The Entrepreneurial Process

The process of starting a new venture is embodied in the entrepreneurial process, which involves
more than just problem solving in a typical management position. An entrepreneur must find,
evaluate, and develop an opportunity by overcoming the forces that resist the creation of
something new. The process has four distinct phases: (1) identification and evaluation of the
opportunity, (2) development of the business plan, (3) determination of the required resources,
and (4) management of the resulting enterprise. Although these phases proceed progressively,
no one stage is dealt with in isolation or is totally completed before work on other phases occurs.
For example, to successfully identify and evaluate an opportunity (phase 1), an entrepreneur
must have in mind the type of business desired (phase 4).

Identify and Evaluate the Opportunity

Opportunity identification and evaluation is a very difficult task. Most good business
opportunities do not suddenly appear, but rather result from an entrepreneur’s alertness to
possibilities, or in some case, the establishment of mechanisms that identify potential
opportunities. For example, one entrepreneur asks at every cocktail party whether anyone is
using a product that does not adequately fulfill its intended purpose. This person is constantly
looking for a need and an opportunity to create a better product. Another entrepreneur always
monitors the play habits and toys of her nieces and nephews. This is her way of looking for any
unique toy product niche for a new venture.
Although most entrepreneurs do not have formal mechanisms or identifying business
opportunities, some sources are often fruitful: consumers and business associates, members of
the distribution system, and technical people. Often, consumers are the best source of ideas for a
new venture. How many times have you heard someone comment, “If only there was a product
that would…” This comment can result in the creation of new business. One entrepreneur’s
evaluation of why so many business executives were complaining about the lack of good
technical writing and word-processing services resulted in the creation of her own business
venture to fill this need. Her technical writing service grew to 10 employees in two years.
Due to their close contact with the end user, channel members in the distribution system also see
product needs. One entrepreneur started a college bookstore after haring all the students
complain about the high cost of books and the lack of service provided by the only bookstore on
campus. Many other entrepreneurs have identified business opportunities through a discussion
with a retailer, wholesaler, or manufacturer’s representative.
Finally, technically oriented individuals often conceptualize business opportunities when
working on other projects. One entrepreneur’s business resulted from seeing the application of a
plastic resin compound in developing and manufacturing a new type of pallet while developing
the resin application in another totally unrelated area—casket moldings.
Whether the opportunity is identified by using input from consumers, business associates,
channel members, or technical people, each opportunity must be carefully screened and
evaluated. This evaluation of the opportunity is perhaps the most critical element of the
entrepreneurial process, as it allows the entrepreneur to assess whether the specific product or
service has the returns needed compared to the resources required. This evaluation process
involves looking at the length of the opportunity, its real and perceived value, its risks and
returns, its fit with the personal skills and goals of the entrepreneur, and its uniqueness or
differential advantage in its competitive environment.
The market size and the length of the window of opportunity are the primary basis for
determining the risks and rewards. This risks reflect the market, competition, technology, and
amount of capital involved. The amount of capital needed provides the basis for the return and
rewards. The methodology for evaluating risks and rewards frequently indicates that an
opportunity offers neither a financial nor a personal reward commensurate with the risks
involved. One company that delivered bark mulch to residential and commercial users for
decoration around the base of trees and shrubs added loam and shells to its product line. These
products were sold to the same customer base using the same distribution (delivery) system.
Follow-on products are important for a company expanding or diversifying in a particular
channel. A distribution channel member such as Kmart, Service Merchandise, or Target prefers
to do business with multi-product, rather than single-product, firms.
Finally, the opportunity must fit the personal skills and goals of the entrepreneur. It is
particularly important that the entrepreneur be able to put forth the necessary time and effort
required to make the venture succeed. Although many entrepreneurs feel that the desire can be
developed along the venture, typically it does not materialize. An entrepreneur must believe in
the opportunity so much that he or she will make the necessary sacrifices to develop the
opportunity and manage the resulting organization.
Opportunity analysis, or what is frequently called an opportunity assessment plan, is one method
for evaluating an opportunity. It is not a business plan. Compared to a business plan, it should
be shorter; focus on the opportunity, not the entire venture; and provide the basis for making the
decision of whether or not to act on the opportunity.
An opportunity assessment plan includes the following: a description of the product or service,
an assessment of the opportunity, an assessment of the entrepreneur and the team, specifications
of all the activities and resources needed to translate the opportunity into a viable business
venture, and the source of capital to finance the initial venture as well as its growth. The
assessment of the opportunity requires answering the following questions:
• What market need does it fill?
• What personal observations have you experienced or recorded with regard to that market
need?
• What social condition underlies this market need?
• What market research data can be marshaled to describe this market need?
• What patents might be available to fulfill this need?
• What competition exists in this market? How would you describe the behavior of this
competition?
• What does the international market look like?
• What does the international competition look like?
• Where is the money to be made in this activity?

Developing a Business Plan

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

Determine the Resources Required

The resources needed for addressing the opportunity must also be determined. This process
starts with an appraisal of the entrepreneur’s present resources. Any resources that are critical
need to be differentiated from those that are just helpful. Care must be taken not to
underestimate the amount of variety of resources needed. The downside risks associated with
insufficient or inappropriate resources should also be assessed.
Acquiring the needed resources in a timely manner while giving up as little control as possible is
the next step in the entrepreneurial process. An entrepreneur should strive to maintain as large
an ownership position as possible, particularly in the start-up stage. As the business develops,
more funds will probably be needed to finance the growth of the venture, requiring more
ownership to be relinquished. Alternative suppliers of these resources, along with their needs
and desires, need to be identified. By understanding resource supplier needs, the entrepreneur
can structure a deal that enables the recourses to be acquired at the lowest possible cost and the
least loss of control.

Manage the Enterprise

After resources are acquired, the entrepreneur must use them to implement the business plan.
The operational problems of the growing enterprise must also be examined. This involves
implementing a management style and structure, as well as determining the key variables for
success. A control system must be established, so that any problem areas can be quickly
identified and resolved. Some entrepreneurs have difficulty managing and growing the venture
they created.