The Process of Business Creation
Business creation is recognised to be a process that begins with having a business idea and involves identifying an opportunity for the business idea, evaluating the opportunity and mobilising resources to carry out the business.
A business idea is a product, ―goods or services ― that you may want to offer based on your interest and general understanding of the market.
Identifying a business opportunity involves scanning for market gaps that could be met by your proposed goods or services. The gap may be in unmet needs or problems. Evaluating the opportunity is assessing if the identified gap could be the basis for setting up a business that is both feasible and viable. Feasible is technically doable. Viable can be done at a profit, and mobilising resources is finding the funds required to establish and operate the business. The three are vital steps in setting up a viable business.
Every business is started to address an identified need; profit is made in the process.
The Products
- The business may be to provide more of an existing product, or innovation — the introduction of a new one, new markets or different ways of supplying or using the product. The product could also be necessities, or luxury goods or services.
- Necessities are products that individuals buy the same quantity, irrespective of the price or level of income. People will not buy more salt if the price decreases, or incomes rise or buy less if the price increases or incomes decrease. Luxury items are the opposite. They are products that are not necessary for survival but are desirable at higher income levels. Quality clothes, cars, and jewellery are considered luxury for most people. People may buy more of the product if the price falls or incomes rise or less if the price rises or incomes fall.
- While luxury businesses are businesses of margins, necessities are businesses of numbers. You can increase revenue for necessities by sales volume, and for luxuries by sales price.
Identifying Business Opportunities
- You may identify an opportunity alone, by yourself, or with other people ― your social network. This includes friends, family, or colleagues you interact with. Opportunities identified with other people are more likely to be of better quality and to succeed. They have been subjected to wider consideration.
- One may also find an opportunity through deliberate search or accidentally stumble on one while not searching.
- The business opportunity should have a timeline, how long you intend to run the business, and the exit strategy—how you plan to get out eventually. Exit may be by sale of the business, handing it over to your descendants, or just closing it. Your planned exit strategy may affect the choice of legal form of the business and how to organise its activities.
Business Ideas vs. Business Opportunities
While all businesses start as business ideas, not all business ideas are business opportunities.
A business idea is an opportunity if it shows:
- a market need or gap, with a clearly identified set of customers.
- a well-defined product.
- a clear business model.
- market access and strong distribution channels.
- market readiness for the product.
Market readiness is that the identified need or demand is adequate and sustainable. Business ideas do not come out fully formed. They become clearer as one works on them, and even once started businesses may evolve into different ones.
The Business Model
Your business idea includes the business model. The business model is how you plan to make money from the idea.
The common business models include:
- Buy,/Sell.
- Make/Sell.
- Process/Sell.
The buy/sell is purely trading. Make/ sell involves manufacturing, and process/sell may include value addition. The business model also gives an idea of the possible business cost and financial requirements.
Common Sources of Business Ideas
The common sources of business ideas include:
- Hobbies.
- Your skills, experiences, and personal characteristics
- Dissatisfaction with present products, quality, price, availability, etc.
- The demographic changes: changes in population, including births, age, education, occupations, gender, and distribution, among others
- Trade, exports and imports.
- Natural resources endowment.
- Government policies and areas of emphasis.
- Hobbies include activities one engages in for pleasure and indicate an area of interest. The challenge, then, is to find a need in the market that could be addressed by the goods or services and has long-term demand.
- One can go into business practising a skill one has, such as technical skills.
- Problems may include dissatisfaction with the present products — price, quality, or availability.
- Population demographics include targeting age group, gender, education, or geographic distribution.
- Trade may include opportunities for exports and imports.
- Natural resources endowment shows materials that could be exploited for business, either in manufacturing or trade.
- Government policies and regulations may point to possible opportunities for business start-ups or expansion.
Practical Ways of Identifying Business Opportunities
In practice :
- many people copy or slightly modify someone else’s idea.
- more people stumble on, rather than search for opportunities.
- most replicate or modify ideas encountered through previous employment and work experience.
- most start-ups are individuals seeking self-employment rather than to develop new products.
- the initial ideas often evolve into other businesses.
Evaluating Opportunities
- Evaluating a proposed business involves determining if the identified opportunity or market gap, could be the basis for business that is both feasible and viable.
- Many people do not think critically about the business. They just do it. They probably have seen somebody else make money in the type of business or just think it is a good idea, rather than having found a good opportunity, and as a result of which the business may not succeed. A business that works for somebody else may not necessarily work for you. People have different goals and objectives. You also need to understand your particular market.
- Many people overestimate the amount required. Capital is a “big” word. It suggests lots of money. However, when broken down into required specific items, the amount generally appears more manageable. The common mantra is “Start Small, Start Now, and Think Big.” Starting small means beginning with the funds you can easily raise. Decide if costs are essential or optional, required or wanted, and if needed now or can be brought in later. Starting now means quick implementation on identifying an opportunity. One may, however, add” Have a growth plan”. Thinking big may by itself not help. It is necessary to know how it will be achieved. This is your business plan.
- Saving is vital for starting own business. Start-ups often lack adequate collateral and necessary track record, and many businesses are started with own or family funds. People are also reluctant to put money in a business where the owner has not. Even financing organisations require a portion of the cost to be met from the owner’s funds. Saving may also be the best indicator of a serious intention to start one’s own business. It shows the necessary discipline, planning, and preparation. It is also more under your control.
- Business evaluation involves the preparation of a feasibility study and a business plan. The two serve different purposes and are addressed to different groups. Both are also important in funding mobilisation and are usually prepared at the request of the financier and in line with the organisation’s guidelines.
The Business Plan
- While the feasibility study answers the question if a business should be undertaken, the business plan answers the question “How”
- It shows how the business will be organised, implemented, and run to reach the targets set in the feasibility study.
- The business plan comprises the same parts as the feasibility study, but with different purposes. For example, while the feasibility study indicates the qualification and experience of the sponsors, the business plan shows how the two fit with the business needs, and how this is planned to be maintained in the future.
- The business plan gives greater detail than the feasibility study. It is prepared after the feasibility study and includes some information from the study. While the feasibility study covers a long period, 10 years or even beyond, the business plan shows things that are reasonably likely to happen and normally covers a period of up to 3 years.
- The business plan particularly serves as a communication tool to financiers and investors. Even where you do not need financial support, the plan helps to better understand the business goals and how to achieve them.
- There is no one standard business plan for all businesses. The plans vary according to the factors considered critical to the business’s success. A business plan may therefore give different emphasis to management, financing or marketing or other factors considered important. For a very small enterprise, the plan may combine aspects of both feasibility and business plan, estimating projected performance, and outlining how the business will be carried out.
- The business plan is also not a one-time document. The business environment is always changing. New customer needs are identified, new businesses come into the market as others exit, and new technologies are introduced. The business focus, similarly, changes as some goals are accomplished and new ones set.
Mobilising Resources
Mobilising resources involves finding funds to set up, establish the business. It is a critical part of business creation. A large number of business ideas do not become actual businesses due to the failure to obtain necessary funding.
Possible sources include your own funds and borrowed money.
Key to mobilising resources are that the funds are:
- adequate
- suitable
- timely or available as required.
Adequate is that the funds should well cover set up and running costs. The common mantra is to start small, start now, think big…but one may also add have a growth plan. Start with own funds or resources you can easily raise. Acquire only the most basic facilities. Decide whether costs are essential or optional, required or wanted; and if needed now or can be brought in later.
Suitable is that costs should be met by appropriate funds. In matching costs and funds long-term costs should be financed with long-term funds, and short-term costs with short-term funds.
Saving is a necessary part of funding mobilisation. Even financing organisations require that part of the finance be owners’ funds. A business wholly financed by loan may fail due to heavy loan servicing charges. Saving is hard. It requires education, accessible savings platforms, incentives to motivate, and, particularly for the unemployed community or public work programs to help generate income.
Business Incubation
