the characteristics of promotion in brief. 3. What is meant by Opportunity Analysis? Describe in brief the main factors of opportunity analysis. 4. What is a business idea? Why it is important in entrepreneurship. 5. Explain how consumers and existing companies help in generating business ideas. B. Multiple Choice Questions 1. ____________ is primarily concerned with the identification of the project demand potential and the selection of the optimal technology a. Techno-economic analysis b. Feasibility analysis c. Input analysis d. Financial analysis 66 CU IDOL SELF LEARNING MATERIAL (SLM)

2. __________________ is the systematic development of a project idea for the eventual purpose of arriving at an investment decision a. Project identification b. Project formulation c. Project feasibility d. Project evaluation 3. A new venture's business plan is important because __? a. It helps to persuade others to commit funding to the venture b. Can help demonstrate the viability of the venture c. Provides a guide for business activities by defining objectives d. All of these 4. ______________ is a form of financing especially for funding high technology, high risk and perceived high reward projects: a. Fixed capital b. Current capital c. Seed capital d. Venture capital. 5. Which of the following is NOT recognized as a misconception about entrepreneurship? a. Successful entrepreneurship needs only a great idea. b. Entrepreneurship is easy. c. Entrepreneurship is found only is small businesses. d. Entrepreneurial ventures and small businesses are different. Answers 1-b, 2-c, 3-d. 4-d, 5-a 5.13 REFERENCES Textbooks  T1 Gupta, R.K. &Lipika, K.L. 2115. Fundamentals of entrepreneurship development & project management, Himalaya Publishing House. ISBN: 978-9351426844. 67 CU IDOL SELF LEARNING MATERIAL (SLM)

 T2 Ivaturi, V.K., Ganesh, M., Mittal, A., Subramanya, S. 2117. The Manual for Indian Start-ups: Tools to Start and Scale-up Your New Venture, Penguin Random House India. ISBN: 978-0143428527. Reference Books • ENTREPRENEURSHIP DEVELOPMENT For B.Com, CS, A&F, CA, BBA, BBM, MBA courses by Dr. D. KESAVAN and Mr. N. VIVEK (Author) 68 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT –6: FEASIBILITY STUDY – STARTING THE VENTURE – PART-I STRUCTURE 6.0 Learning Objectives 6.1 Introduction 6.2 Entrepreneurial Opportunity 6.3 Research Potential Business Opportunities 6.4 Competitive Analysis;Competitor &Industry Analysis 6.5 Launching the enterprise: Starting the venture and managing the business 6.6 Summary 6.7 Keywords 6.8 Learning Activity 6.9 Unit End Questions 6.10 References 6.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Define entrepreneurial opportunity  Discuss Joseph Schumpeter’s theories of opportunity  Identify key drivers of opportunity  Describe opportunity screening  Identify common sources of research data  Explain how to research and verify business opportunities  Identify industry and consumer sources of opportunities  Understand the elements of a competitive analysis  Describe tools you can use to refine and focus your planning (three circles, SWOT, PEST)  Recognize social media’s role in saving time and money on research  Understand how a business model helps determine the feasibility of an opportunity. 6.1 INTRODUCTION Aspiring entrepreneurs can come up with ideas all day long, but not every idea is necessarily a good idea. For an idea to be worth pursuing, we must first determine whether the idea translates into an entrepreneurial opportunity. 69 CU IDOL SELF LEARNING MATERIAL (SLM)

Entrepreneurial opportunity is the point at which identifiable consumer demand meets the feasibility of satisfying the requested product or service. In the field of entrepreneurship, specific criteria need to be met to move from an idea into an opportunity. It begins with developing the right mindset—a mindset where the aspiring entrepreneur sharpens his or her senses to consumer needs and wants, and conducts research to determine whether the idea can become a successful new venture. In some cases, opportunities are found through a deliberate search, especially when developing new technologies. In other instances, opportunities emerge serendipitously, through chance. But in most cases, an entrepreneurial opportunity comes about from recognizing a problem and making a deliberate attempt to solve that problem. The problem may be difficult and complex, such as landing a person on Mars, or it may be a much less complicated problem such as making a more comfortable pillow, as entrepreneur Mike Lindell did by inventing My Pillow Chester Carlson, a physicist, inventor, and patent attorney, spent ten years searching for a company to develop and manufacture a new photographic machine for office use to make copies faster and for less money. Carlson went on to found the XEROX Corporation, the company that made the first photocopy machines. Can you imagine a school or office today without a photocopy machine? The companies that Carlson approached with his invention missed the opportunity to invest. For Carlson, it was the beginning of a technology product development company that has been granted more than 50,000 patents worldwide. Today, Xerox continues to innovate. Visit the innovation section of its website (https://www.xerox.com/en-us/innovation) and consider how one of the inventions it’s developing now could spur creative destruction in an industry, according to Schumpeter’s theory. 6.2 ENTREPRENEURIAL OPPORTUNITY Theories of Opportunity In the twentieth century, economist Joseph Schumpeter, stated that entrepreneurs create value “by exploiting a new invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry” or similar means. According to Schumpeter, entrepreneurial innovation is the disruptive force that creates and sustains economic growth, though in the process, it can also destroy established companies, reshape industries, and disrupt employment. He termed this force creative destruction. Schumpeter described business processes, including the concept of downsizing, as designed to increase company efficiency. The dynamics of businesses advances the economy and improves our lifestyle, but the changes (sometimes through technology) can make other 70 CU IDOL SELF LEARNING MATERIAL (SLM)

industries or products obsolete. For instance, Schumpeter provided the example of the railroad changing the way companies could ship agricultural products quickly across the country by rail and using ice “cold cars,” while at the same time, destroying the old way of life for many ranchers who wrangled cattle from one location to their intended commercial destination. Today, we might think of the displacement of taxi drivers by ride-sharing services such as Uber and Lyft as a modern-day example of this concept. To own and operate a New York City cab, for instance, one must buy what is called a taxi medallion, which is basically the right to own and operate a cab. Drivers take out loans to buy these medallions, which cost hundreds of thousands of dollars. But now, ride-sharing services have eaten in to the taxi industry, all but destroying the value of the medallions, and the ability of taxi drivers to make the same money they were before the popular services existed. This change has left many taxi drivers in financial ruin.3 Schumpeter argued that this cyclic destruction and creation was natural in a capitalist system, and that the entrepreneur was a prime mover of economic growth. To him, the goal was to progress, and progression starts with finding new ideas. He identified these methods for finding new business opportunities: 1. Develop a new market for an existing product. 2. Find a new supply of resources that would enable the entrepreneur to produce the Product for less money. 3. Use existing technology to produce an old product in a new way. 4. Use an existing technology to produce a new product. 5. Finally, use new technology to produce a new product. We can understand theories of opportunity as related to supply or demand, or as approaches to innovations in the use of technology. The first situation is a demand opportunity, whereas the remaining situations are supply situations. The final three incorporate technological innovations. Supply and demand are economic terms relating to the production of goods. Supply is the amount of a product or service produced. Demand is the consumer or user desire for the outputs, the products, or services produced. We can use the ideas from Schumpeter to identify new opportunities. Our focus is on identifying where the current or future supply and the current or future demand are not being met or are not aligned, or where technological innovation can solve a problem. More recent research has expanded on the concept of technological entrepreneurial opportunities, identifying several areas: creating new technology, utilizing technology that has not yet been exploited, identifying and adapting technology to satisfy the needs of a new market, or applying technology to create a new venture.4 Regardless of which of Schumpeter’s paths entrepreneurs pursue, before investing time and money, the business landscape requires a thorough investigation to see whether there is an 71 CU IDOL SELF LEARNING MATERIAL (SLM)

entrepreneurial opportunity. Remember, entrepreneurial opportunity is the point at which identifiable consumer demand meets the feasibility of satisfying the requested product or service. “Feasibility” in this definition includes identifying a sizable target market interested in the product or service that has sufficient profitability for the venture’s financial success. Identifying Opportunity A good place to begin your entrepreneurial quest is to read as much as you can, especially with new technology developments, even outside the field you work in. Remember that as technologies start to emerge, we often do not yet understand their commercial potential. For example, microwave technology was first applied in radars to track military submarines. But, thanks to a curious man named Percy Spencer and the accidental melting of a peanut bar in his pocket one day while tinkering with the technology, the microwave was born. It would take a few decades for it to be produced at a price the mass market could afford.5 Think of drones, too. When they were invented, the multiple uses for this technology were not yet identified. Now, drone technology is being used by real estate firms, package delivery services, agriculture, underwater search and scientific research, security, surveillance, and more. Being tuned in to new experiences and information can lead to identifying opportunities. Entrepreneur Fred Smith found a system to solve the problem of overnight package delivery in founding Federal Express.As a college student, he wrote a paper for an economics class where he discussed his business idea. He earned only a C on his paper, by the way. He received his bachelor’s degree in 1966 and went on to found Federal Express a few years later, which, in 2019, generated almost $70 billion in revenue.7 Prior to starting Federal Express, Smith was in the US Marine Corps serving in Vietnam where he observed the military’s logistics systems.8 This is where he honed his interest in shipping products while in the military. Many entrepreneurs start their business after working for someone else and seeing a better way to operate that business, and then start their own competing business. Note that entrepreneurs need to be careful about starting competing businesses. See Telling Your Entrepreneurial Story and Pitching the Idea and Business Structure Options: Legal, Tax, and Risk Issues for information on noncompete clauses and agreements. Indeed, some entrepreneurs, like Smith, conduct research as an idea percolate, paying attention to new experiences and information to further advance their idea into an entrepreneurial opportunity. However, they must ensure that the existing product, service, or business process is not covered by any active and protected intellectual property (patent, trademark, copyright, or trade secret), as discussed in Creativity, Innovation, and Invention and Fundamentals of Resource Planning. Identifying consumer needs may be as simple as listening to customer comments such as “I wish my virtual orders could be delivered more quickly.” or “I can never seem to find a comfortable pillow that helps me sleep better.” You can also observe customer behavior to 72 CU IDOL SELF LEARNING MATERIAL (SLM)

gather new ideas. If you are already in business, customer feedback can be a simple form of market research. When purchasing an existing business or franchise, the process is a bit different. The first step will usually be searching for a business that suits your experience, personal preferences, and interests. You will still want to conduct research to understand the industry, the local market, and the business itself. Then, you will begin to examine all available company financial data. If purchasing a franchise, you may want to contact other franchise owners and discuss their experience in working with the franchisor. When researching supply and demand, you should also consider political factors. For example, changes in tax laws can inform decisions. One example is a tax credit that encourages alternative energy use, such as electric or hybrid vehicles. For 2019, the IRS tax credit is between $2,500 and $7,500 per new electric vehicle, with a concurrent phase-out of the plug-in electric vehicle tax credit. Changes in the tax code can therefore influence buyer behavior or the demand for vehicles. Another example is the Residential Energy Efficient Property Credit of up to $4,000 for solar electronic appliances such as solar water heaters and solar panels and for small wind turbines, through the end of 2021.Tax incentives do not usually last more than a few years (the tax subsidy for corn farmers to produce ethanol, an ingredient in automotive fuels, is a notable exception due to heavy lobbying by the farming industry), so it is important that entrepreneurs do not rely on these incentives as a permanent “pillar” of their value proposition and business model. Let’s say you have an interest in machinery and art. Taking these two areas of interest, and knowing about this tax credit, you recognize that you have the talents to create artistic backyard wind turbines to create energy for a homeowner. Of course, you will still need to determine whether this is merely an idea, or if the conditions are in place to move forward in translating this idea into an entrepreneurial opportunity. Drivers of Opportunity Some recent drivers for change in the entrepreneurial space include new funding options, technological advancements, globalization, and industry-specific economics.  Increased access to capital through social media sources like crowdsourcing (see the chapter on Problem Solving and Need Recognition Techniques for a more detailed discussion of crowdsourcing) is having a significant impact on entrepreneurship in that it enables underserved people and communities—such as women, veterans, African Americans, and Native Americans, who otherwise might not be able to start and own a business—to become entrepreneurs.  Technological advancements continue to provide new opportunities, ranging from drones to artificial intelligence, advancements in medical care, and access to learning about new technology. For example, drone technology is being used to map and photograph real estate, deliver products to customers, and provide aerial security and 73 CU IDOL SELF LEARNING MATERIAL (SLM)

many other services. Cell phones have spawned many new business opportunities for a wide range of cell phone accessories and related products, ranging from cell phone cases to apps that help make our cell phones faster for business and personal use.  Increased globalization drives entrepreneurship by allowing importing and exporting to flourish. Globalization also helps spread ideas for new products and services to a world market instead of a local or regional market. Combined with the Internet and computer technology, even small businesses can compete and sell their products around the globe.  Economic factors could include a strong economy that fuels other businesses. For example, growth in the housing market fuels growth for many housing-related products and services, ranging from interior decorating to landscaping as well as furniture, appliances, and moving services. 6.3 RESEARCH POTENTIAL BUSINESS OPPORTUNITIES In order to discover how reasonable your business idea is, you need to research many aspects of the concept. Opportunity screening is the process by which entrepreneurs evaluate innovative product ideas, strategies, and marketing trends. Focusing on the viability of financial resources, the skills of the entrepreneurial team, and the competition, this screening helps determine the potential for success in pursuing the idea and can help refine planning. Common Sources of Research Data As you embark on researching whether your idea is viable, a good place to start is with the sources recommended by the US Small Business Administration. These include US Census data (https://www.census.gov/academy), which provides insight into the population in your market area, such as the metropolitan statistical area data, as well as statistics on the economy and trade. For most entrepreneurs, research will also include asking potential customers, specifically your target customers, questions about products they like and don’t like, how a product or service could be improved, how the customer buying experience could be improved, and even where customers might go to purchase products and services instead of your business. Small business marketers can use several no-cost or low-cost methods, including surveys, questionnaires, focus groups, and in-depth interviews. Of course, you do not need to be an expert in these areas. Business assistance is available to you from the Small Business Administration, the Service Corps of Retired Executives (SCORE), and your local Small Business Development Center. You may also have a local college or university business department that provides assistance to local area businesses. You will likely begin with secondary research—that is, data that are already available through some published source. There may be articles, research reports, or reliable Internet sources where you can research information about your industry, products, and customers. If 74 CU IDOL SELF LEARNING MATERIAL (SLM)

you have the funds, you can also purchase research reports from firms that specialize in gathering research on certain topics or products. Secondary research has the advantage of being quickly available. However, secondary research often is not specific enough to provide all the details you need to know about your idea. For example, secondary research (this is research that has been developed from primary sources that is almost as useful as primary, direct research) might report how often consumers purchase shampoo, where they purchase shampoo, and what brands of shampoo they purchase. But if you want to understand the details of how people shampoo—for example, whether they shampoo then repeat, use a separate conditioner, or use a combination shampoo/conditioner product—then you would want to conduct primary research. Primary research is needed when secondary research does not address the questions you want to explore while investigating your business idea. Primary research gathers data that do not yet exist. The information is specific to the business, product, or consumer. It takes time and money to obtain primary data. Some of the methods used to gather primary research data include developing a survey questionnaire, using secret shoppers, or using focus groups. Survey questionnaires can be simple, such as a customer comment card included on a receipt, or extensive, including dozens of detailed questions. Secret shoppers can be used by hiring a shopping service or using friends, family members, and even your customers. One local small business owner gave a friend gift certificates that could be used at his ice cream business in exchange for the friend reporting back on product quality, service, and other key issues. Researching and verifying the Entrepreneurial Opportunity Whether you start your own business, buy an existing business, or purchase a franchise, researching the industry, your target market, and examining the economic and funding options are all part of performing due diligence. Due diligence is the process of taking reasonable steps to verify that your decisions are based on well-researched and accurate information. It means thoroughly researching potential pursuits, asking detailed questions, and verifying information. Different industries have different meanings for due diligence. For example, in the legal industry, due diligence involves understanding the terms of a transaction and contract. In business finance, due diligence refers to raising capital or the work involved in merger and acquisition transactions. In the entrepreneurship field, research is necessary to verify whether the idea is really an opportunity, considering the entire process of starting the venture and funding the venture. One of the more common questions entrepreneurs must ask is whether now a good time to start a business is. This question of timing is addressed in the investigation to determine whether the idea is merely interesting or fits the criteria of being an entrepreneurial opportunity. 75 CU IDOL SELF LEARNING MATERIAL (SLM)

An idea can move to a recognized opportunity when the following criteria are met. Figure shows these three factors:  Significant market demand  Significant market structure and size  Significant margins and resources to support the venture’s success Significant market demand means that the idea has value by providing a solution to a problem that the target market is willing to purchase. This value can result from a new product or service that fills an unmet need, a lower price, improved benefits, or greater financial or emotional value. This value can also result from capitalizing on “nonconsumption.” For example, in the 1980s, the Disney Corporation realized that it was losing an opportunity to entice visitors to come to their theme parks from 9 p.m. to 9 a.m. when they were closed. So, the company started having “school nights” when schools and students could use the parks at a discount. Significant market structure and size involve growth potential and drivers of demand for the product or service. Barriers to entry are manageable, meaning that entering the industry or creating a new industry is not exceptionally difficult. If the industry already exists, there must be room within the industry for your venture to gain market share by providing a value that creates a competitive advantage. Significant margins and resources involve the potential for achieving profit margins at a high- enough level that the work of starting the venture (including the entrepreneur’s time and energy) is worth the risks involved. If the operating costs are too high and the profit margin is too low, it is important to analyze whether the idea is truly feasible. Significant margins also include the capital requirements—how much money is needed to start the venture—as well as the technical requirements, the complexity of the distribution system, and similar resources. 76 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 6.1Significant Market resource’s structure. Determining whether an idea has significant market demand, significant market structure and size, and significant margins and resources to support the venture’s success represents the most basic concerns when screening a business idea as an entrepreneurial opportunity. Keep in mind that these three criteria are based partially on creating a for-profit venture. If your entrepreneurial venture is focused on solving a societal problem, you want to know that the identified problem is realistic and that there is a need for solving it. In a for-profit venture, significant market structure and margins relate to the expectation that the venture will have significant sales with significant profit margins to sustain and grow. There are also examples of profitable entrepreneurial ventures, like YouTube, that did not have any sales, but there was still an expectation that harvesting or selling YouTube would result in a significant profit for the entrepreneurial team. You can read more about Google’s purchase of YouTube at https://www.theringer.com/2016/10/10/16042354/google-youtube-acquisition-10-years-tech- deals-69fdbe1c8a06. After confirming that a business idea is an entrepreneurial opportunity, the entrepreneur should ask more detailed questions in the next phase of screening the business. Here are some examples:  Would other people value your product or service? 77  Does your product or service solve a significant problem?  Is the market for the product definable/specific? CU IDOL SELF LEARNING MATERIAL (SLM)

 Does the market have unique needs or expectations that align with your entrepreneurial opportunity?  Is the timing right to start the venture?  Are there infrastructures or supporting resources that need to be commercialized or created prior to your launch of the venture?  What resources are needed to start the venture?  What is the competitive advantage your venture offers within the industry and is this competitive advantage sustainable?  What is the timeline between starting the venture and the first sale?  How long before the venture becomes profitable, and do you have the resources to support this timeline? A good starting point in your opportunity screening research is to begin learning about the demographics of the market you are targeting (your target market). Demographics are statistical factors of a population, such as race, age, and gender. The government collects census data demographics,which can provide a snapshot of the population in your city or town. Census data include the total population, a breakdown of the population by age, gender, race, and income, and some other useful data. Industry Sources of Opportunity Your research process should include learning everything you can about the industry you plan to enter. This will help you to identify opportunities. An excellent source for industry information is the business reference section of your college library. Industry averages are available in reference books and can also be found at Dun & Bradstreet/Hoovers (http://www.hoovers.com/industry-analysis.html). The industry analysis contains important information including a brief description of the industry and its characteristics, the competitive landscape, along with products, operations, and technology. Industry sources reveal knowledge about a specific industry from the perspective of identifying unmet needs or areas for improvement within that industry. For example, Airbnb reshaped the hotel industry by connecting travelers with property owners, so that the travelers could rent the property when the owner was not using it. As Airbnb has grown, the company has made improvements to their offerings in meeting the needs of the traveler’s demand based on property location and in categorizing the supply (the homeowner’s property) for increased efficiency, meeting the needs of both the property owner and the traveler. Researching specific industries from supply and demand perspectives, and noticing unused supplies, as we saw in the Airbnb example, also applies to other industries, such as a sandwich shop. What happens to the unsold bread at the end of the day when there is an excess supply? For Stacy Madison and her pita sandwich food cart, unsold bread presented an opportunity to create pita chips by turning an oversupply into sliced and seasoned pita chips.20 78 CU IDOL SELF LEARNING MATERIAL (SLM)

Almost every industry is worth investigating from the perspective of identifying unused resources or extra resources that could be restructured for what are known as a shared economy or a gig economy.A shared economy considers that there are times when an asset in not in use. This down time when the asset is not in use provides an opening for someone else to use that asset, like Airbnb. Other companies, like Uber, Lyft, Door Dash, and Postmates, support the gig economy in aligning a person’s choices for when they want to work with the flow of the work demand. A gig economy is an open or fluid market system with temporary positions made up of independent short-term workers. In these examples, we can see the alignment of supply and demand. The entrepreneurial opportunity happens in providing a platform to assist in connecting the supply and demand. The tech sector, for example, is continually adapting to change. Items such as 3D printers and mobile devices are making the technology landscape expand. As new products come to market, the need for applications and increased efficiency abound. Several other industries are experiencing growth, including health care and nutrition. According to Global Market Insights (2019), the clinical nutrition market will exceed $87,530.7 million dollars by 2025. This same source reported that this industry was valued at over $10,562.7 million in 2018, a significant increase over the previous seven years. Drivers in this industry include sedentary lifestyles and related health issues, such as obesity. The result of these societal changes is an increase in clinical nutrition products and home healthcare services. According to business management author, professor, and corporate consultant, Peter Drucker, entrepreneurs excel at finding and developing potential business opportunities created by social, technological, and cultural changes. Consumer Sources of Opportunity Consumer sources of opportunities relate to changes in our society, such as new habits or behaviors brought about by exposure to new information. For example, most people feel the pressure related to having less free or unrestricted time. The International Labour Organization and Bureau of Labor Statistics report that most people in the United States work more than forty hours per week, work significantly more hours per year than workers in many other countries, and are vastly more productive than they were half a century ago. Another consideration is tracking where our time is spent during commuting. The average commute time in major cities in the United States is twenty-six minutes, ranging from thirty- eight minutes in New York City to the shortest commute time of twenty minutes in Buffalo, New York. When we add in commute times, work hours, and other required activities like sleeping and eating, we find that people struggle to find time for relaxation and personal activities. This large trend leads to recognizing that our working population in the United States and other countries would value novel approaches to completing tasks and making life simpler. For instance, several businesses have looked at making life easier and saving the 79 CU IDOL SELF LEARNING MATERIAL (SLM)

consumer time, such as Amazon’s One-Click-Checkout, grocery delivery, and product recommendations. Other examples include mobile businesses like pet grooming that come to your home, or diaper delivery services that pick up used diapers, wash and dry them, and return clean diapers to your home. Understanding consumer needs and problems opens the possibility of creating a business that addresses those needs or problems. Another consumer trend is the demand for affordable housing. One solution involves offering more affordable “tiny homes” that make home ownership more accessible. As one entrepreneurial opportunity materializes into a new product, spin-off ideas may also arise. The tiny home concept attracted the attention of groups that assist homeless veterans. The Veterans Community Project in Kansas City has developed a community of forty-nine tiny homes for homeless veterans and the project is so successful that more than 500 cities around the country are building tiny home housing projects for veterans there. 6.4 COMPETITIVE ANALYSIS: COMPETITOR & INDUSTRY ANALYSIS Any good business planning project has to start with some analysis of the industry in which the venture will operate and the competitors who already operate in that industry. These two aspects will define the operating environment for the venture. One might say that these create a description of the playing field for the competitive battle. Competitive Analysis A competitive analysis should provide the entrepreneur with information about how competitors market their business and ways to penetrate the market by entry through product or service gaps in areas that your competitors do not serve or do not serve well. More importantly, competitive analysis helps the entrepreneur develop a competitive edge that will help create a sustainable revenue stream. For example, a big company like Walmart primarily competes on price. Small companies typically cannot compete on price, since the internal efficiencies and volume sales available to large corporations like Walmart are not available to small companies, but they may be able to compete successfully against Walmart on some other important variable such as better service, better-quality products, or unique buying experiences. When preparing the competitive analysis, be sure to identify your competitors by product line or service segment. For an entrepreneur, this activity can be difficult when the industry does not yet exist. In the case of Bee Love, Palms Barber didn’t have direct competitors, but she did have related competitors of traditional skin care products. Her unique idea of all-natural, honey-based skin care products created a new market. The competitive analysis might need to focus on substitute products rather than direct competitors. There are two main tools used in analysis of competitors: a competitive analysis grid and the “three circles” approach. 80 CU IDOL SELF LEARNING MATERIAL (SLM)

Competitive Analysis Grid: The competitive analysis grid should identify your competitors and include an assessment of the key characteristics of the competitive landscape in your industry, including competitive strengths and weaknesses and key success factors. As you complete an analysis for your venture’s competitors, identify what contributes to the competitor’s success. In other words, why do people purchase from the company? Some possible reasons include no nearby competitors, lower prices than competitors, a wider variety of products, offering services not offered elsewhere, or branding and marketing that appeals to the target market. Your analysis should inform you of a combination of key success factors within the industry (what it takes to be successful in the industry) and of what your competitors are not offering that is valued by your target market. Another frequently used tool is a SWOT analysis (strengths, weaknesses, opportunities, and threats), which focuses on analysing your venture’s potential and builds on the knowledge gained from the competitive analysis grid and the three circles. You will need to identify the strengths your venture will need to support the competitive advantage identified through the competitive analysis tools. The weaknesses can be identified based on your current and foreseeable expectations. For a new venture, the opportunities and threats sections are based on current factors in the external environment that come from your research. In this context, opportunities are facts, changes, or situations within the external environment that could be favourably leveraged for the venture’s success. 81 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 6.2SWOT analysis Another tool that can be used to analyze opportunities and threats section is called PEST analysis (political, economic, societal, technology). In this analysis, we identify issues in each of these categories. Figure shows an example of the topics that could be placed in a PEST analysis. The chapter on Fundamentals of Resource Planning discusses this tool as it relates to resource procurement. Figure 6.3Categories of PEST analysis Each of these categories should be completed with relevant facts related to your entrepreneurial opportunity. After completing this analysis, you then determine if these facts, or factors, would be placed in the opportunity section or the threat section of the SWOT. Three Circles Tool: Another tool that can be used in competitive analysis is the three circles tool. The goal is to identify competitors’ strengths and competitive advantages with any overlaps among competitors. Then, you would identify values or features not offered by competitors. This gap in value or offered services helps to identify your unique selling proposition and thereby your competitive advantage. 82 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 6.4Three Circle tool for marketing plan. The unique selling proposition is important to the marketing plan and is often used as a slogan. It should also align with the value communicated by the product or company brand. These concepts are different from your venture’s competitive advantage; the competitive advantage describes your venture’s unique benefit, which supports growth of the venture, whereas the unique selling proposition describes the product or service itself, rather than the venture. Although these concepts are different, there should be alignment between the concepts. For example, Amazon has a competitive advantage in its virtual presence, knowledge of the market, knowledge and application of technology, and knowledge of the industry. Through these competitive advantages, Amazon offers unique combinations of benefits to their customers, such as one-click checkout and algorithm-based recommendations using data mining to track an individual customer’s preferences. Amazon’s unique selling proposition becomes making the purchase as easy and as accurate as possible, whereas their competitive advantage lies in their ability to foresee future advances and act on those predictions, even to the point of shaping the industry. The competitive advantage results from the analysis of the strengths and unique aspects of a venture, an analysis of the industry, including competitor’s advantages, customer needs, and what the venture provides within this competitive landscape. The unique selling proposition should support the competitive advantage, just as the competitive advantage needs to support the unique selling proposition. Industry Analysis: 83 CU IDOL SELF LEARNING MATERIAL (SLM)

The industry in which the venture operates is one of the largest factors in the statistical success or failure of new ventures. Research tends to show that 8-30% of success is due to the industry. For example: new ventures in the Information Technology industry have a 4 year survival rate of 38%, while new ventures in education or health care have a 55% survival rate. As the famous Chinese military and political tactician, Sun Tsu, wrote in the “Art of War:” We are not fit to lead an army on the march unless we are familiar with the face of the country –its pitfalls and precipices, its marshes and swamps. We will consider two aspect of the industry analysis. • The first is the type of industry and the position the new venture will fill in the industry. • The second is aspect deals with the Industry Trends and the Environmental, Economic, Social, Technological, Political, Regulatory forces and trends. We should begin by considering the types of industries. The following categories are used to classify groups of industries that seem to be alike:  Emerging Industries – Industries that are reasonably new. These are often due to advances in technologies. – Example: social media, eCommerce, On demand video, Artificial Intelligence, Cyber Security, personalized medicine,  Fragmented Industries – Industries that have no dominant competitors that have significant market share there are many companies sharing a fragmented market. – Example: Fast food, Fast casual food, Groceries,  Mature – Industries that have been around for a long time and in which consolidation has led to only a few firms with significant market share. – Examples: Automotive, Airlines, Computer manufacturing, Office productivity software.  Declining – Declining industries are mature industries that have passed their peak and are seeing regular declines in revenues that have been going on for a long time and which do not appear reversible. – Examples: Newspapers, tobacco products, circuses, photographic film, shopping centers, etc.  Global – Industries that have a global presence and must execute a global strategy. – Examples: Automotive, McDonalds, Steel, Oil, Shipping, Analyzing the industry: Once one has identified the characteristics of the industry in which a venture is planning to operate, it is then necessary to analyze the potential (or actual) position of the new venture in regard to a 360 degree view of the industry –including suppliers, customers, competitors, substitutes, and other potential new entrants. Michael Porter, Harvard Business School Professor, has created a powerful tool to analyze these five forces and then draw some conclusions about the average profitability for the firms in an industry. The tool looks at these Five Forces: 84 CU IDOL SELF LEARNING MATERIAL (SLM)

a. Bargaining power of suppliers b. Bargaining power of customers c. Threat of new entrants d. Threat of substitution of an alternate product or service. e. Rivalry among the firms in an industry. Social Media’s Role in Research For almost all new business ventures, two key issues related to research are time and money. Large-scale research projects can take months or longer, and cost a significant amount of money. Social media can offer some opportunities to overcome these concerns. Ray Nelson, writing for Social Media Today, reports several ways that social media can provide speedy, low-cost market research: tracking trends in real-time, helping the entrepreneur “learn the language” of their potential customers, discovering unnoticed trends by engaging consumers, and performing market research using a very cost-efficient means.26 If the entrepreneur can perform social media research on his or her own, the cost will primarily be in terms of time. But the time it will take to conduct research through social media platforms such as Facebook or Twitter is usually well spent. This research should include learning the unique selling proposition of competitors, understanding their competitive advantage, and identifying what the customer values, which can be rather difficult. For example, before Amazon recognized that people are busy, were we aware that we wanted faster check-out processes for making purchases? Or were we aware that we wanted the package delivered to our home to be easier to unwrap? And yet, if we asked Amazon shoppers what they value in shopping at Amazon, we will receive answers that support an easier and faster process. Another technique would be to read through customer reviews on Amazon (or another company related to your entrepreneurial venture) to find out what customers like and don’t like about existing products and brands. You can also develop your own surveys on an app like SurveyMonkey and send them to customers and prospective customers. This usually works when sent to persons who have a strong interest in the product or issue rather than randomly sending out surveys. Business Models and Feasibility Part of the analysis in determining if your idea is an actual entrepreneurial opportunity is identifying a feasible business model. A business model is a plan for how the venture will be funded; how the venture creates value for its stakeholders, including customers; how the venture’s offerings are made and distributed to the end users; and how income will be generated through this process. Basically, a business model describes how a venture will create a profit by describing each of these actions. The business model at this stage is composed of four components: the offering, customers, infrastructure, and financial viability. A fuller version of the business model is covered in Business Model and Plan. 85 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 6.5Business model proposition The offering refers to the product or service you will be selling, the value proposition, and how you will reach and communicate with your target customers. The customer value proposition includes a detailed description of the products and services you will offer to customers, and what benefits (value) the customer will derive from using your product or service. The customer benefit could be the ability to do something more easily, more quickly, or at a lower cost than customers could before. The benefit could also solve a problem no one else has solved. Customers are the people you will be serving, including potential customers from one or more market segments, or subsections of the market categorized by similar interests or needs. Products seldom appeal to everyone, so the entrepreneur needs to determine, through high- level segmentation and targeting analysis, which segments of the market would make the most sense for the business, and the market environment and dynamics. Some products might appeal to market segments based on age or income, whereas other products might appeal to customers based on their lifestyle. A sign of a potential market opportunity is when a certain market is experiencing rapid growth. This could be a city with a fast-growing population, or it could be a style or consumer trend that is really taking off. The chapter on Entrepreneurial Marketing and Sales goes into more detail about these topics. Infrastructure refers to all the resources the entrepreneur will need to launch and sustain the business venture. These include people, products, facilities, technology, suppliers, partners, and finances, all of which the entrepreneur must have to fulfill the customer value proposition. Financial viability relates to the long-term financial sustainability of an organization to fulfill its mission. This goes back to our definition of an entrepreneurial opportunity. Knowing that 86 CU IDOL SELF LEARNING MATERIAL (SLM)

the venture solves a sizable and significant problem that the target market is willing to purchase is a key piece in determining financial viability. This category also addresses how the venture will create profits. For example, would a subscription-based business model fit the target market and venture’s success? Currently, we see a significant growth in startups offering subscription services. What are the benefits to this sales method? For the venture, this model increases upfront cash to support the growth of the venture, especially when customers pay a year in advance for products that will be delivered over the subsequent twelve months. Receiving the payment prior to completing the sales provides the venture with operating cash to support current and future growth. The benefit to the customer in this situation is fewer transactions. The customer knows that the payment covers the next twelve months’ worth of benefits (the received product or service) with no further purchases until the subscription runs out. Another choice involves deciding whether to have a physical location, a virtual location, or both. Financial viability means exploring the benefits and drawbacks of various methods in creating your business model. When you have a business idea that you have been researching and find that there is a large enough market that has a need that your idea meets, that this target market has the willingness and ability to satisfy the need through purchasing the provided solution, that you have access to the necessary resources to build an infrastructure for your business, that you have the right mix of products and services with a sound value proposition, and that you can secure funding, you have a real opportunity. This chapter has introduced you to all of these concepts. Further chapters delve into them in more depth. 6.5 LAUNCHING THE ENTERPRISE: STARTING THE VENTURE AND MANAGING THE BUSINESS How to Start a Business: 1. Refine your Idea:If you're thinking about starting a business, you likely already have an idea of what you want to sell online, or at least the market you want to enter. Do a quick search for existing companies in your chosen industry. Learn what current brand leaders are doing and figure out how you can do it better. If you think your business can deliver something other companies don't (or deliver the same thing, only faster and cheaper), or you've got a solid idea and are ready to create a business plan. Define your \"why.\" \"In the words of Simon Sinek, 'always start with why,'\" Glenn Gutek, CEO of Awake Consulting and Coaching, told Business News Daily. \"It is good to know why you are launching your business. In this process, it may be wise to differentiate between [whether] the business serves a personal why or a marketplace why. When your why is focused on meeting 87 CU IDOL SELF LEARNING MATERIAL (SLM)

a need in the marketplace, the scope of your business will always be larger than a business that is designed to serve a personal need.\" Consider franchising. Another option is to open a franchise of an established company. The concept, brand following and business model are already in place; all you need is a good location and the means to fund your operation. 2. Write a business Plan: Once you have your idea in place, you need to ask yourself a few important questions: What is the purpose of your business? Who are you selling to? What are your end goals? How will you finance your startup costs? These questions can be answered in a well-written business plan. A lot of mistakes are made by new businesses rushing into things without pondering these aspects of the business. You need to find your target customer base. Who is going to buy your product or service? If you can't find evidence that there's a demand for your idea, then what would be the point? Conduct market research. Conducting thorough market research on your field and demographics of potential clientele is an important part of crafting a business plan. This involves conducting surveys, holding focus groups, and researching SEO and public data. 3. Assess your Finance: Starting any business has a price, so you need to determine how you're going to cover those costs. Do you have the means to fund your startup, or will you need to borrow money? If you're planning to leave your current job to focus on your business, do you have money put away to support yourself until you make a profit? It's best to find out how much your startup costs will be. Many startups fail because they run out of money before turning a profit. It's never a bad idea to overestimate the amount of startup capital you need, as it can be a while before the business begins to bring in sustainable revenue. Perform a break-even analysis. One way you can determine how much money you need is to perform a break-even analysis. This is an essential element of financial planning that helps business owners determine when their company, product or service will be profitable. 4. Determine your Legal Business Structure: 88 CU IDOL SELF LEARNING MATERIAL (SLM)

Before you can register your company, you need to decide what kind of entity it is. Your business structure legally affects everything from how you file your taxes to your personal liability if something goes wrong. Sole proprietorship. If you own the business entirely by yourself and plan to be responsible for all debts and obligations, you can register for a sole proprietorship. Be warned that this route can directly affect your personal credit. Partnership. Alternatively, a business partnership, as its name implies, means that two or more people are held personally liable as business owners. You don't have to go it alone if you can find a business partner with complementary skills to your own. It's usually a good idea to add someone into the mix to help your business flourish. Corporation. If you want to separate your personal liability from your company's liability, you may want to consider forming one of several types of corporations (e.g., S corporation, C Corporation or B Corporation). Although each type of corporation is subject to different guidelines, this legal structure generally makes a business a separate entity from its owners, and, therefore, corporations can own property, assume liability, pay taxes, enter contracts, sue and be sued like any other individual. \"Corporations, especially C corporations, are especially suitable for new businesses that plan on 'going public' or seeking funding from venture capitalists in the near future,\" said Deryck Jordan, managing attorney at Jordan Counsel. Limited liability Company. One of the most common structures for small businesses is the limited liability company (LLC). This hybrid structure has the legal protections of a corporation while allowing for the tax benefits of a partnership. 6.6SUMMARY  Entrepreneurial opportunity is the point at which identifiable consumer demand meets the feasibility of satisfying the requested product or service.  In the twentieth century, economist Joseph Schumpeter, stated that entrepreneurs create value “by exploiting a new invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry” or similar means.  According to Schumpeter, entrepreneurial innovation is the disruptive force that creates and sustains economic growth, though in the process, it can also destroy established companies, reshape industries, and disrupt employment.  Small business marketers can use several no-cost or low-cost methods, including surveys, questionnaires, focus groups, and in-depth interviews.  Significant market demand means that the idea has value by providing a solution to a problem that the target market is willing to purchase. 89 CU IDOL SELF LEARNING MATERIAL (SLM)

 Significant market structure and size involve growth potential and drivers of demand for the product or service.  Significant margins also include the capital requirements—how much money is needed to start the venture—as well as the technical requirements, the complexity of the distribution system, and similar resources.  Consumer sources of opportunities relate to changes in our society, such as new habits or behaviors brought about by exposure to new information.  Any good business planning project has to start with some analysis of the industry in which the venture will operate and the competitors who already operate in that industry.  The competitive analysis grid should identify your competitors and include an assessment of the key characteristics of the competitive landscape in your industry, including competitive strengths and weaknesses and key success factors. 6.7 KEYWORDS  Shared Economy: A shared economy considers that there are times when an asset in not in use. This down time when the asset is not in use provides an opening for someone else to use that asset, like Airbnb.  Gig Economy : A gig economy is an open or fluid market system with temporary positions made up of independent short-term workers  Competitive Analysis : A competitive analysis should provide the entrepreneur with information about how competitors market their business and ways to penetrate the market by entry through product or service gaps in areas that your competitors do not serve or do not serve well  Opportunity screening: Process used to evaluate innovative product ideas, strategies, and marketing trends, focusing on financial resources, skills of the entrepreneurial team, and competition  Primary research: Research that involves gathering new data  Secondary research: Research that uses existing data  Sole proprietorship. If you own the business entirely by yourself and plan to be responsible for all debts and obligations, you can register for a sole proprietorship.  Partnership. Alternatively, a business partnership, as its name implies, means that two or more people are held personally liable as business owners.  Corporation. If you want to separate your personal liability from your company's liability, you may want to consider forming one of several types of corporations.  Limited liability Company. One of the most common structures for small businesses is the limited liability company (LLC). This hybrid structure has the legal protections of a corporation while allowing for the tax benefits of a partnership 90 CU IDOL SELF LEARNING MATERIAL (SLM)

6.8LEARNING ACTIVITY 1.What industry is your business in? How did you get into the business or industry? ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- 2. Has this business always been a passion or was it something to fall back on? ---------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- ----------------- 6.9 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is entrepreneurial opportunity? 2. When should an entrepreneur explore opportunities? 3. What should a potential entrepreneur research before starting a business? 4. What is a SWOT analysis and how is it useful? 5. What is a unique selling proposition? 6. What is a business model? Long Questions 1. How can using a PEST analysis contribute to discovering new patterns of trends for recognizing entrepreneurial opportunities? 2. What are some factors that might indicate it is a good time to start a business? 3. What should a potential entrepreneur research before starting a business? 4. Explain the difference between an idea and an entrepreneurial opportunity. Why is it important to recognize if your idea is truly an entrepreneurial opportunity or only an idea? 5. What new patterns or Behaviors have you noticed within your society or the country’s society? 6. If you were thinking about starting a clothing store for teens and young women in your hometown, what census information do you think would be useful to you? B. Multiple Choice Questions 1. What is the process by which individuals pursue opportunities without regard to resources they currently control? a. Start-up management b. Entrepreneurship c. Financial analysis 91 CU IDOL SELF LEARNING MATERIAL (SLM)

d. Feasibility planning 2. Why should an entrepreneur do a feasibility study for starting a new venture? a. To identify possible sources of funds b. To see if there are possible barriers to success c. To estimate the expected sales d. To explore potential customers 3 By technical feasibility of a solution we mean that… a. technology is available to implement it b. persons are available to implement it c. persons have technical ability to implement it d. funds are available to implement it 4. By operational feasibility we mean… a.the system can be operated b.the system is unusable by operators c.the system can be adapted by an organization without major disruptions d.the system can be implemented 5. A cost-benefit analysis is performed to assess… a. Economic feasibility. b. operational feasibility c. technical d. All of these Answers 1-d, 2-d, 3-c. 4-c, 5-d 6.10 REFERENCES Textbooks  T1 Gupta, R.K. &Lipika, K.L. 2115. Fundamentals of entrepreneurship development & project management, Himalaya Publishing House. ISBN: 978-9351426844. 92 CU IDOL SELF LEARNING MATERIAL (SLM)

 T2 Ivaturi, V.K., Ganesh, M., Mittal, A., Subramanya, S. 2117. The Manual for Indian Start-ups: Tools to Start and Scale-up Your New Venture, Penguin Random House India. ISBN: 978-0143428527. Reference Books • Entrepreneurial Development – P. Saravanavel 93 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 7: FEASIBILITY STUDY – STARTING THE VENTURE – PART II STRUCTURE 7.0 Learning Objectives 7.1 Introduction 7.2 Avoiding the “Field of Dreams” Approach 7.3 Designing the business model 7.4 Conducting a feasibility analysis 7.5 The Business Plan 7.6 Summary 7.7 Keywords 7.8 Learning Activity 7.9 Unit End Questions 7.10 References 7.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Understand the Field of Dreams Approach  Describe the process of designing the business model.  Define a business model and its purpose  Describe the purpose of a feasibility analysis  Describe and develop the parts of a feasibility analysis  Understand how to apply feasibility outcomes to a new venture.  Describe the concept of business plan 7.1 INTRODUCTION Michael Kirban and Ira Liran had no experience in their industry when they launched their business. After a chance encounter with Brazilian women in a bar who mentioned how much they missed having coconut water, Kirban and Liran decided to launch Vita Coco. The Vita Coco founders promised to deliver a product they had not even created yet, and further, they had no experience in manufacturing, but they launched the business nonetheless in the early 2000s. The initial plan for the business did not work after the US Food and Drug Administration blocked shipments to the United States because they failed to register the business properly. The partners developed the business into a social movement with a specific mission: to make an impact on both their consumers and the people they work with and the communities in which they live. Things ultimately worked out for Kirban and Liran. 94 CU IDOL SELF LEARNING MATERIAL (SLM)

Vita Coco became the market leader in this niche segment, as they turned their attention to putting customers first. Although customer-focused design is integral to the entrepreneurial planning process, you should avoid launching a venture with the attitude that if you build it, customers will automatically come, because it does not always work that way. There are tools available to entrepreneurs to use to plan their journey to make goals a reality rather than just a wish or a dream. We enter the world as curious beings. However, as we grow up, we are told to color inside the lines and that real animals can’t talk—direction that can squelch creativity. Many successful entrepreneurs work to unlearn some of those messages in order to tap into creative thinking. What do you do when you are given a task that requires you to be creative? Do you get out your art supplies and start drawing? Do you pull out your phone or get on your computer and head straight for a search engine? Steve Jobs, the Apple founder and well- known innovator, had a preference when it came to creative contemplation, and it had nothing to do with art supplies or smartphones. Jobs did some of his best creative thinking when he went on a walk, or a walking chat. Why did Jobs prefer walking as a way to develop new ideas? A Stanford University study found that walking improves creative thinking.1 When you launch an entrepreneurial journey and set out to innovate and create, or when you hit a sticking point that requires a creative solution, it may be time to take a walk. Better yet, if you can find a friend, walk and talk. It might energize your creativity and lead to innovation and, possibly, to invention. 7.2 AVOIDING THE “FIELD OF DREAMS” APPROACH In the 1989 film Field of Dreams, Kevin Costner plays an Iowa farmer who hears a voice that tells him, “If you build it, he will come.” Inspired by this vision, Costner’s character turns his cornfield into a baseball field (of dreams), and eventually the ghosts of deceased baseball players such as Shoeless Joe Jackson appear on the field as younger versions of themselves. The movie coined the popular axiom that “if you build it, they will come,” just as the players appeared after the field of dreams was built. Although it’s a fun saying for film buffs and sports fans, this approach is one you will want to avoid in entrepreneurship. In fact, the entrepreneurial graveyard is littered with ghosts of startups that never gained traction with customers, never to be heard from again. (Seventy-five percent of venture-backed startups fail, according to one recent study.)1 Thus, you don’t want to blindly build a product and hope that customers will come. Juicero is one recent example of product that conducted little- to-no customer discovery before launch. A cold press juicer made by this San Francisco startup cost $699 at launch. The juicer squeezed packs of cut up fruits and vegetables, but customers found they could just as easily squeeze the juice out of the packs by hand and avoid the hefty price of the juicer. 95 CU IDOL SELF LEARNING MATERIAL (SLM)

Customer acquisition and customer retention are not easy processes by any means. You have to work to gain a customer and work even harder to get her to return. One study by the data analysis firm Insights of why 101 startups failed found that 42 percent of them joined the “entrepreneurial afterlife” because there was “no market need,” which suggests a customer (or lack thereof) problem. Current trends in entrepreneurial thinking reflect a customer- centric approach: From the start, entrepreneurs infuse their insights into the planning process through a process called “customer discovery.” The entrepreneurial journey should begin with finding what the serial entrepreneur, author, and educator Steve Blank, one of the founders of modern entrepreneurship, calls the problem/solution fit. In a complementary approach, the Mosaic/Netscape founder Marc Andreesen discussed the need to achieve product-market fit.5 In other words, don’t just build a baseball field and expect players to show up. This is an oversimplification, but if we extend the Field of Dreams analogy before blindly believing in the magic, you would want to talk to prospective players and fans to see if a field is needed, what type of field (corn-to-baseball?), why that field is needed, how that field would be used, and what features of the field would be most useful—before you go to bat. Business Model Although there are countless varieties of business models, the Scaling Lean author Ash Maurya offers three common types: direct, multisided, and marketplace. Direct businesses are the most common and involve one-sided actors—that is, users—becoming your customers. A coffee shop is a classic example; other examples include retail stores, software as a service (SaaS), many mobile apps, hardware stores, and stores that sell physical goods. In multisided models, users and customers—multi-actors—are usually different people. Ad-based models, big data, and enterprise are common examples where the products are free to users, and their value is monetized by a different customer base. Marketplace models are a more complex variant of multisided models made up of two different customer segments of buyers and sellers. eBay and Airbnb are well-known examples of marketplace models. Although planning is important, adaptability within the planning process is equally important. That’s what the business model approach is all about: outlining an approach but changing that approach throughout if or when you discover that your assumptions and educated guesses were wrong. For each new iteration, or version, the entrepreneur makes a minor change to the current business model to better capitalize on market opportunities. Successful entrepreneurs are often multidimensional: part dreamer, part pragmatist. Adam Grant, Wharton School of Business professor and author of the best-selling book Origins: How Non-Conformists Move the World, explores how entrepreneurs are “capable of recognizing a good idea, speaking up without getting silenced, building a coalition of allies, choosing the right time to act, and managing fear and doubt.” Entrepreneur magazine tells the 96 CU IDOL SELF LEARNING MATERIAL (SLM)

story of FedEx founder Fred Smith, who, while attending Yale University in the mid-1960s, wrote an economics term paper on the need for a new approach to overnight delivery in the computer age. His professor, unimpressed with Smith’s idea, graded his paper a C because the idea was not feasible. After graduation, using innovative thinking, dogged determination, and hard work, Smith would turn his “unfeasible” concept into the world's first overnight delivery company, and in so doing, change the transportation industry forever. Smith embodied the entrepreneurial concept of being part dreamer, part pragmatist. Sports metaphors offer important entrepreneurial lessons beyond insights on customer discovery and planning. In baseball and softball, you must field a team to enter the game. In boxing, you enter the ring alone to go toe to toe with your competitor (where some of the best-laid plans get thrown out after you get hit). The tides of entrepreneurial thinking have shifted from the twentieth-century economist Joseph Schumpeter’s early belief that it is “lone individuals who carry novelty” for wider market exploitation and benefit to society to the notion that it takes a team to innovate and back to the idea that individuals can enact entrepreneurial change. “Solopreneurs,” for instance, are hard-working entrepreneurs who are comfortable working alone on all the requisite tasks of starting a venture. At the same time, many successful investors preach the merits of teams in entrepreneurship. Venture capitalist Aileen Lee says that people are the second-most important factor behind addressable market when evaluating startups. The cohesion, diversity, and makeup of the team all contribute to investable worthiness and potential entrepreneurial success. Many successful accelerator programs have typically required teams in order to be considered for entry into their programs. The accelerator TechStars has said that what they look for in a startup is “team, team and team,” and the accelerator Boomtown requires at least two present founders for the duration of its accelerator program. Multiple shifts in sources of innovations and rapid business model exploration may reflect high startup failure rates. Lack of planning is also a major reason for failure. Most small businesses fail within the first few years because of cash-flow issues. With more people today willing to field a startup team or enter the entrepreneurial ring, failure is more often than not a part of the entrepreneurial journey. Serial entrepreneurs launch numerous ventures, many of which fail, before moving on to other efforts. Entrepreneurs are the modern-day equivalent of Hamilton: An American Musical’s Hercules Mulligan to the world: They get back up again after getting knocked down. Innovation One of the fundamental theories of entrepreneurship is that it brings innovation, which can be a new addition to the market or a novel change to an existing product or service. The famed management guru Peter Drucker put it simply: “Entrepreneurs innovate.” Of course, we should note that not all entrepreneurial ventures involve innovation. Even for those that do, however, the term innovation can be ambiguous. Further complicating the issue, a plethora of 97 CU IDOL SELF LEARNING MATERIAL (SLM)

different extensions (or “types”) has arisen surrounding the concept of innovations—such as radical, incremental, and disruptive—that have been used to describe and emphasize different innovations in different situations. Innovation can also refer to products or processes because there are differences between product innovation and process innovation. In other words, not all innovations are created equal. As it pertains to entrepreneurship, the creative destruction of old markets with inferior technology and the creation of new markets, as defined by Schumpeter back in the 1930s, occurs through disruptive innovation Christensen prefers the term disruptive innovation to disruptive technology because even in his original theoretical framework, technology was not the driving force disrupting existing markets, products, and models—rather, business models were. The root of the tension in disruptive innovation is the conflict between the previously established business model for the incumbent technology and the new business model that may be necessary for exploiting the disruptive technology or process. The efforts of incumbents to capitalize on a disruptive technology will fail in most instances because commercializing the new technology will require a different business model from the one that the incumbents currently use. When disruption occurs, incumbents struggle to commercialize, whereas new entrants take control through their mastery of the requisite new business models. Thus, a disruptive business model can fundamentally reshape profits within an industry because managers are faced with a technological disruption/innovation that alters their businesses, specifically their business models. This phenomenon is known as business model innovation. Business model innovation, as defined by Professor Constantin’s Mark ides of the London Business School, occurs when an existing business fundamentally changes their business model. In order to be an innovation, the “new business model must enlarge the existing economic pie, either by attracting new customers or by encouraging existing consumers to consume more.” Disruptive innovations tend to require a business model that is not only different from but even in conflict with the traditional way of competing. In contrast, radical innovations (see the preceding text) are new-to-the-world products that are disruptive to both consumers and producers. In the context of disruptive innovation, business model innovation is distinct from open business model innovation, which leverages external ideas together with internal ones. We also can define a business model innovation as a reformulation of an existing product or service, including a shift in how it is provided to the end user. A business model innovation “leads to a new way of playing the game” and can consist of new performance attributes on price or distribution outlets. Stitch Fix uses data to offer personal styling at scale and ships customized clothing boxes from its own in-house label and from 1,000 brands in its collection directly to customers who want to avoid the hassles of in-store shopping. Despite 98 CU IDOL SELF LEARNING MATERIAL (SLM)

volatility from investors, which dropped its initial $5.1 billion valuation at offering by two- thirds over three months, the company continues to reinvent the $334 billion US apparel industry. Value Proposition Entrepreneurs play a key role in determining the value of their products. Of course, there are financial measures of value such as economic performance, job creation, wealth, and growth measures. But more often than not, value creation at the outset of a new startup venture lies outside these financial realms and addresses instead individual value to customers. The value proposition in a business model, for example, is a summary describing the benefits (value) customers can expect from a particular product or service. Your value proposition describes the benefits customers can expect from your products and services.28 The value proposition is an integral part of the business model canvas, which we will discuss in designing the Business Model. 7.3 DESIGNING THE BUSINESS MODEL According to Alexander Osterwalder and Yves Pigneur, the authors of Business Model Generation, a business model “describes the rationale of how an organization creates, delivers and captures value.” Nevertheless, there is no single definition of this term, and usage varies widely.29 In standard business usage, a business model is a plan for how venture will be funded; how the venture creates value for its stakeholders, including customers; how the venture’s offerings are made and distributed to the end users; and the how income will be generated through this process. The business model refers more to the design of the business, whereas a business plan is a planning document used for operations. Each business model is unique to the company it describes. A typical business model addresses the desirability, feasibility, and viability of a company, product, or service. At a bare minimum, a business model needs to address revenue streams (e.g., a revenue model), a value proposition, and customer segments. In non-jargon English, this means you want to address what your idea is, who will use it, why they will use it, and how you will make money off it. A canvas is a display that would-be entrepreneurs commonly use to map out and plan different components of their business models. There are several different types of canvases, with the business model canvas and the lean canvas being the most commonly used. There are hard-copy canvases modeled after an art canvas as well as digital versions. The original physical canvases are meant to serve as visual tools, used with sticky notes and sketches. 99 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 7.1The Business model Canvas Osterwalder and Pigneur wrote Value Proposition Design as a sequel to Business Model Generation. Their value proposition canvas is a plug-in that complements the business model canvas, going in depth on activities such as encouraging entrepreneurs to address and tackle customer pains, gains, and jobs-to-be-done trigger questions, and designing pain relievers and gains. The complementary and accompanying activities and resources can be useful for a deeper dive into and understanding of customer value creation in the form of value proposition, although there are other approaches to conceptualizing your value proposition. For Christensen, the originator of the disruptive innovation and jobs-to-be-done theories, a value proposition is a product that helps customers do a job they’ve been trying to do more effectively, conveniently, and affordably. Finding the intersection of your customers’ problems and your solutions is how you create a unique value proposition, according to the entrepreneur Ash Maurya, the author of Scaling Lean and Running Lean Fig 7.2Ash Maurya Unique Value proposition Maurya deviated from the standard business model canvas to create the lean canvas. It overlaps the business model canvas in five of the nine components: customer segments, value proposition, revenue streams, channels, and cost structure. Rather than addressing key partners, key activities, and key resources, the lean canvas helps you tackle problems, solutions, and key metrics instead. 100 CU IDOL SELF LEARNING MATERIAL (SLM)