STARTING A BUSINESS

CHAPTER FOUR

ENTREPRENEURSHIP
LEARNING OBJECTIVES

1. Discuss the factors to consider in starting a business;

2. Explain how the entrepreneur can identify business opportunities;
3. Explain the types of businesses available to entrepreneurs; and
4. Discuss the government support available and legal requirements needed to start a business.
GROUP MOTIVATION

 1. Group of 3
 2. You have planned a birthday party in your house. you have invited your friends and relatives to the party.
Explain how you will start your own business with them in the party.
 3. 5 to 10 minutes planning.
INTRODUCTION

 “New information is important in explaining the existence of entrepreneurial opportunities” (Schumpeter)

The critical phase in the entrepreneurial process is actualizing the entrepreneurial mindset after opportunity
recognition, when the business idea is put into a final form where the details are worked out and it is transformed
into something of value such as a new product or service. It is important that the entrepreneur exploit the
opportunity by starting a business on the right path, with a foundation solid enough to enable it to grow, succeed, and
become sustainable. As such, the government has learned to make and made entrepreneurship a priority in its
economic agenda. The agenda includes the creation of available to small and medium enterprises.
LESSON 1
FACTORS TO CONSIDER IN STARTING A BUSINESS

 Starting a business is a positive decision on the part of the entrepreneur to exploit entrepreneurial opportunities
which are important and a worthwhile endeavor. There are several other reasons, like financial stability, self-
fulfillment, helps the family, and provide employment to others, for an entrepreneur to have his/her own business.
An entrepreneur has several ways to start a new venture. The most frequently used forms by entrepreneurs are
start-up, buying an existing business, and franchising. A start-up enterprise is a company which is recently
formed, where the founder establishes a completely new business from scratch. Buying an existing business is
acquiring either the shares of an existing company or all of the assets of an existing enterprise. Franchising is
when the “owner of the company that already has a successful product or service, licenses its trademark, trade
name, and methods of doing business to others in exchange for an initial franchise fee and royalty payments”.
Examples of these are Jolibee, Mang Inasal, Ricky Reyes Salon, 7-Eleven, etc. given the forms of starting a business,
there are many other important factors to consider before an entrepreneur can actually begin the enterprise.
FACTORS TO CONSIDER IN STARTING A BUSINESS:

1. FOCUS AND DIRECTION – it is imperative to have a very good objective grasp of the business and where it
will be headed many years from the start of operation. It means that there should be a clear and documented
vision-mission and strategies to begin with. Start right by “beginning with the end in mind.”
2. SOURCES OF CAPITAL – there are different sources of capital that can be used depending on the needs to
start the venture. These can be from personal funds, family and friends, a retirement account, banks/financial
institutions, a government loan, and/or the stock market.
3. GOOD NETWORK – building good relationships and working with other people could help start the business.
Formal networks like associations and professional groups, as well as informal networks, like childhood friends,
family members, and former classmates, can be drivers to build self-confidence and direction, providers of
information that are not readily accessible to others, suppliers of raw materials, and serve as mentors/coaches.
5. LEGAL REQUIREMENTS – it is very important to know the laws and regulations that govern the type of business
that will be opened to avoid major problems that can arise if legal requirements are overlooked. Examples are the
copyright and patent laws, environment and sanitation regulations of the municipality, and labor laws. Do not go into
an illegal business where the consequences are greatly unfavorable. There are also businesses with restrictions which
might give you difficulties in operation, like mining and quarrying.
6. DEGREE OF RISK – consider the degree of risk related to a specific business opportunity. A business is said to be
risky when the probability or chances of failure is high. It means the odds are great in many aspects against starting
the business like limited market, stiff competition, high cost of financing the business, and few supply of needed labor.
7. RESEARCH AND DEVELOPMENT – there should be a strong research and development that should be
undertaken. The government should provide adequate support to inventors, scientists and engineers and their new
technologies to commercialize their R&D products. The presence of new technology, science and knowledge transfer
from universities and public research centers to new and growling businesses, and the support for the creation of
new technology-based ventures, are good indicators to start a business in this area.
7. PERSONAL COMPETENCIES – the personal competencies like creativity, opportunity seeking, self-confidence,
persistence, commitment, and risk-taking, as well as technical background (e.g. accounting, personal computing) and
related experiences needed to run the particular business, are necessary to start running the business.
8. AVAILABILITY OF RESOURCES – resources pertain to raw materials, human resources, and
machineries/equipment. Specifically, the raw materials that are indigenous to the community and available in certain
quantities, like clay, sand, abaca, and other natural fiber. Knowing where and how other entrepreneurs get their
materials and where they source them is also vital.
LESSON 2
IDENTIFYING BUSINESS OPPORTUNITIES

 The identification of business opportunities is central and key starting a business. Generally, an entrepreneurial
opportunity is a favorable set of conditions that will enable the entrepreneurs to create new products or services
by combining resources that will result, not only to a profit, but for the common good of the society and the
environment. Given the opportunities, entrepreneurial firms either start because of external simulation (e.g.
customer demand for new product or services to make life more convenient) or by internal simulation (e.g. when
an entrepreneur recognizes a problem or opportunity gap and decides to fill it). Regardless of the source of
simulation to start a new business, it is said that opportunities are “tough to spot.” Opportunity recognition is not
simply imitation or a different version of what is already in the market.
 An opportunity has four essential qualities, namely: “attractive, durable, timely, and anchored in a product/service
or business that creates or adds value for its buyer or end-user.”
THE OPPORTUNITY RECOGNITION PROCESS

 Entrepreneurs should be able to identify, seize and pursue business opportunities. Successful entrepreneurs are
those who can exploit business opportunities. Drucker has identified seven potential sources of opportunity in
the external context, namely:
1. The unexpected
2. The incongruous
3. The process need
4. Industry and market structures
5. Demographics
6. Change in perception
7. New knowledge
 No. Sources of Situations
Opportunity
1 The unexpected Opportunities can be found when situations and
events are unanticipated. The event might be an
unexpected success/good news or unexpected
Potential failure/bad news that can be an opportunity for
Sources of entrepreneurs to pursue.
Opportunity
2 The incongruous Incongruous situations happen when there are
inconsistencies in the way they appear. For example,
there are opportunities to capture when
conventional wisdom about the way things should be
no longer holds true.
3 The process need Entrepreneurial opportunities could also surface
throughout the process of discovery such as the
process of research and development done by the
researchers and technicians of a product or service.
4 Industry and market Changes in technology, social value and customers’
structures tastes can change the structure of an industry and
market. This situations, however, will give
entrepreneurs opportunities to innovate their
product or services.
5 Demographics Changes in demographics will influence industries
and markets, upon their target market and market
segmentation. There can be entrepreneurial
opportunities in anticipating and meeting needs of
the population.
6 Change Perception is one’s view of reality. Changes in
perception get to the heart of people’s
psychographic profiles of what their values are,
what they believe in, and what they care about.
Changes in this attitudes and values create
potential market opportunities to alert
entrepreneurs.
7 New knowledge New knowledge can be a source of opportunities
for entrepreneurs. Examples of new knowledge are
new technologies and new discoveries that can be
sources of information for entrepreneurial
innovation. Entrepreneurs who come out with new
products and processes that can compete with
other products can manipulate this kind of
knowledge.
LESSON 3
TYPES OF BUSINESSES AVAILABLE TO ENTREPRENEURS

 In general, entrepreneurs can identify more ideas and opportunities from the types of businesses available to
them in the community and the country at large. There are a number of ways to classify enterprises which they
can choose from:
 According to size : the size of the enterprise is based on its total assets or number of employees who work for it.
The Department of Trade and Industry, through the Bureau of Small and Medium Enterprise Development
(BSMED), categorized them as micro, cottage, small, medium, and large enterprises, for purposes of rationalizing
assistance and incentives to these business enterprises.
TYPES OF BUSINESSES AVAILABLE TO ENTREPRENEURS

1. Micro Enterprise – it has an asset size not exceeding ₱50,000. It is usually a home-based enterprise, operating
in makeshift or temporary quarters. The owner heads the enterprise and employs from one to not more than 10
people to help him/her. Examples of these are the self-employed vending food like taho, puto, or fishballs; those
selling in the public market; and those having sari-sari or rolling stores.
2. Cottage Enterprise – it has an asset of ₱250,000 but not exceeding ₱500,000. It is a home-based business
which is often managed and operated by the members of the family. Examples of these are the subcontractors of
footwear like shoes and slippers; and food manufacturers of peanut butter/coco jam or pastillas, as well as
decorative products like vases, candles, and lanterns.
3. Small Enterprise – it has an asset of ₱500,000 but not exceeding ₱2.5 million. It is owned by an individual or
group and has enough resources to continue operating. It employs from 10 to 20 people. Examples of these are
groceries, bakeshops, beauty salons, medical/dental clinics, toy makers, jeepney manufacturers, and travel/tour
agencies.
4. Medium Enterprise – it has an asset of ₱5 million to less than ₱20 million and employs 100 or more workers. It
is owned by a single individual, business partners, or a corporation. It employs more than 20 to 100 people. These
workers are more skilled and possess technical expertise to run the business with machines/equipment and utilize
various quality controls to make the products. Examples of these are fine dining restaurants with branches, computer
importer-dealers, garment manufacturers, human resource providers, and private educational institutions.
5. Large Enterprise – it has an asset of ₱20 million or more. It is often owned and managed by a corporation. It is
large in scope of operation and number of products or services that it offers to the market. It employs 100 or more
workers who are hired on the basis of their expertise. Its Board of Directors is responsible for its governance and it
has a Chief Operating Officer to oversee the implementation of the directives of the Board. It operates in highly
formalized but complex systems of management. Examples of these are the big fast food chains, large department
stores, big bookstores, family-owned commercial banks and insurance companies.
4 FORMS OF BUSINESSES BASED ON OWNERSHIP:
Forms of business Advantages Disadvantages
ownership
Single Proprietorship – is • Easy to set up • Demanding on owner’s
owned and usually • Decision-making left personal time
managed by one person. entirely to the owner • Growth limited by
They register with the • Easy to dissolve owner’s financial means
Department of Trade and • More flexibility • Unlimited liability
Industry (DTI). • Less government • Limited business skills
regulation and knowledge
Partnership – is an • Relatively easy to set up • Partnership may be
association of two or more • Check and balance endangered by conflicts
persons who act as co- • Availability of more between partners
owners of a business. Each capital and credit • A decision made by one
partner contributes money, • Retention of profits to partner is binding on all
property or service to the fewer owners other partners
business. They register • Lack of stability
with the Securities and
Corporation – is an • Risks and losses are • Complicated setting-up
artificial being created by shared with the other process
operation of law, having the shareholders • Individual stockholders
right of succession, and the • Maximum flexibility for may have limited
powers, attributes and growth influence on
properties expressly • Limited liability of management
authorized by or incident individual shareholders • Tendency to
to its existence. They • Greater room for institutionalize a
register with the Securities professionalism in bureaucracy
and Exchange Commission management • Strictly regulated and
(SEC). • Easy to raise capital supervised by the
• Assured of at least 50 government
years of existence by
law
Cooperative – is a duly • Least likely to be • Shared control of
registered association dissolved the business
of persons, with a • Limited liability • Consensual decision
common bond of • More people benefit making
interest, who have from the business
voluntarily joined • Professional
together to achieve a managers may be
lawful common social employed by the
or economic end, members
making equitable
contribution to the
capital required, and
accepting a fair share
of the risks and benefits
of the undertaking in
accordance with the
universally accepted
principles of the
cooperatives.They
register with the
Cooperative
Development
Authority (CDA).
LESSON 4
GOVERNMENT SUPPORT AND LEGAL REQUIREMENTS

 The Small and Medium Enterprises (SMEs) are the lifeblood of the economy. Without entrepreneurs managing
these enterprises, there can be no additional production, innovation, and contribution to economic and social
development. Governments, past and present, have learned to make and have made entrepreneurship a priority in
their economic programs.
 Government Support – the Department of Trade and Industry report shows that small enterprise promotion and
development has, in fact, attained the status of a national movement, participated in by more than 50 government
agencies, each of which offers support services to the small businessman. The private sector has also joined the
“small is beautiful” bandwagon– including industry chambers, trade associations, schools and universities, civic and
non-government organizations, and church-based groups. The Small and Medium Enterprise Development (SMED)
Council was created in 1991 to integrate and synchronize the various efforts. The SMEDC has an array of
programs to assist small businesses. The areas of assistance cover finance, marketing, training and human resource
development, and product development and technology assistance.
NOTHING FOLLOWS……

Ma'am Weng