Quarter 1 — Module 3

Recognize a Potential Market

Entrepreneurial Ideas
The creation of an entrepreneurial idea leads to the identification of entrepreneurial opportunities,
which in turn results in the opening of an entrepreneurial venture.

The entrepreneurial process of creating a new venture is presented in the diagram below.

Creation of Identification of Opening of

entrepreneurial entrepreneurial entrepreneurial
Ideas Opportunities Venture

Figure 1. The Entrepreneurial Process of Creating New Venture

Essentials in Entrepreneur’s Opportunity – Seeking

These are the basic foundation that the entrepreneur must have in seeking opportunities:

• Entrepreneurial mind frame. This allows the entrepreneur to see things in a very positive and
optimistic way in the midst of difficult situation. Being a risk - taker, an entrepreneur can find
solutions when problems arise.
• Entrepreneurial heart flame. Entrepreneurs are driven by passion; they are attracted to discover
satisfaction in the act and process of discovery. Passion is the great desire of an entrepreneur to
achieve his/her goals.
• Entrepreneurial gut game. This refers to the ability of the entrepreneur of being intuitive. This
also known as intuition. The gut game also means confidence in one’s self and the firm belief
that everything you aspire can be reached.

Sources of Opportunities
There are many ways to discover opportunities. Looking at the big picture, some have noticed the
emerging trends and patterns for business opportunities. While others are trying to find out their target
market. The following are some sources of opportunities:

1. Changes in the environment

Entrepreneurial ideas arise when changes happen in the external environment. A person with an
entrepreneurial drive view these changes positively. External environment refers to the physical
environment, societal environment, and industry environment where the business operates.
1.1 The Physical environment includes
a. Climate – the weather conditions.
b. Natural resources – such as minerals, forests, water, and fertile land that occur in nature and can
be used for economic gain.
c. Wildlife – includes all mammals, birds, reptiles, fish, etc., that live in the wild.

1.2 The Societal environment includes the various forces like

a. Political forces – includes all the laws, rules, and regulations that govern business practices as well
as the permits, approvals, and licenses necessary to operate the business.
b. Economic forces – such as income level and employment rate.
c. Sociocultural forces – customs, lifestyles and values that characterize a society.
d. Technological environment – new inventions and technology innovations.
1.3 The industry environment of the business includes:
a. Competitors
b. Customers
c. Creditors
d. Employees
e. Government
f. Suppliers
For example, one factor in the physical environment that can easily change is the climate. The
temperature is very high during summer but very low during the rainy season. An individual with
entrepreneurial drive can be extremely imaginative and inventive in identifying opportunities.
He/she can venture on a business that responds to the needs of the people during summer and rainy
season.

2. Technological discovery and advancement

A person with entrepreneurial interest sees possibility of business opportunities in any new
discovery or because of the use of latest technology. For example, an individual with knowledge in
repair and installation of a machine engine discovers additional engine parts that considerably
reduce fuel consumption.

3. Government’s thrust, programs, and policies

The priorities, projects, programs, and policies of the government are also good sources of ideas.
For example, the use of firecrackers to celebrate New Year’s Eve is strictly prohibited. People without
entrepreneurial interest will view the ordinance as a plain restriction. However, for an entrepreneur,
it is a business opportunity to come up with a new product that will serve as a substitute for
firecrackers.

4. People’s interest
The interest, hobbies, and preferences of people are rich sources of entrepreneurial ideas, like the
increasing number of Internet Cafés at present could lead to the strong attachment of young people
to computers.

5. Past experiences
The expertise and skills developed by a person who has worked in a particular field may lead to the
opening of a related business enterprise.
For example, an accountant who has learned the appropriate accounting and management skills and
techniques in a prominent accounting firm can start his/her business venture by opening his/her
own accounting firm.

Forces of Competition Model

It is also known as the “five forces of competition”. An industry environment is a competitive
environment. Regardless of what product or services you have, competition is always present.
Competition – it is the act or process of trying to get or win something.
For example, the prices are lower when there is a competition among the stores.
These are the five forces competing within the industry:
• Buyers
• Potential new entrants
• Rivalry among existing firms
• Substitute products
• Supplier

1. Buyers
The buyers are the ones that pay cash in exchange for your goods and services. One example is the
influence of the price or in the bargaining strategy. The buyer has a strong and magnified bargaining
power. The threat of its bargaining power will be less if the following factors are noticed:
a. There are several suppliers available in the market.
b. The buyer has the potential for backward integration.
c. The cost of switching the supplier cost is minimal.
d. The product represents a high percentage of the buyer’s cost.
e. The buyer purchases large portions of the seller’s product or services.

2. Potential New Entrants

A new entrant is defined as companies or businesses that have the ability to penetrate or enter into a
particular industry. For example, in the level of capital requirements, if the business requires huge
capital, new entrants should decline to join the business. This gives a threat to the business. This can be
noticed if there is the presence of the following factors:
a. Substantial capital requirement
b. Strict government policy
c. Difficulty in accessing distribution channels
d. Economies of scale
e. High cost of product differentiation
f. High switching cost

3. Rivalry among Existing Firms

Rivalry is a state or situation wherein business organizations are competing with each other in a
particular market. For example, it depends on the marketing strategy of your competitor, like giving
freebies and special offers. The intensity of rivalry among existing firms is characterized to the following
factors:
a. Diversity of rivals
b. Number of competing firms
c. Characteristics of the products or services
d. Increased capacity
e. Amount of fixed costs
f. Rate of industry growth

4. Substitute Products
Substitute is one that serves the same purpose as another product in the market. For example, the
consumers decide to use margarine as a substitute for butter. In case the price of butter increases,
preferably the consumer will gradually switch to margarine. A substitute product can give a big threat in
the industry environment if the following factors are noticed:
a. Switching cost is low
b. Preferences and tastes of the customers easily change
c. Product differentiation is highly noticeable
d. The quality of substitute products dramatically improves
e. The price of substitute product is substantially lower

5. Suppliers
The Suppliers are the one that provide something that is needed in business operations such as office
supplies and equipment. In an example where supplies and services being offered is unstable the
intensity of the threat is strong in this kind of the competitive force in the industry. This can be noticed if
there is the presence of the following factors:
a. The supplier has the ability for forward integration
b. Suppliers in the industry are few, but the sales volume is high
c. Substitute products are not readily available in the market
d. The switching cost is very high
e. The product or service is unique