ILOCOS SUR

POLYTECHNIC STATE
SantaCOLLEGE
Maria Campus

MODULE

MODULE IN
Elective 104
THE ENTREPRENEURIAL MIND

Module 6

ALBERT G. NAUNGAYAN
Assistant Professor I

Course Code: ELECTIVE 104

Descriptive Title: THE ENTREPRENEURIAL MIND
Instructor: ALBERT G. NAUNGAYAN
 ILOCOS SUR
POLYTECHNIC STATE
SantaCOLLEGE
Maria Campus

MODULE
MODULE 6
THE SEARCH FOR A SOUND BUSINESS IDEA

LISTS OF TOPICS TO BE INCLUDED IN THE MODULE

1. Sound Business Idea Defined
2. Procedure in Determining the Best Business Ideas
3. Methods of Searching for Ideas

LEARNING OBJECTIVES
1. Discuss the importance of having a sound business idea among entrepreneurs.
2. Identify sources of information to be tapped in order to determine the market feasibility of a business
idea.

LEARNING CONTENT

A business venture is confronted with the immediate concern of gaining at least a foothold in
the market it desires to serve. As established business, however, has a different concern, it must grow
or at least maintain its competitive stance. In both cases, there is a need to adapt new sound business
ideas. This could mean improvements to products or services offered, or in the way customers are
served, or some innovation in doing business.

Sound Business
Idea

New Venture Established Business

Successful Market Success in

Entry Competition

Importance of Sound Business Ideas

Course Code: ELECTIVE 104

Descriptive Title: THE ENTREPRENEURIAL MIND
Instructor: ALBERT G. NAUNGAYAN
 ILOCOS SUR
POLYTECHNIC STATE
SantaCOLLEGE
Maria Campus

MODULE
The product or service offering may be improved in terms of:
1. Performance- like a chair that can carry more weight
2. Maintenance cost- like a car battery that requires less servicing than other brands
3. Acquisition cost- like a latest low priced model of a certain brand of cellphone compared to other
brands
4. Salvage value- like a steel filling cabinet that has a higher salvage value
5. Uses- like a flypaper that can also be used as mousetrap.

Improvement of service to customers may mean faster delivery or prompt after-sales service
when required.
An innovation in doing business could mean transactions are entertained 24 hours a day.

Sound Business Idea

Entrepreneurs spend time and money exploiting business ideas. The high rate of failure in new
venture businesses, however, indicates a related failure on the part of entrepreneurs to adapt schemes
that will work. Apparently, the business ideas they adapted are not sound.

A sound business idea may be defined as the economic opportunity which is within the reach of
the entrepreneur and which will provide him with desirable value. An entrepreneur who is well grounded
in the concept of sound business idea will be able to save time, effort, and money in pursuing his goals.

When an aspiring entrepreneur is confronted with a business idea, it is ti his best interest to
determine its soundness. He should do it before committing himself financially and otherwise.

Any successful venture started with the adaption of a sound business idea. For example,
before the advent of parcel delivery services, people had to contend with the very poor service
rendered by the post office. Complaints about delayed delivery and lost parcels have become common.
The situation was ripe for a business solution. Enterprising personalities recognized the economic
opportunity and adapted a business idea to serve the people better. The success of DHL, FEDEX and
LBC proves that the business idea they adapted is a sound one.

The production of bottled mineral water is another example of a business idea that was proven
to be sound.

Business ideas differ in form. Examples of these forms are the following:
1. An old type of business can be professionalized. Operations can be streamlined and better
organized. Example of professional approach that is applied to restaurant service is McDonalds. Food
firms such as McDonald stress presentation, service, cleanliness, and quality.
2. A standard product can be customized. This is what a recording company did when it
produced minus one music in three pitch levels. This product, in combination with what the pitch control
mechanism of the VCD equipment can do offers a terrific opportunity to perfectly fit any singer’s voice.
3. New technology can be adapted to manufacture an old product. When a certain bakery
started using machines to produce various kind of bread, production cost decreased and more
quantities could be produced quickly.
4. Imported products can be replaced by local products. Importing products can be too
cumbersome and difficult. Local production could be a good business idea. Example is the production
of local textbooks was thought to be a good business idea. It turned out to be a lucrative venture.

Course Code: ELECTIVE 104

Descriptive Title: THE ENTREPRENEURIAL MIND
Instructor: ALBERT G. NAUNGAYAN
 ILOCOS SUR
POLYTECHNIC STATE
SantaCOLLEGE
Maria Campus

MODULE
5. Business operations can be internationalized. This is a real challenge to the entrepreneur.
The rewurds are great, however, when he is successful. The entry of Jollibee in the foreign market, for
instance, is an indication of the possibility of opportunities in international operations.

Procedure in Determining the Best Business Idea

Business ideas may be generated by anyone connected with the firm, but it is very important
that the most applicable idea to the firm’s objectives and resources is chosen. As such, a procedure
must be adapted, to wit:
1. Preparation of the list of business ideas
2. Screening of the listed ideas
3. Final selection

Methods of Searching for Ideas

1. Unanticipated Means- when the entrepreneur finds business ideas without serious effort. It includes:
a. The Person’s Work
Employees who are in direct contact with customers are sometimes confronted with demand
for products or services that are not currently provided by the company. To the enterprising employee,
this may be interpreted as an opportunity for entrepreneurship.
Examples:
Mr. Rolando So was a teacher in a private elementary school. In the course of his duties, he
noticed that there were pupils who may be considered as “slow learners.” he could not do anything to
help those pupils. The parents were so concerned about the performance of their children, so they
requested Mr. So for private tutoring during his free time.
Mr. So accepted the offer and he was paid a premium rate. The demand for his services
increased, however, as the years passed. This prompted him to resign from his regular teaching job in
the school. Still, demand increased until he could no longer cope with it. He decided to invite others to
help him. He organized a full-pledged tutorial center. Five years later, his staff consisted of 15 regular
tutors and one full-time secretary.
It was clear that Mr. So did not seek the opportunity for entrepreneurship. Yet, he was
confronted face-to-face with one during his tour of duty and he accepted the challenge.

b. The Person’s Hobbies

There are times when a person’s hobby turns out to be a business opportunity. A hobby is a
useful means of developing some skill which could be useful later when the hobbyist decides to operate
a business. Entrepreneurship literature abounds with stories of people with hobbies which were later
converted into successful ventures.

c. The Person’s Acquaintances

There are times when a person fails to notice the existence of a business opportunity.
Sometimes, it takes another person to make him aware of the wisdom of starting a new business
venture. They might be a friend, neighbor, or just anybody he meets once in a while.

d. A Chance Event Encountered by the Person

There are times when a person encounters an event that will provide him with a clue to a
business venture.

Course Code: ELECTIVE 104

Descriptive Title: THE ENTREPRENEURIAL MIND
Instructor: ALBERT G. NAUNGAYAN
 ILOCOS SUR
POLYTECHNIC STATE
SantaCOLLEGE
Maria Campus

MODULE
Example: Mr. Lorenzo paid a visit to his friend. His friend’s wife is from Batangas. During lunch,
Lorenzo observed that the tomatoes served by friend’s wife were not good as those that are produced
in his hometown. When he inquired about the difference, his friend replied that their place is not an
excellent producer of tomatoes. The information provided by his friend inspired Lorenzo to make some
inquiry on the feasibility of transporting commercial quantities of tomatoes in Batangas. After few years,
Lorenzo became a successful trader of vegetables.

2. Deliberate Search
A disadvantage of unanticipated means in idea generation is the difficulty of ascertaining the
exact date when the ideas will come pouring in. To offset this problem, a deliberate search for ideas is
made. This type of idea generation takes the form of the following:

a. Using Search Questions- business ideas are expected to provide answers to some needs. Answers
can be obtained if the right questions are asked. When questions are used to draw out specific
answers, they are referred to as “search questions.”
Examples: How can this product be made differently?
What will motivate the consumers to buy my product instead of the competitor’s product?

b. Idea Prompting
Encounters with someone else’s idea, or a customer request, or some other event may provide
hints or cues leading to business ideas. For example, somebody made a casual remark on the
difficulty of preparing and meeting the various requirements of a wedding. That idea, when properly
viewed, may just lead to the listing of a business idea.
Customer requests could also be analyzed to give way to idea prompting.

Screening Generated Ideas

The search for a sound business idea calls for the preparation of a list so the best can be
selected.
Criteria in Screening Business Ideas

1. Market Feasibility
A business idea must pass the test of market feasibility. This means that there must be some
positive indication about the following:
a. Stable and Sufficient Demand- a business idea will not last if there is insufficient demand for
whatever product or service that is contemplated. Demand that remains constant or shows signs of
growth throughout long periods indicates the probability of market feasibility. Demand must also be
large enough to justify the investments that will be needed by the venture.
b. Competitive Strength- business idea must be such that the venture can effectively compete with
current or potential competitors. The competitive strength of methods, promotion methods, and others.

The proposed business idea must be strong enough to withstand competition.

Sources of Market Information. Information required to determine the market fit of the business
idea may be derived from the following:
 Prior studies of the market or related markets by other companies, government agencies, and
entrepreneurs.
 Actual polls of population samples representing typical customers. The means used include the
following: mail questionnaires, advertisements incorporating feedback mechanisms such as mail
responses, phone interviews, and personal interviews.

Course Code: ELECTIVE 104

Descriptive Title: THE ENTREPRENEURIAL MIND
Instructor: ALBERT G. NAUNGAYAN
 ILOCOS SUR
POLYTECHNIC STATE
SantaCOLLEGE
Maria Campus

MODULE
c. Negotiations with prospective customers to solicit orders and determine whether or not they will
actually buy.

2. Technical Feasibility
Business ideas oftentimes appear easy to execute, but it is not really so when converting them
into real products or services with the required quality or quantity.
Anything can go wrong in the attempt to assemble the needed resources. Difficulties may be
encountered in the procurement of materials and manpower. For instance, establishing a call center in
Cabanatuan City may appear to be a good business idea, but the difficulty of recruiting agents to man
the booths prevents the idea to actually happen.
Production difficulties could take the form of unstable supply of materials, unreliable or
fluctuating power supply, and others. Nevertheless, technical concerns such as those must first be
cleared before subjecting the business idea to further considerations.

3. Financing Feasibility
One of the factors necessary in determining whether a business idea should be considered or
not is financing. This means that there must be sufficient funds to finance operations.
The proposed owners of the venture must have sufficient capital or if insufficient, must be of
good credit standing in the community. In general, the sources of financing include the following:
proposed owner’s savings, relatives and friends, and financing institutions like banks.

4. Financial Feasibility
The purpose of entrepreneurship is to provide a source of income to the entrepreneur. This will
not be possible if the venture will not be profitable. Any business idea that cannot provide some
indication of profitability must be screened out.
Profit is a result of the financial feasibility of the business idea. Financial feasibility may be
determined through an analysis of the financial prospects of the proposed business idea. This may be
done in two steps:
a. The preparation of projected financial statements like income statement, balance sheet statement,
and cash flow statement.
b. The determination and analysis of financial ratios derived from the projected statements.

Projected Financial Statements

It is a financial record summarizing a firm’s planned or expected financial performance in terms
of revenues, expenses, and profits over a given time period.

Projected Balance Sheet

It shows the planned or expected financial position of the enterprise on a particular date.

Projected Cash Flow Statement

Is one which shows the planned or expected cash sale and/or purchases.

Final Selection

The purpose of screening is to eliminate from the list the generated business ideas that did not
pass the adapted criteria. After screening, the list may appear to be any of the following:
1. Status quo listing- all business ideas listed passed the adapted criteria.
2. Short list- some of the ideas generated were eliminated.
3. Zero listing- all business ideas generated and listed were eliminated.

Course Code: ELECTIVE 104

Descriptive Title: THE ENTREPRENEURIAL MIND
Instructor: ALBERT G. NAUNGAYAN
 ILOCOS SUR
POLYTECHNIC STATE
SantaCOLLEGE
Maria Campus

MODULE
Final selection is applied to the status quo list, or the shorter list, whichever is produced by the
screening stage. A new set of criteria is adapted so the best among those listed can be determined. An
example is shown in the table below using the expected value criteria. The three shortlisted proposals
are shown with assumed projected net income along probabilities of occurrence. Projected net income
is multiplied by probability to get the expected values of each proposal. It showed proposal A as the
best choice because of the expected value criteria. When other criteria, however, are used, the final
outcome may be altered.

Business Projected Net Income Probability Expected Value

Proposal A Php 5 million 60% Php 3 million
Proposal B 4 million 70% 2.8 million
Proposal C 3 million 80% 2.4 million
Evaluation of Shortlisted Ideas

Organizational Culture and Creativity

Effective innovation assures the continuous survival and growth of the enterprise, but
innovation can only thrive in a creative organization with a culture characterized by the following:

a. Encouragement of Creativity and Risk-taking

Creativity refers to activities involved in finding solutions to problems that hinder the
achievement of the firm’s objectives. It is the proactive way of solving problems. In a creative
environment, solutions to problems are expected to come by more easily. If this is true, innovation will
thrive in an organization that encourages creativity.
Business idea is the output of creativity. However, it will remain an idea until it is tested. Testing
an idea, however, will require a certain measure of risk taking, which means that the idea may turn out
to be a good one or a bad one. Even then, the risk involved must not prevent the proponent from
testing the idea, especially if there are indications that it will be a good one.
The proponent is not entirely hopeless, however, management science has developed some
techniques aimed at minimizing the risk involved in testing.
The organizational culture that is characterized by risk is not discouraged by poor result in
testing ideas. After a series of failures, the single idea that passes the tests and which later becomes
successful justifies all efforts and expenses involved in finding the right one.

b. Rewards for Creativity

When an activity is rewarded, there is an assurance that such activity will continue existing.
Creativity is no exception.

c. Open Communication
The free-flowing exchange of ideas between the members of an organization is referred to as
open communication. Communication flows through the vertical and horizontal relationships in the
organization’s structure.
An important advantage of open communication is that problems are easily directed to persons
with the ability to offer solutions.

d. Allowance for Errors

Innovation thrives in an environment that provides allowance for errors. It is not right to expect
any activity to be devoid of imperfections. When an error is detected, a move should be made to correct

Course Code: ELECTIVE 104

Descriptive Title: THE ENTREPRENEURIAL MIND
Instructor: ALBERT G. NAUNGAYAN
 ILOCOS SUR
POLYTECHNIC STATE
SantaCOLLEGE
Maria Campus

MODULE
it. When this is done, the creative individual is not discouraged from pursuing his creative endeavors. In
the end, it is the company that benefits.

e. A Climate of Participation
When somebody feels that the organization espouses participation, that person will not hesitate
to make a contribution to the creative efforts of the organization. The firm will benefit from the good
effects of employee participation because there is a chance that more bright ideas will be generated if
employees feel free to participate in the creation of solutions to problems.

f. Structural Mechanisms that Aid Creativity

The urge to create solutions to problems would be heeded by the innovative person more
easily if there are structural mechanisms within the organization to support the exercise. An example of
such mechanism is the unit that is responsible for providing logistical support to activities that are
creative in nature. The person incharge of the unit is usually qualified to manage such activities as
creativity.

g. Training in the Creative Process

Creative pursuits are a bit complicated and it will help if those expected to perform such
functions are properly trained. Although some persons have natural talents for generating business
ideas, those who are not considered as such would benefit from acquiring the required skills through
training.

h. Flexibility
The creative employee is allowed to engage in creative activities on hours most convenient to
him and to the company. Whenever possible, his working hours are adjusted to accommodate the time
that he is most creative.

Course Code: ELECTIVE 104

Descriptive Title: THE ENTREPRENEURIAL MIND
Instructor: ALBERT G. NAUNGAYAN
 ILOCOS SUR
POLYTECHNIC STATE
SantaCOLLEGE
Maria Campus

MODULE
ASSESSMENT

CASE ANALYSIS

Mr. X Dela Cruz has been working with Ilocos Vet Clinic for the past five years. He was
promoted as branch manager 4 months ago.
Ilocos Vet Clinic is presently maintaining a branch each in five municipalities in the province of
Ilocos Sur. The sole owner is Ms. XY Santos and she is worried about how to meet the growing
competition among vet clinics in the province. Her business is on its 12 th year and she is not satisfied
with what is currently happening to the firm. She thinks Ilocos Vet Clinic is not growing as fast as it
should. She still remembers well how she established one branch after another every two years. The
fifth branch was established 2 years ago but still she could not put a sixth branch. She blames poor
sales for her predicament.
Ms. XY Santos was a supervisor of a local branch of a certain bank. She resigned to engage in
an entrepreneurial career in the animal clinic. She is a long-time member of the local church
organization. On some occasions, she rejected nomination for the highest position of the said
organization. She does not talk much, but when she does, some people are confuse.
Ms. Santos was fortunate because her business flourished during the first 8 years. On the 10 th
year, however, total sales for his five outlets appeared to have reached its peak. Sales decreased by
5% on the 11th year. Ms. Santos thinks that the decrease is largely due to the recent entry of
competitors within service area.
One day, she called the branch manager’s meeting to discuss the problem of declining sales.
She asked opinions from the participants but nobody dared to say anything except Mr. Dela Cruz who
was visibly very eager to share an idea. He raised hi hand and was acknowledged but before Mr. Dela
Cruz could say anything, Ms. Santos made a remark.
“I don’t think, as a branch manager, you can be of much help. Please take your seat.”
Mr. Dela Cruz was surprised and he could not believe what he just heard. He was thinking of
sharing some ideas that may be of help to Ilocos Vet Clinic.

Guide Questions:
1. What are your comments regarding Ms. Santos’ remarks?
2. What can you suggest?

Course Code: ELECTIVE 104

Descriptive Title: THE ENTREPRENEURIAL MIND
Instructor: ALBERT G. NAUNGAYAN
 ILOCOS SUR
POLYTECHNIC STATE
SantaCOLLEGE
Maria Campus

MODULE

Course Code: ELECTIVE 104

Descriptive Title: THE ENTREPRENEURIAL MIND
Instructor: ALBERT G. NAUNGAYAN