Entrepreneur Chapter 2

CHAPTER 2

IDENTIFICATION, ANALYSIS
AND CHOICE OF BUSINESS
OPPORTINITY
Objectives:

1.identify, evaluate and select a viable business idea and
opportunity
2.undertake a preliminary study before preparing a business plan

PEN2073 ENTREPRENEURSHIP

1

Introduction
Every business begins with the availability of an opportunity.
Opportunity is when there is a space to offer goods or services
in any specific market.
When:
I.      Products have been available but not fulfilling the customers’
demand.
II.    Customers’ demand for something better than what available
in the market.
III. They want more choices, so that they would be able to choose
according their tastes and preferences.
IV.   They want something different from what has been offered

Thus it is not easy to choose an idea and realize it.

4.1 BUSINESS IDEA AND SELECTION OF
BUSINESS OPPORTUNITY
A business idea starts with an opportunity. A business
opportunity exists when there is demand for goods and
services to meet the needs and wants of community.

4.2 STEPS IN IDENTIFICATION, EVALUATION
AND SELECTION OF BUSINESS OPPORTUNITY.
STEP 1: IDENTIFICATION OF NEEDS AND WANTS OF
CONSUMERS.
STEP 2: SCANNING THE ENVIRONMENT AND EVALUATING
OF SELF AND THE COMMUNITY
STEP 3: SCREENING OF BUSINESS OPPORTUNITIES
STEP 4: SELECTING A BUSINESS OPPORTUNITY AND
PREPARING A BUSINESS PLAN.

1. IDENTIFYING THE NEEDS AND WANTS OF
CUSTOMERS
The term “needs” refers to basic needs that the consumers
must have in order to live, such as food, clothing, shelter, etc.
The term “wants” refers to a personal desire for
something that more than the basic needs.
Categories of needs and wants:
i. Product
Something which has physical appearance, demanded to satisfy
one’s needs and wants either directly or indirectly. E.g;
computer, hand phone, radio and television.
ii. Services
Something which has no physical but still able to satisfy needs
and wants of customers. E.g barber, doctor, tailor education
and bank. The term “wants” refers to a personal desire for
something that more than the basic needs.

2. ENVIRONMENTAL SCANNING AND EVALUATION
OF SELF AND THE COMMUNITY.
i. Environmental Scanning
a. Structure of the population, income and tastes
b. study on import and export data
c. study on local resources and technological breakthrough
d. industrial linkages
e. development projects by the public and private sectors
f. searching for business opportunities in the local and foreign
newspaper and magazines as well as on the internet
g. The study of social problem
h. New government policies and regulation.


a) Structure of the population, income and tastes
Composition of the people in the selected areas should be
analyzed in order to get an accurate target market. E.g;
percentage of youth or elderly, male or female, working
mother or non-working mother.
The higher the income level, the stronger the purchasing
power of the people and the better the opportunity for
business.
Change in the preference can give a good opportunity for
business. E.g; the trend in the fast food industry rises due to
the change in the eating habit-KFC.


b) Study on import and export data
The continuous increase in the value and quantity of a
product or service being imported and exported reflects a
potential market, both local and international.

c) Study on local resources and technological
breakthrough
There might be local resources that yet to be exploited,
thus
can be seen as a potential investment. Is there a new
technology that ca be adapted for the new venture.


d) Industrial Linkages
An output for one industry can be an input to another.
Therefore, integration between on industry with another
should exist. Example, proton cars industry-there are 125
vendors who supply car components to Protons, meaning that
proton assembly lines cannot operate without the support
from other proton’s components suppliers.
There are two types of integration:
a) Forward Integration.
Any business opportunity exists after a core/main
company produces a product or services.
b) Backward integration
Any business opportunity exists before a core/main
company starts their production process.

Example: The process of Industrial linkage with the
national car project.

Backward
Integration

Main
company

Component
industry
Transportation
Cleaning service
Suppliers

PERUSAHAAN
KERETA
NASIONAL
(PROTON)

Forward
Integration
Distributors
Workshops
Part suppliers
Car rental
Car wash
Transport
service

The existence of the national car project (PROTON) has helped to create,
Directly or indirectly, opportunities for the growth of the car industry and
Other businesses, which include the component industry the supplies car
Parts to Proton and spare parts to the suppliers.

e) Development project by the public and private sectors
There are various economic development programmes by the
government and the private that have opened up directly or
indirectly business opportunities for entrepreneur. For
example, the North-South Highway (PLUS) Project, KLIA
project, Government Complex in Putrajaya have led to the
opening up of new township and new industrial area.

f) Searching for business opportunities in the local and
foreign newspapers and magazines as well as on the
Internet.
By reading local and foreign newspaper and magazines as well
as surfing the internet, entrepreneurs can identify business
opportunities in various fields.


g) The study of local social problems
There are various social problems that can actually lead to
business opportunities for entrepreneurs.
Problem pertaining to security, child care, loafing,
transportation, drug addiction and so on can create
profitable business opportunities.

h) New government policies and regulations
Rules and regulations enforced by the government indirectly
lead to business opportunities for entrepreneurs.
Rules and regulation pertaining to the emission of smoke
control, speed traps, block box for express buses and the
use of helmets should be perceived as business opportunities
and not problems.


ii) Self Evaluation
a)

Experience
Many entrepreneurs are involved in business that are
suited to their own experience,e specially in relation to
their former career.

b)

Knowledge and skills
Knowledge and skill are related to one’s experience
Knowledge and skill are important to establish whether
that someone really knows what to do with the business
he/she involved in.

c)

Financial situation
Financial ability is an important factor in determining
whether particular business opportunity can be further
developed or not.

d)

Interest
The business field to be selected must be based on the
entrepreneur’s interest. Interest can give more
confidence and a sense of responsibility to the business to
be developed.

d)

Networking
An entrepreneur will face difficulties developing a business
opportunity if his/her networking with others is limited.


iii) Value/Norms of the Community
After scanning the environment evaluating oneself, the next
consideration is the values or norms of the community.
Business opportunities need to be coordinated with the value
or norms of the community in which the business operation is
going to be implemented.
The value or norms of the community refer to what is
perceived as useful and beneficial to the community.
It is important to ensure that a potential business does not
go against the values or norms of the local community.
For example, a four-digit business outlet is considered a
profitable business opportunity and legal. However, it is
against the value of the Muslim community.


3. SCREENING OF BUSINESS OPPORTUNITIES
After scanning the environment, evaluating oneself as well as
the values or norms of the local community, the entrepreneur
may end up with two or more interesting business
opportunities that need to be developed.
However, it is best to select only one business because it will
be difficult to implement various business projects at the
same time.
The process of screening business opportunities will help the
entrepreneur to select a business opportunity that can focus
on wholeheartedly.
This process involves four factors as follows:
1. Legality
2. Monopolistic power and level of competition
3. Capital requirement
4. Risks

1. Legality
The entrepreneur has to make sure that the business
opportunity that is going to be developed is legal.
For example: a business involves the buying and selling
imitation VCDs or stolen product is illegal.

2. Monopolistic power and level of competition
An entrepreneur has to select a business opportunity
which is not monopolised by any body or quarter as this
type of business will pose problems, such as the danger
of sabotage and the difficulty of penetration a controlled
market.
An entrepreneur must also consider the level of competition
in deciding the type of business he is going to be involved in.
It is best to be involved in business that is overcrowded and
in which competition is very stiff unless the entrepreneur
has the ability to secure cheap raw materials or a unique
production formula that others are not privy to.

3. Capital Requirement
The study of the capital requirements of a business is
important.
Normally, capital is required to finance investment on fixed
assets (land, building, machine and equipment) and working
capital.
The funding of the business can be done with the use of the
entrepreneur’s own money or from external sources such as
banks, finance companies and cooperatives.


4. Risks
In business, risk is something that is uncertain and is related
to success and failure.
Due to that, an entrepreneur must identify the risks he is
going to encounter and take into consideration to percentage
of success and failure.
Based on this, an entrepreneur will decide whether to
proceed with the business or not.
In general, the level of risk that will be encountered by an
entrepreneur will depend on three factors;
1. The difficulty or easy to enter a particular business field;
2. The size of capital that going to be invest in the business;
3. The profit margin (big or small0 expected from the
business.

Types of business, category or risks and expected returns
Types of business, category or risks and expected returns
BUSINESS

ENTRY

LEVEL OF
RISK

EXPECTED
RETURS

EXAMPLES

A

EASY

LOW

LOW

FOOD
STALL

B

MEDIUM

MEDIUM

MEDIUM

MINI
MARKET

C

DIFFICULT

HIGH

HIGH

CHOICE


PUBLIC
TRANSPORT

In general, there are two (2) types of risks that need to
be addressed before and while operation a business.
These are;
1. Business risks
2. Financial risks

1. Business Risks
Can be classified into three category:
I. Transferable risk- risk that can be insured against fire,
theft and employees accidents.
II. Controllable but non-transferrable risks- not 100% to
be controlled but there are things to be done. Example,
market situation, unemployment rate and quality of goods.
III. Uncontrollable risks-things in the economy, exchange
rates and natural disaster.

2. Financial Risks
I. Level of liquidity-less solvent companies probably the
business has to face short term debts. Example, to supplier
and overdraft.
II. Loan-fixed payment is scheduled, yet profit keeps
changing.
III. Credit-cedit given to customers will always face risk of
getting the credits being paid as after some time the credits
(if unpaid) will be considered bad-debt-expenses to the
company.
IV. Exchange rate-if exchange rate involves, entrepreneurs
have to face risks-fluctuations of rates.


Conclusion

Only one idea is to be selected and to be realized
as part of your project.


Entrepreneur Chapter 2

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