Everything you need to know about the steps involved in the entrepreneurial process. Entrepreneurship is the pursuit of market opportunities to produce innovative goods and services.
Once the enterprise gets established, the entrepreneurial process becomes effectively a recurring progress of opportunities. It becomes the process of allocating scarce resources judiciously to pursue the value-adding opportunities.
The steps involved in the entrepreneurial process are:-
1. Genesis of a Business Idea 2. Conduct Preliminary Feasibility 3. Detailed Feasibility Analysis 4. Selection of the Most Promising Idea 5. Write a Business Plan 6. Launch the Venture
7. Social Feasibility 8. Arrange Finances 9. Take Necessary Clearances 10. Construct Building 11. Get the Utility Connections 12. Recruit Employees
13. Procure and Install Machines 14. Procure Raw Materials 15. File Entrepreneur’s Memorandum 16. Start Operations 17. Managing the Company 18. Harvesting.
Entrepreneurial Process: 6+ Steps, 3+ Stages
Steps in the Entrepreneurial Process – 6 Steps in Entrepreneurial Process
Entrepreneurship is the pursuit of market opportunities to produce innovative goods and services. Once the enterprise gets established, the entrepreneurial process becomes effectively a recurring progress of opportunities. It becomes the process of allocating scarce resources judiciously to pursue the value-adding opportunities.
The steps involved in the entrepreneurial process are explained as follows:
Step # 1. Deciding to Become an Entrepreneur:
It refers to the first step of the entrepreneurial process in which an individual decides to start his/her own enterprise.
The desire to become an entrepreneur may be triggered by any on the following factors:
i. Arising of an innovative idea backed up the ability to start a business
ii. Inheriting wealth and skills to establish an enterprise
iii. Prevailing problems in current jobs
iv. Willing to become own boss
v. Pursuing own ideas
vi. Realizing the need of earning money.
Step # 2. Identifying and Evaluating the Opportunity:
It refers to the second stage of the entrepreneurial process. In this process, the entrepreneur recognizes potential opportunities. Sometimes, the set mechanisms, such as entrepreneurship development training programs and government policies to promote entrepreneurs, help potential entrepreneurs in identifying the opportunities.
The entrepreneurs keep on scanning the environment to gather useful information for identifying opportunity in the form of a potential product or service. Further, they evaluate and screen the identified opportunity. The evaluation of the identified opportunity helps entrepreneurs in assessing whether the opportunity is realistic and the returns of the opportunity are as per the resources required.
Step # 3. Developing a Business Plan:
This step involves developing a successful business plan to exploit the identified opportunity. Developing a business plan involves setting goals, standards, methods, and techniques of achieving those set goals. A well drafted business plan serves as a road map to the entrepreneur to guide and monitor his/her activities towards the set goals.
Step # 4. Determining the Required Resources:
It involves determining the resources required to meet the identified opportunity. In this step, the entrepreneur assesses the available resources and the resources that are essential to convert the identified opportunity into a reality. The entrepreneur needs to be careful while determining the amount and quality of resources required as insufficient or inappropriate resources can hamper the success of the opportunity. Next, he/she needs to acquire the resources required in a timely manner, while focusing on right quality and quantity.
Step # 5. Converting the Idea to an Enterprise:
It refers to the most important step of the entrepreneurial process in which the entrepreneur develops his/her own enterprise to execute the identified opportunity. In this step, the entrepreneur brings the set business plan into practice. He/she arranges the resources that are identified in the previous step. Moreover, he/she takes into consideration all internal and external environmental forces, while developing the enterprise.
Step # 6. Managing and Growing the Enterprise:
It refers to the final stage of the entrepreneurial process. Once the resources are acquired, the entrepreneur uses them efficiently to carry out the business plan successfully. He/she also strives to identify and examine operational problems, and solve them.
Apart from this, the entrepreneur needs to implement an effective control system to identify and resolve problem areas on time. The growth of the enterprise depends on the selection of an appropriate target market. The entrepreneur needs to take into account the four Ps, product, price, promotion, and place of marketing, for the growth and development of the enterprise.
Steps in the Entrepreneurial Process – 11 Step Process: Search for a New Idea, Preliminary Assessment of Idea, Detailed Analysis of Promising Idea and a Few Others
Entrepreneurship is the act and art of being an entrepreneur or one who undertakes innovations or introducing new things, finance and business acumen in an effort to transform innovations into economic goods. This may result in new organizations or may be part of revitalizing mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is that of starting new businesses.
Entrepreneurial activities are substantially different depending on the type of organization and creativity involved. Entrepreneurship ranges in scale from solo projects, even involving the part-time entrepreneurs, to major undertakings creating many job opportunities. Many “high value” entrepreneurial ventures seek venture capital in order to raise capital to build the business.
Many kinds of organizations now exist to support would-be entrepreneurs including specialized government agencies, business incubators, science parks, and some NGOs. In more recent times, the term entrepreneurship has been extended to include elements not related necessarily to business formation activity such as conceptualizations of entrepreneurship as a specific in the form of social entrepreneurship, political entrepreneurship, or knowledge entrepreneurship have emerged.
Following are the steps involved in the entrepreneurial process:
(i) Search for a New Idea:
An entrepreneurial process begins with the idea generation, wherein the entrepreneur identifies and evaluates the business opportunities before him/her.
(ii) Preliminary Assessment of Idea:
The identification and the evaluation of opportunities is a difficult task; an entrepreneur seeks inputs from all the persons including employees, consumers, channel partners, technical people, etc. to reach to an optimum business opportunity. Once the opportunity has been decided upon, the next step is to evaluate it.
(iii) Detailed Analysis of Promising Idea:
An entrepreneur can evaluate the efficiency of an opportunity by continuously asking certain questions such as, whether the opportunity is worth investing in, is it sufficiently attractive, are the proposed solutions feasible, is there any competitive advantage, what are the risk associated with it etc.. Above all, an entrepreneur must analyze his personal skills and hobbies, whether these coincides with the entrepreneurial goals or not along with the detailed analysis of options
(iv) Selection of the Most Promising Idea:
Once the analysis is done at both macro & micro level, then the entrepreneur selects the best possible option amongst the chosen few on the basis of the key factors identified by him/her before idea generation.
(v) Assembling the Resource and Personnel:
The next step in the process is resourcing, wherein the entrepreneur identifies the sources from where the finance and the human resource can be arranged. Here, the entrepreneur finds the investors for its new venture and the personnel to carry out the business activities.
(vi) Determining Size of Unit:
On the basis of the ability to manage resources, the entrepreneur should determine the initial size of the business and the possibilities of increasing the size in near future.
(vii) Deciding on Location of Business and Plan Layout:
This is yet another significant decision as several areas merit tax concessions and may have labour or material in abundance as compared to other areas.
(viii) Sound Financial Planning:
Once the funds are raised and the employees are hired, business location and layout have been finalized then efforts are made to do sound financial planning with the available financial resource in order to put it to optimum use.
(ix) Launching the Enterprise:
Launching the enterprise by an entrepreneur can be a daunting adventure because it challenges the entrepreneur to define what he/she stands for and wants to accomplish in life. While starting a business, the entrepreneur needs to stay focused and should always be open to suggestions. If he/she is mission- driven entrepreneur, it must be remembered that building a truly great company is a marathon, not a sprint.
(x) Managing the Company:
Once the funds are raised and the employees are hired, the next step is to initiate the business operations to achieve the set goals. First of all, an entrepreneur must decide the management structure or the hierarchy that is required to solve the operational problems when they arise.
The final step in the entrepreneurial process is harvesting wherein, an entrepreneur decides on the future prospects of the business, i.e. its growth and development. Here, the actual growth is compared against the planned growth and then the decision regarding the stability or the expansion of business operations is undertaken accordingly, by an entrepreneur. The entrepreneurial process is to be followed, again and again, whenever any new venture is taken up by an entrepreneur, therefore, it is a never ending process.
Steps in the Entrepreneurial Process – 4+ Steps Involved in the Entrepreneurial Process: Discovery of an Idea, Concept Development, Seeking Resources and a Few Others
A typical entrepreneurial process will begin with the following steps:
1. Discovery of an Idea:
An entrepreneur generates an idea and looks after the opportunity. If the opportunity seems profitable he would like to align his own set of hobbies, interest with the business proposition. He would also look at the consumer base by conducting market research to assess the expected market demand for the potential product. For example idea of switching from hand held devices to mobile phones.
2. Concept Development:
When the entrepreneur is assured about the lucrative opportunity, then he will construct formal and detailed business plan to figure out how, when and where he wants to achieve this. For e.g. Development of mobile phones in the year 1973 by Martin cooper, an employee of Motorola Company.
3. Seeking Resources:
Now the entrepreneur would like to sell his business novelty to venture capitalists to ensure that his proposal comes on the floor. Along with finances he will seek human, physical and other ancillary resources to carve out the requisite resources for the business operations. For example, necessary band width, network towers and other infrastructure were sought by mobile network companies to provide connectivity for mobile phone users.
4. Actualization of Operations:
Finally the business by employing the pooled resources at the pre-decided location will produce the product or service. Through both online and offline marketing, the product or service will be eventually distributed/supplied to the end reach customers. During this process the business starts generating revenues also. For e.g. after the successful testing of hand held mobile phones, they were produced for masses by Nordic Countries (Sweden, Finland and Norway).
The outcome of the operations will now guide the future course of action for the entrepreneur- the success would motivate the entrepreneur to draw future expansion and growth strategy. On the other hand if it is not well received by consumers, the entrepreneur would have to take the final call and close the business or alternatively discover and locate another opportunity. For example, the success of mobile phones has led to introduction and adoption of M-Commerce.
Steps in the Entrepreneurial Process – 15 Stages in the Entrepreneurial Process Identified by Barringer and Gresock
Barringer and Gresock (2008) identified various stages in the entrepreneurial process. Let us discuss them one by one.
Stage # 1. Genesis of a Business Idea:
This is the first step in the entrepreneurial process and requires critical thinking on part of the entrepreneur to select the most viable business ideas from a set of available options. This not only includes critical analysis of the merits and demerits of the innovative product/service created by the entrepreneur, but also includes the study of the market potential (the existing and potential competitors), marketing, finance, human resources, and operational issues related to the business idea.
The preliminary feasibility involves a quick assessment about the potential of the business ideas and screening out an idea with the highest potential. This step is necessary to ensure that comprehensive and detailed feasibility analysis (which involves considerable time and effort) to be conducted in the next step is done only for the single best idea.
A checklist proposed by Timmons and Spinelli (2004) helps in selecting the high-potential idea within a couple of hours on the basis of the following four criteria:
i. Market and market related issues,
ii. Competitive advantages,
iii. Value creation and realization issues, and
iv. Overall potential.
Having screened out an idea with high potential, it is subjected to the detailed feasibility analysis which may take a couple of days or weeks. The detailed analysis is helpful in making suitable modifications in the business idea before taking it to the business plan stage.
The detailed analysis comprises of the following components:
i. Product/Service Feasibility:
The feasibility of the product/service (which is in the concept/idea stage only) is performed by concept testing, i.e. showing the concept or idea to a sample group of potential customers to gauge their reaction, to take their suggestions for further development of the concept and to assess its sales potential.
A prototype or a sample unit of the product can also be created in simple form depending upon the cost involved. Otherwise, computer simulation or design can be used. A rough assessment of the production/service delivery process to be followed should also be done to avoid abrupt revelation about infeasibility of production at a later stage when substantial investments of time and effort have been made.
ii. Industry/Market Feasibility:
The feasibility analysis of industry/market involves three considerations. Firstly, how attractive is the market for the new business idea or concept. A market segment experiencing growth, with high profit margins and less competition would naturally be attractive for the entrepreneur.
Secondly, efforts should be expended to identify the niche within a large market, i.e. a narrow segment of customers with a common expectation from the product or service. This way, the entrepreneur can buy some time for establishing his venture before competing head-on with existing established players in the market. Last but not the least, a candid assessment of the overall market potential of the new concept should be made in a realistic manner.
iii. Organizational Feasibility:
Two issues should be addressed here: an assessment about the organizational prowess or capability of the initial management team (which would naturally be small for the start-up firm, including the entrepreneur), and the availability of non-financial resources (like office space, talent pool in the area where the venture would be started, etc.). Organizational prowess means passion for the new business idea, professional managerial qualifications, prior experience and understanding of the market in which the venture would be created.
iv. Financial Feasibility:
The total initial cash needed for starting the venture and overall financial attractiveness of the investment is at the heart of financial feasibility. It should be kept in mind that very rarely do new start-up ventures are able to secure funding from the financial institutions as debt or are able to find equity investors (people who are willing to invest money by becoming partners in the venture).
Therefore, very clear identification about the sources of sufficient funds to cover all the capital (long-term like land, building, machinery) expenditures and operating (recurring) expenses to generate first unit of the sales should be done. Financial attractiveness of investment should be assessed by estimating the expected rate of return on investment. This estimation for the new concept would be subjective and can be based upon comparison with similar existing businesses
A business plan is a written document containing the details about every aspect of the proposed business venture. It serves two purposes: to provide a “road map” for the people internal to the organization, i.e. the employees, stakeholders, etc., and to convince the potential investors and financial institutions about the viability of the venture so that they may agree to invest in it.
A good business plan is based upon comprehensive data and analysis rather than upon gut-feel or judgement of the entrepreneur. It should preferably include details about the screening process and feasibility studies conducted by the entrepreneur to augment its authenticity and appeal.
This is the final step in the entrepreneurial process and involves launching the venture as per the business plan. Due to the uncertainties of the business environment, the entrepreneur should be prepared to face hurdles and challenges during the launching of the venture as well as in the subsequent periods of time.
Social feasibility study is important to assess the receptivity of the local population in the region (where the SSI is to be set up) to business activity. This is especially true in certain tribal areas, where the government is trying to promote industrial activity in its pursuit of equitable distribution, while the local community is still not prepared for the same.
It is not as if this issue pertains to the tribal regions only. Even in big cities, common public (often backed by NGOs and social activists) rallies against industrial activity which results in pollution of various kinds—air pollution, noise pollution, land pollution (due to industrial wastes), river pollution (industrial wastes drowned into the river), etc.
Therefore, it is important that the entrepreneur makes a realistic assessment of how the new business would-have an impact upon the local population. Industrial waste treatment plants should be planned in order to circumvent such problems in future.
If a project results in the acquisition of land which requires displacement of the local population, the consideration of associated costs and consent of the people concerned becomes imperative. This would have a direct impact upon the fixed costs (capital investments) of the project.
The positive social aspects related to a project should also be properly identified—employment generation, use of local natural resources, provision of affordable products/services produced by the venture to the local population etc. These positive aspects of the business help in convincing the government agencies for support in the form of subsidies and concessions.
If the production process involves the usage of natural resources (like wood) of the region, proper planning for restoration (e.g. tree plantations) should be done in advance and associated costs should be taken into consideration.
The entrepreneur can arrange finances from three primary sources (apart from personal funds, friends, and relatives) – lenders, angels, and venture capitalists.
Lenders are usually the banks and financial institutions which provide debt to the entrepreneurs on the basis of some collateral. They assess the capability of the new venture to repay the interest and principal loan amount.
The “angel” investor is generally a wealthy individual, who becomes personally involved with a start-up company—loaning expertise, experience, and money.
Venture capitalists are the persons who invest in the start-up venture with the expectation of profitability and growth. They are the equity partners in the venture, who sit on the Board of Directors, act as advisers to the management, and expect about 45 to 60 percent of annual return on investment over the coming three to five years.
Needless to say, it is easier said than done to arrange finances from any of these three sources. The project report (business plan) is a powerful tool to convince the “powers that be” to shell out money for funding the start-up venture.
Financial assistance in India for MSME units is available from a variety of institutions.
The important ones are:
i. Commercial/Regional Rural/Co-operative Banks
ii. SIDBI – Small Industries Development Bank of India (refinance and direct lending)
iii. SFCs/SIDCs – State Financial Corporations (e.g. Delhi Financial Corporation/State Industrial Development Corporations
Long-term and medium-term loans are provided by SFCs, SIDBI, and SIDCs. Banks also finance term loans. This type of financing is needed to fund purchase of land, construction of factory building/shed, and for purchase of machinery and equipment.
The short-term loans are required for working capital requirements, which fund the purchase of raw materials and consumables, payment of wages and other immediate manufacturing and administrative expenses. Such loans are generally available from commercial banks. The commercial banks also sanction composite loan, comprising of working capital and term loan up to a loan limit of Rs.1 crore.
For loans from financial institutions and commercial banks, a formal application needs to be made.
The details of documentation that need to be provided with the loan application are indicated below:
a. Documentation for loan application
b. Balance sheet and profit loss statement for last three consecutive years of firms owned by promoters
c. Income tax assessment certificates of partners/directors
d. Proof of possession of land/building
e. Architect’s estimate for construction cost
f. Partnership deed/memorandum and articles of associations of company
g. Project report
h. Budgetary quotations of plant and machinery
A sanction or rejection letter is issued by the bank after its assessment of the application. After receiving a sanction letter, applicants need to indicate in writing their acceptance of terms and conditions laid down by the financial institutions/banks. Subsequently, loan is disbursed according to the phased implementation of the project.
An entrepreneur has to obtain several clearances or permissions depending upon the nature of his unit and products manufactured.
a. Registration under Sales Tax Act—Commercial Tax Officer of area concerned
b. Registration under Central Excise Act—Collector of Central Excise or his nominee for area
c. Payment of Income Tax—ITO of the area concerned
d. Registration of partnership deed—Inspector General of area concerned
e. Calibration of weights and measures—Weights and Measures Inspector of State
f. Power connection—Designated officer of State Electricity Board
g. Employee strength exceeding 10 with power connection or 20 without power—Chief Inspector of Factories
The method of granting consent under water and air pollution to SSI units has been simplified.
Except for 17 critically polluting sectors given below, in all other cases, SSI units will merely have to file an application and obtain an acknowledgement which will serve the purpose of consent –
a. Fertilizer (Nitrogen/Phosphate)
d. Fermentation and Distillery
g. Thermal power
h. Oil refinery
i. Sulphuric acid
k. Copper smelter
l. Zinc smelter
m. Iron and Steel
o. Dye and Dye intermediates
p. Pesticides manufacturing and formulation
q. Basic drugs and pharmaceuticals
a. Establishing a printing press—District Magistrate
b. License for cold storage construction—Designated official in state
c. Pesticides—Central/State Agricultural Department – Ministry of Agriculture
d. Drugs and pharmaceuticals—Drug license from State Drug Controller
e. Safety matches/Fireworks—License under Explosives Act from Directorate of Explosives, Nagpur
f. Household electrical appliances—License from Bureau of Indian Standards
g. Wood Working Industry within 8 km from forest—District Forest Officer
h. Milk processing and Milk products manufacturing units—Approval under Milk and Milk Products Order from State Agricultural/Food Processing Industries Department above a designated capacity
Once an industrial plot for the unit is secured, then the next job is that of finding a suitable architect. Design of factory building has to be in consonance with the type of industry and should have an appropriate plant layout. An architect’s estimate of building construction is essential for loan applications. Further, architect’s certificate for money spent on building is needed for disbursement of loan.
Among the utilities of prime importance are power and water. In many cases, getting power connection causes delay in setting up of plant. Therefore it is imperative to commence work on these aspects with diligent follow-up. Power connections are generally of either LT (low-tension) or HT (high-tension) type. If connected load is up to 75 HP, LT connection is provided. For connected loads of 130 HP or higher, only HT connection is provided.
A formal application needs to be made in a specified form to the state electricity board. An electrical inspector is deputed for evaluation of application to factory site, after which the load is sanctioned. In areas of power shortage, it is advisable to augment the power supply with a captive generating set.
Water connection is also obtained likewise by applying in advance in formal forms. The water supply can be augmented by installation of tube-well.
The project report created in the earlier step contains details about the manpower and personnel requirements. The recruitment and selection of staff should be done in a planned manner. For example, the engineers and technicians should be on board by the time procurement and installation of machinery and equipment commences. This would be useful, as these experts would be able to give their valuable advices in relation to the machinery and equipment to be procured. They would also assist in the installation and trial-runs of the machinery and equipment.
The machines and Equipment to be used in the production/service process are extensively analysed during the technical feasibility study. However, this issue should be revisited again at this stage of deciding about the technology to be utilized in the process.
The opinion of the engineers hired, external experts and government agencies like DICs should be taken into consideration before making a final choice. International trade fairs and engineering fairs are often useful places to visit in this regard, to gain first-hand experience.
Procurement of raw materials should be done by the time installation of machinery and equipment starts taking place. Some raw material would be required for trial-runs of the machinery during the installation stage itself.
If some raw material is to be sourced from abroad, order should, be placed well in advance keeping in view the lead time involved. The idea here is to neither keep too high an inventory of raw materials, nor too low. Too high an inventory unnecessarily ties up the working capital, while too low an inventory may disrupt the production process.
The entrepreneur’s memorandum form is available with the District Industries Centers (DICs) and can be submitted there by the entrepreneurs. However, it is purely at their discretion if they want to do so. The form is in two parts—part one is to be filled by entrepreneurs whose ventures are still in the planning stages and part two is to be filled, when they start their actual operations.
The forms submitted are evaluated by the DICs on following aspects:
i. The unit has obtained all necessary clearances—whether statutory or administrative, e.g. drug license under drug control order, NOC from Pollution Control Board, if required, etc.
ii. Unit does not violate any locational restrictions in force, at the time of evaluation.
iii. Value of plant and machinery is within prescribed limits.
iv. Unit is not owned, controlled, or subsidiary of any other industrial undertaking as per notification.
Thus, filling this form is beneficial to the entrepreneur in getting feedback from the DICs if any local norms are in force, which may have unintentionally been overlooked/violated by the new venture due to lack of information. Also, such registered firms are eligible for availing the incentives, subsidies, rebates, and concessions from the state governments.
Last but not the least, the unit should start its operations. The initial production/operation should be done on the basis of demand projection arrived at earlier in the project report/business plan. The inventory of the finished goods produced should be carefully planned to make sure that it is neither too high nor too less. As with raw materials, a large finished goods inventory unnecessarily ties up the working capital, while too less an inventory may result in customers going back disappointed due to non-availability of stock.
Steps in the Entrepreneurial Process
A number of talented persons from the corporate world not only in the United States but also in other parts of the world are leaving their jobs to start their own manufacturing business units because their managements are not receptive to their new ideas.
Many such entrepreneurs have become exceedingly successful in their new ventures and, what is more, they are posing a threat (serious competition) to the companies they worked for a few years ago. These entrepreneurs are known as intrapreneurs. Gifford Pinchot wrote his famous book Intrapreneuring in 1985, and used the term ‘intrapreneurs’ to describe the persons who resigned their well-paid executive positions to launch their own ventures.
Pinchot had suggested in his work that the well-established firms should learn to make use of prevailing entrepreneurial talents to avoid stagnation and decline. Intrapreneurs introduced new products, services, and processes which enabled their companies to grow and succeed in changing environment.
What was, therefore, needed was a system and an organization culture within a large organization that would allow the executives to operate like entrepreneurs. These persons are driven not by monetary gain but by a deep desire of personal achievement.
Therefore, companies should provide such people with adequate financial resources and the autonomy necessary for the development and application of their ideas. Pinchot suggested the creation of a system that would provide select executives a status within the corporation similar to that of an entrepreneur in society. He described such people as intra-corporate entrepreneurs or ‘intrapreneurs.’
Many American companies have started following Pinchot’s advice. Perhaps, one of the few companies which had been practising the intrapreneur concept, much before Pinchot propounded it was International Business Machines (IBM), the computer giant. It adopted the concept of Independent Business Units (LB.U) by encouraging its own employees to promote industrial units.
Similarly, General Motors (G.M) launched Saturn Corporation as an entrepreneurial subsidiary, headed by some of its executives aimed at promoting new ways of making, selling, and servicing cars. Many other American companies like Dupont, AT&T, Texas instruments Data General are also promoting intrapreneurs in their own way. AT&T has setup the Epic Centre for Entrepreneurial Venture.
The processes of entrepreneurs hip involve both analytical and creative activities. According to Pierce and Dunham, the entrepreneurial process takes place in four sequential steps.
Step 1 – Solo Phase – During this step, the typical entrepreneur works alone. The first task for the entrepreneur is to clearly identify the entrepreneurial idea. Then, the idea is developed and subjected to three feasible tests.
1. Will the idea provide identifiable benefits to the customer or clients?
2. Is the idea compatible with the organization’s resources and overall strategy?
3. Is the idea and its potential implementation compatible with the entrepreneur’s personal character and skills?
Step 2 – Network Phase- During this step the entrepreneur shares the idea with other organizational members, seeking feed and suggestions for improvement of the idea.
Step 3 – Boot Legging Phase – During this step, the entrepreneur begins to form a project team and some levels of product prototype development outside the normal operational mode of the company.
Step 4 – Formal Team Phase – During this step, the idea becomes a formal organizational venture with formal organizational support.
Steps in the Entrepreneurial Process – Idea Certainty, Business Idea, Business Concept, Venture, Business and Sustainable Business
There are six steps of an entrepreneurial venture that founders of companies will encounter.
The six steps are as follows:
1. Idea Certainty
2. Business Idea
3. Business Concept
6. Sustainable Business.
Process # 1 Idea Certainty:
Every entrepreneur must address certainty to be an entrepreneur. He must be confident enough to become an entrepreneur. This is important if you want to become an entrepreneur and want to open your business. It should be the first step; however, many entrepreneurs wait until the Venture stage to address it.
This can lead to serious problems. In the Idea Certainty stage, an entrepreneur needs to figure out whether he is able to face the issues of the entrepreneurship. He should not fear or demotivate by facing so many problems. Lots of problems will come on the way but your certainty will decide your progress to the next stage.
Entrepreneurs must ask few questions to themselves:
i. Am I ready to open a business?
ii. Am I ready to become an entrepreneur?
iii. Am I willing to lose the money of investors who may be my friends and family?
iv. Am I ready to face failure?
v. Am I ready to spend my 24 hours?
Process # 2 Business Idea:
The Business Idea stage is the stage where you think what exactly you want to do. Everyone has an idea for a business what they want to make real. Everyone see dream about their ideas. It is the foundation stage of business. It ultimately decides the failure and success of the business. The Idea stage is the basis for every other stage so it should be taken seriously.
i. Entrepreneurs Must Trust in their Business:
You must be truly committed to your idea. Entrepreneur must believe in their idea because their belief will decide the success of the idea. You must take all your efforts to make your idea the productive one. Remember, the Idea stage is the point in the venture where the entrepreneur is typically most enthusiastic. They are yet to be confronted with the real situation. Thinking idea and making it real is very difficult task but you can make it real by your efforts, knowledge and creative work.
ii. Evaluate Your Idea from Every Corner:
You must be careful enough to evaluate your idea before implementing it. You should evaluate the idea with respect to finance and your capability to execute the idea. You must also consider customers for evaluating your ideas, ultimately they are going to make your idea a successful one.
You must have a thorough knowledge of what are the requirements of your idea execution in terms of resources, expertise required and technology and how much you are committed to your idea. You can imagine any idea but the important thing is that are you able to execute it.
It is the structure that you are going to develop for business.
In the Business Concept stage, you take your idea and employ a certain intellectual firmness which includes:
i. Doing market research and survey
ii. Applying successful business model
iii. The team of expertise, technician required for execution
iv. Appointment of the advisors, scholars for their valuable suggestions
As an entrepreneur you want to be optimistic and believe in your product idea, but entrepreneurs often overlook one important aspect of their business – market research. The fundamental questions to consider before you start a business include – 13 there a buyer for your product? If there is, then how many buyers are there? What is the ultimate maximum number of buyers in the market today? In five years? ten years? And most importantly, how much revenue you could generate from these buyers?
Investigating these questions is called market research and is something every entrepreneur must do to substantiate their product idea before starting the venture. Use a common-sense approach. Part of the process is a description of the marketplace or market model, which includes actual customer spending rupees, today and projected for the future.
Certainly buying market research from a market research firm is an option, but often their research does not relate you a new product idea and could even be useless if the market for new product does not exist yet. Besides, it costs money!
Your business model will explain who your customers are, what they value and how you’ll profit from providing them that value in your product or service. In other words, how are you going to make money? Business models depend on developing qualities that help the business succeed – finding high-value customers, sustaining customers, offering satisfactory services to customers and delivering significant margins. Great business models also avoid unsatisfactory services to the customers, lagging in the market competition and problems generating funding for growth.
Entrepreneurs must find out the required skilled teams that will need to execute on this business concept. As the business will progress accordingly, the need of the skilled team will be required because as the business expands new tasks, new methods of doing business also get into the business.
Taking advice from the advisors and experts are very essential in business. They are the perfect person who will tell you about the way your business must follow. They are the experienced one in their field and better know about the problems and their consequences.
Most entrepreneurs get frustrated and give up in this stage because they wrongly believe that the Business Concept stage is the period during which they will receive their first investment. Getting investment for your business is not very easy as the investors also want to earn the profit and they are very strict in evaluating your business ideas. Investors are interested in the overall growth of your business not in short term but also in long term too.
Unless you personally have deep pockets, such as inherited wealth, figuring out where you’re going to get the money to start your own business and getting the financing in place beforehand is going to be one of the most important components of planning your business. This is the most challenging stage of the business and for many entrepreneurs the most fun…well at least in the beginning.
The Venture stage is characterized by significant investment. A business that has performed studies and research into their chosen market and is ready to take their product into the public is prepared to receive start-up capital from venture capitalists. Start-up money can help with the initial marketing push, helping to distribute your product in the market. This investment typically comes in two forms – money and time. In most cases, as the entrepreneur, it is “your” money and “your” time; and those can often be significant.
Finding adequate business start-up money is especially critical because there’s no guarantee that your business is going to make money right away and certainly no guarantee that your new business will bring in enough money for you and your family to live on. You can’t start a business without start-up capital, the total amount of money you need to open your doors for business and to keep them open until sufficient revenue can be depended on.
No matter what the economic situation, someone somewhere, eyes bright with potential, is looking to start a new business. Funds are often the biggest hurdle to what could otherwise be a lucrative opportunity.
You can get fund from your family and friends, they will always be willing to help those with who they have personal relationship. Family and friends will always give you money blindly if you are trustworthy.
i. Personal savings – There’s nothing like having your own money saved, to put into your start-up. You have the satisfaction of having saved it on your own and the knowledge that you don’t owe anyone.
Approaching private investors otherwise known as angels is an option you might want to consider when raising fund to finance your business. Angels are rich individuals that use their wealth to encourage young entrepreneurs with viable business ideas in their community. If you have an angel in your community, you can consider taking your business idea to them.
ii. Get a bank loan – If you have a solid business plan and the lender agrees, this can often be the cheapest (interest rate-wise) loan sources available.
In some states and countries of the world, the government of that region maps out a certain amount of money to encourage the development of small and medium scale enterprises. This money is given out as grants to those it may concern. Governments grants can be a source of fund for you if you are a citizen of that region and you are able to fulfill the stipulated requirements.
i. Determine the Legal Structure:
The first step in setting up a business is figuring out what type of legal structure you want.
There are several options which include:
a. Sole Proprietorship
b. General Partnership
c. Limited Partnership (LP) and Limited Liability Partnership (LLP)
e. Company (Private or Public)
f. Limited Liability Corporation (LLC)
ii. Determine the Short-Term Business Objective and Goals:
Objectives should be clear and concise. Goals do not have to be specific enough for you to act on, but should give you a future target or list of things you want to work on. Objectives, however, need to be SMART— specific, measurable, action-oriented, realistic and timely — to accomplish the goals set for your business.
Specific objectives should be as detailed as possible. In order for the objectives to be measurable, you should state them in terms of rupees or quantities. Objectives are clear targets of performance you can use to evaluate the operation. Action oriented objectives state which actions need to be taken and who will take them. Objectives should be realistic but challenging, with set deadlines in order to be timely.
You must form a team according to the business need and skills required. This will enable you in proper management and as the teams are specialized in their field and can take better decisions in complex situation. You must have a criterion in decision making process and you must also appoint a person who will be the ultimate decision maker.
The VENTURE stage is typically where the entrepreneur makes a meaningful investment. This investment may come in the form of money and/or time. In this stage the entrepreneur has to invest money from their pocket. At the initial stage you have to invest money and do not expect that someone will come to invest money in your business.
In the VENTURE stage your first customers, employees and investors are likely to be those people who trust on your business and ready to engage themselves with your business. Find out the customers who believe in your products or services. Their trust will win the trust of other customers. Find out the employees who are intelligent and knowledgeable who by their hard work will grow your business. Win the trust of the investors by explaining them how your business is going to be a successful business and how you are going to give a big ROI.
The venture stage is when you should make the investment in protecting your intellectual property. This includes – patents, copyrights and trademarks. The patent process is fairly long and expensive. You also have a discreet period of time after the process or product is publicly released to patent it.
This stage of the entrepreneurial process is the actual establishment and opening of the business. During this stage, the entrepreneur goes from being just a visionary to a visionary with a business to run. One way to examine the changing managerial activities of the entrepreneur is to look at the different roles filled by the entrepreneur as the business develops.
As the founder of the organization, the entrepreneur sets the philosophy of the organization, establishes the strategic focus and educates new employees. In this role, the entrepreneur lays the groundwork for the emerging corporate culture.
In addition, most entrepreneurs serve as the primary promoters for their new start-ups. They must act as the new venture’s chief spokesperson in contacts with financial backers, prospective clients, employees, suppliers and others. In addition, as founders (or founding team members) of organizations, entrepreneurs are often called upon to provide counsel or advice to community members or employees. The roles that an entrepreneur must fill are demand flexibility and creativity. In order to successfully manage a new venture, an entrepreneur must be comfortable in all the roles.
At this stage you start evaluating growth in a different way. You don’t need to build everything yourself. Sometimes buying is the best option and sometimes building is the best option. Select the one requires less cost. You start to consider acquisition as a viable growth options. Once again, this requires different competencies within the organization.
ii. Evaluate Financing Options:
The best thing about the Business stage is that the financing options are much more plentiful.
There are a number of potential sources of finance to meet the needs of small and growing businesses:
a. Existing shareholders’ and directors’ funds (“owner financing”)
b. Overdraft financing
c. Trade credit
d. Equity finance
e. Business angel financing
f. Venture capital
g. Factoring and invoice discounting
h. Hire purchase and leasing
i. Merchant banks (medium to longer term loans)
iii. Consistency in Business:
Consistency is a necessary ingredient in success; it’s strange, because most people do not seem to know its true power. When it wears off things can get rough that is when you truly want to know you’re doing something you love. For consistency in business you have to continuously evaluate your resources, way of doing business, competitors and your customers.
iv. Succession Planning:
In order to reach the Sustainable Business stage, the business must be able to survive the founder. This requires succession planning at the CEO / founder level as well as in other key managerial roles. The business needs to be building its “bench” in order to get to the next level.
Although most entrepreneurs are satisfied to build a Business, they should strive to become a Sustainable Business. There are unique challenges to creating a sustainable business and it can be defined in different ways. It is typically characterized by time. Ventures those last 10+ years may be thought of as sustainable; however, the real challenge is for a business to outlast the involvement of its founders. That is a more relevant definition of a sustainable business.
The concept of sustainable development has received growing recognition, but it is a new idea for many business executives. For most, the concept remains abstract and theoretical. Protecting an organization’s capital base is a well-accepted business principle. Yet organizations do not generally recognize the possibility of extending this notion to the world’s natural and human resources.
If sustainable development is to achieve its potential, it must be integrated into the planning and measurement systems of business enterprises. And for that to happen, the concept must be articulated in terms that are familiar to business leaders.