PRELIMENARY ACTIVITIES OF ENTREPRENEURIAL VENTURE CREATION

LESSON 1: THE PHYSICAL ENVIRONMENT

An entrepreneurial venture is created out of the business opportunities which the entrepreneur should
seek to exploit. These business opportunities emerge from the entrepreneurial ideas that arise from the
changes in the environment, government policy, or technological advancements.

Creation of Identification of Opening of

entrepreneurial entrepreneurial entrepreneurial
ideas opportunities venture

The Entrepreneurial Process of Creating Venture

The entrepreneur needs to possess the necessary entrepreneurial character traits, skills, and competencies
before exploiting the business opportunities.

Entrepreneurial
Creation of Identification of Opening of
character traits,
entrepreneurial entrepreneurial entrepreneurial
skills, and
ideas opportunities venture
competencies

Entrepreneurial Character Traits, Skills, and Competencies Influencing The Opening of Business

QUESTION: If a prospective entrepreneur possesses the necessary character traits, skills, and competencies,
should he/she immediately open a new business in order to exploit he business opportunity?

ANSWER: No, he/she must first evaluate and analyse first the business environment. The environment where
the business venture will operate is an important factor to consider in opening a new business.

Entrepreneurial
character traits,
skills, and
competencies

Opening of
Creation of Identification of Entrepreneurial
entrepreneurial entrepreneurial venture
idea opportunities

Entrepreneurial
Environment

Entrepreneurial Environment as another Factor Influencing the Opening of Business

Business operates in an environment that consists of three layers:

1. Physical Environment
2. Societal Environment
3. Industry Environment
PHYSICAL ENVIRONMENT
- first layer of environment
- also known as natural environment
- It is composed of natural elements that are inherent in Earth which is divided into three: climate,
physical resources, and wildlife: These three have significant contributions and effects to the business
venture.
The Physical or Natural Environment

1. Climate- the climatic condition in a particular region in the Philippines where the business will be
established must be evaluated. The entrepreneur must consider the prevalent climatic condition of the
area where he/she intends to open a business to determine whether it can withstand or is it fit to the
climatic condition in the local area.
2. Physical Resources- The availability of raw materials is another major factor that can influence the
success or failure of the business venture. Although the climate of the place may be conductive, it may
still fail if the resources are not available. The availability of raw materials dictates how much the
product cost. The product made from rare raw materials definitely cost more than made from the
common materials. The entrepreneur must critically assess the availability of raw material in the locality
before opening a new business and must evaluate if the available raw material used in the business are
sufficient for the long- term operation.
3. Climate- the wild plants and animals in the Philippines are constantly abused which lead towards the
imbalance of Philippine ecological system. That is why, the entrepreneur must ensure that his/her
business contributes to the preservation and not the destruction of the ecological system of the local
community and our country in general. He/she must not open a business venture that will destroy
wildlife after all; it is the entrepreneur’s task to become a model of social responsibility and
environmental awareness.

LESSON 2 : SOCIETAL ENVIRONMENT

SOCIETAL ENVIRONMENT

- Second layer of environment; it directly affects

business.
- affected by the changes in the physical
environment (e.g. resource avialability and
cost).the environment that consists social,
political, culutural, economic, legal, and
technological forces.

1. Social forces
- elements in society resulting from human interactions that can influence the thoughts, behavior,
attitude, actions, and even the beliefs and customs of the people.
- Are products of the actions of people on the important events that happen in a given time.
- includes values, traditions, literacy level, consumer psychology, time orientation, lifestyle
patterns, and professional career roles.
- Example: Filipinos using social media as a medium of communication.
2. Political forces
- elements that heavily influence the political stability of a country.
- usually composed of political parties or systems.
- includes trade regulations, taxation, government stability, unemployment, workers' benefits, and
election practices.
- Example: Philippine government's move against smoking would greatly affect the tobacco
industry.
3. Cultural forces
- elements that affect business stability through the integration of practices and ideas of a group
of people or an ethnic group in a society.
- it is important to be determine the prevailing culture in a community before establishing a
business.
- includes religion, language, beliefs, customs, and education.
- Example: Building fast food chains near highways.
4. Economic forces
- elements and factors caused by changes or movement of a country's economy.
 - includes interest rates, inflation rates, foscal policies, monetary policies, income, exchange
rates, employment, and consumer confidence.
- Example: Starting business through loaning.
5. Legal forces
- elements and bodies that are directly involved in the legislation and implementation of laws and
ordinance.
- includes product control, pricing and labeling, health and safety of the workers, administration of
election forces, advertising and promotion, exercise of profession, and education and
administration fee.
- Example: Applying for business permit.
6. Technological forces
- elements that refers to trends and developments in computer and information technology.
- includes internet, social media, e-commerce, technological advancement, and technological
infrastructure.
- Example: Mobile phone products phased out rapidly as they become outdated in terms of
technology

Environmental scanning - refers to the gathering, critical evaluation, and utilization of information of events
and activities and their relationships with the physical, societal, and industry environments.

Five reasons why environmental scanning is important:

1. It is used to determine the trends and developments happening in every environmental layer including
the interrelated relationships between various forces in the business environment.
2. It identifies the expected threats as well as opportunities existing in the environment.
3. It points out the possible factors that will determine the success of entrepreneurial venue.
4. It helps define the future path of the business.
5. It assists in the formulation of the most appropriate entrepreneurial strategies.

Analytical approaches used in scanning the societal environment:

1. PESTEL Analysis
- Political, Economic, Sociocultural, Technological, Ecological, and Legal forces Analysis.
- tabular framework of the trends and developments of the forces in a given environment.

Variations of PESTEL Analysis:

1. PEST Analysis
2. STEEPLE Analysis which includes Ethics as an additional factor.
3. STEEPLED Analysis which includes Ethics and Demographics as additional factors.
2. Environmental forces matrix
- broadly classifies the various environmental forces and their frequency and level of effect on the
business.
- a modified version of the issue priority matrix by Wheelen and Hunger.
LESSON 3: THE INDUSTRY ENVIRONMENT

- It is the external environmental layer where the trends and charges are easily and immediately felt by
the business.
- It is considered the immediate environment of the business where it conducts its various operational
activities.
Industry Environment and Its Forces

1. Government
- Refers to the system or institution that handles the major activities happening within its territory,
including international trade and relations.
- The type of government system operating in a particular country is highly influenced by the
business. Philippine government is both Presidential Republic and Democratic, it promotes
entrepreneurial ventures through its Thrusts, programs, and priorities.
2. Suppliers
– Refer to the individual person or a company that provide the required materials, parts or services
to the business.
– Plays crucial role in the production of goods and services. They can adversely affect the
production process if there is any delay or defect in the required raw materials and services.
– Criteria in the process of selecting supplier: the quality of the goods and services, terms of
payment, stability, ability to respond to urgent needs, and proximity of location.
3. Customers
– The buyer of goods and services produced or rendered by the business.
4. Competitors
– Forces existing in the industry environment that produces, sell, or render the same product or
services which are similar to those of the business.
– Can be classified as Direct Competitors, which produce and sell same produces or services
(example: Coca-cola Bottling Company is a direct competitor of Pepsi Cola Company) and Indirect
Competitors, produce and sell substitute products (example company that manufacture and sell
fruit juices are indirect competitors of Pepsi Cola and Coca-Cola).
5. Employees
– The workers of the business who are highly responsible for the production of goods or delivery of
services to the customers. Backbone to the business.
– They help ensure the quality and quantity of the product or services provided to the customers.
6. Creditors
– Refers to banks, financial institutions, and financial intermediaries engaged in the lending of money
to the borrower usually for a fee or charge in the form of interest.
– Provide the much-needed funds by extending credit to the business. Banks and other types of
financial institution are the major players in the economy in terms of credit expansion. They are the
regulatory arm for the flow of money in the economy.
Industry Analysis Scanning Tools

The different forces in the industry environment must be

properly evaluated and analyzed; they can be a catalyst to the
growth of the business or a primary cause of its failure. In view to
this, there is a need for the entrepreneur to scan the industry
environment to determine the strategic position of the business.
The following environmental scanning tools are:

1. Forces Competition Model

- Also known as "Five Forces of Competition",
popularized by Micheal Porter, a prominent figure in
competitive strategy formulation.
- The industry environment is a competitive
environment. No choice but to compete.
- Business must determine the intensity of competition within the industry environment, since it is
primary dependent on the competitive force existing in the industry.
- The competitive forces are all threats to profitability, growth and survival of the entrepreneurial
venture.
2. Competitive Force Matrix
- After identifying the competitive forces, entrepreneur can plot with the use of Competitive Force
Matrix.
- Provides the total perspective of the competition within the industry where the business operates.
- The possible effects and intensity of the threat of competitive forces can be high, moderate, or low.
 5 competing Barriers to the Effects of the Effects of threats to the business
forces force barrier to the High Moderate Low
force
Potential new Huge capital High xxxxx
-
entrants requirement
Bargaining
power of buyer
Bargaining
power of
supplier
Threat of
substitute
products
Rivalry among
existing firms
- The possible barriers to the competitive forces are primary determining factors that measure the
degree of threat; it can be high or low.
- The possible barrier and the threats are inversely related. If the potential barriers to the competitive
force are high, possible threats is considered low. Once the threats are considered low, the effect to
the business is also low. Thus, weak competing force in the industry may not adversely affect the
business.

Using the Forces of Competition model and the Competitive Forces Matrix, the entrepreneur will know whether
the threats are considered high, medium or low.

Barriers to the Five Forces of competitions

A. Potential New Entrants - competitive force in the industry. The intensity of threat will be affected by the
presence of the following barriers:

1. Strict government policy.

2. Substantial capital requirement.
3. Economic sale.
4. High cost of production differentiation.
5. High switching cost.
6. Difficulty in accessing distribution channels.

B. Buyers- have strong and magnified bargaining power in the industry. However it will be less, if the
following factors exist:

1. The buyer has the potential for backward integration.

2. The cost of switching the supplier cost is minimal.
3. The buyer purchases large portions of the seller's products or services.
4. There are several suppliers available in the market.
5. The product represents a high percentage of the buyer's cost.

C. Supplier - intensity of the threat to the suppliers is strong if the following factors hold true:

1. The product or service is unique.

2. The switching cost is very high.
3. Supplier in the industry is few, but the sales volume is high.
4. Substitute products are not readily available in the market.
5. The supplier has the ability for forward integration.

D. Rivalry among existing firms- the intensity of rivalry among existing firms in the industry is attributable to
the following factors:

1. Number of competing firms

2. Rate of industry growth
3. Characteristics of the product and services
4. Amount of fixed cost
5. Increased capacity
6. Diversity of rivals

E. Substitute products- substitute products can pose great threats in the industry environment of the
following factors are present:
 1. The price of the substitute product of substantially lower
2. Preferences and tastes of customers easily change.
3. The quality of substitute products dramatically improves.
4. Switching cost is low.
5. Product differentiation is hardly noticeable.

LESSON 4: ENVIRONMENTAL SCANNING: INTERNAL ANALYSIS

Industry environment have competing forces such as potential new entrants, buyers, substitute products,
suppliers, and rival firms in the business. An environmental scanning is done by an entrepreneur through
considering the threats and the possible barriers in order to determine the possible position of the business.
The environmental scanning tools that may be applied are the forces of competition model and the competitive
forces matrix. All the forces in various macro environmental layers are interrelated. Hence, the environmental
scanning procedures shall be conducted by considering such relationships.

INTERNAL OR MICRO ENVIRONMENT

 Internal Environment- refers to the environment within the business

 Micro Environment- - have different forces that are interrelated with the other forces in the business
environment.

Forces that are operating within the internal environment: Business Resources, Business Culture, Business
Structure

Business Resources

- The business resources are assets or properties owned or controlled by the business. It could either be
tangible or intangible.

Tangible Resources Intangible Resources

- Are assets of the business that have physical - Are assets of the business that do not have
appearance and form. They can be touched and physical appearance or form. They cannot be
seen. touched
- Examples are money in the form of paper bills or - Examples are copyright, patents, formula,
coins, building, equipment, machinery, office computer software, reputation , and goodwill.
supplies, inventory, land, and human resources - Provide benefits and serve as the basic
- Can be classified into Current Resources and foundation of the business.
noncurrent or fixed resources. Current resources
are used, applied, or consumed within a short
period or one year. Noncurrent or fixed resources
are properties whose usefulness or benefits
extend beyond one year.
Critical issues in the internal environment of the business:

1. Sufficiency or availability of resources- A business without resources cannot exist and a business with
insufficient resources cannot sustain operation
2. Capability- entrepreneurial venture should have the required capability to utilize the available resources

Figure 2. Availability and capability Features of Business Resources

Business Culture

- also known as the organizational or corporate culture

- It is a collection of values, beliefs, principles, and expectations learned and shared by the employees,
founders, stakeholders, and members of the management.
- Culture reflects the overall image of the business to the community. However, the business has its own
culture that is separate and distinct from the employees and management.

Types of Culture operating in the internal environment:

1. Culture of Business Organization

2. Individual Culture of the Employees

Filipinos have different culture. Because of this, the businesses in the Philippines are culturally diverse.
Entrepreneurs have the primary responsibility to handle the level of cultural acceptance and cultural integration
among Filipino workers in the business. Cultural acceptance refers to the degree by which the employees
accept the culture of unit or business. Cultural integration refers to the degree by which all units across the
business accept and share a common culture.

Business Structure

- Refers to the formal organizational arrangement of the business in terms of hierarchy of positions, flow
of communication, relationship of functional areas, and production and marketing processes.

Scanning of the internal environment

The following tools may be applied in internal environmental scanning:

1. SWOT Analysis
o Is pioneered by two Harvard Business School professors of business policy, George Albert
Smith, Jr. and Ronald Christensen. It is a popular tool to evaluate the internal environment.
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
o Strengths refer to the strong attributes or capabilities of the business that provide great
advantage in exploiting the business opportunity. Weaknesses are poor attributes or
deficiencies that give disadvantages to the business. Opportunities are business situations in
the form of products or services that must be exploited because of their potential in terms of
profit and growth. Threats are possible external events in the environment that may provide
harm to the business
2. BCG Analysis
o Developed by the Boston Consulting Group (BGC). This tool is most appropriate when there are
several products or services that are produced or rendered by the business. It is equally
effective even when the business produces only one line of product or service.
o When BGC Analysis Matrix is used, the products and services are then classified as:
 
Stars- represent products or services that have high market share but low market
growth
 Cash cows- are products or services that have high market share and high market
growth
 Question marks- are products or services that are usually facing problems
 Dogs- are products or services that have low market share and provide poor cash to the
business.
Business Competency

- A good entrepreneur has a competency. Competency is a combination of entrepreneurial concepts and

principles, entrepreneurial skills, and entrepreneurial characteristics
- The business has competency as well. It is the combined strengths in terms of resources, culture, and
structure that provide advantage to the business industry. An entrepreneurial venture may not have
been created if it does not have the required and inherent strengths in terms of resources, structure,
and culture. An entrepreneur must properly combine the strengths in business resources, culture, and
structure in order to form business core competency.
- Distinctive business competency in the industry is gained when a business is able to perform better
than its competitors due to its core competency. When an entrepreneurial venture possesses this
competency, they are considered unique in the industry in terms of product, production process, and
industry linkages.

LESSON 5: NATURE AND TYPE OF ENTREPRENEURIAL VENTURE

 The business environment is divided into two:

1. External or Macro Environment
2. Internal or Micro Environment
 External Environment Scanning - conducted to determine the availability of raw materials, the suitability
of the business to the location, the cost involved, the growth of the industry, and the possible position of
the business in the market.
 Internal Environment Scanning- conducted to determine the possible target market and the business
competency in taking advantage of available opportunities.

Two significant factors to consider before opening a business:

1. Entrepreneurial competency (entrepreneurial concepts and principles, entrepreneurial

characteristics, entrepreneurial skills)
2. Business competency (scanning of the environment, physical environment, societal
environment, industry environment, internal environment)
 At this point, the entrepreneur must be able to answer the following questions:
1. Do I have the entrepreneurial competency to exploit the business opportunity?
2. Have I critically scanned and evaluated the environment to determine the:

A. availability or sufficiency of raw materials,

B. suitability of the project to the location,
C. cost involved,
D. growth and barriers in the industry,
E. possible position of the business,
F. target customers, and
G. required business competency?
Forms of entrepreneurial venture

1. Sole Proprietorship - a business venture owned by one person only.

- most of the small businesses in the Philippines are sole proprietorship.

CHARACTERISTICS:

1. Easy to form and manage.

2. Simple business operation.
3. Has a limited pool of resources.
4. Limited growth.
5. Owner has unlimited liability.

2. Partnership - a business venture owned by two or more persons.

- Partners – the owners of the partnership.
 REASONS FOR THE SHORT LIFESPAN OF A PARTNERSHIP:

1. Death of one of the partners.

2. Admission of a new partner in an existing partnership.
3. Personal insolvency of one of the partners.
4. Permanent withdrawal of the investment of a partner.

3. Corporation - an entrepreneurial venture formed by at least five but not more than 15 persons.
- can either be stock or non-stock, profit or non-profit, and domestic or foreign.

 Incorporators – persons originally forming the corporation.

 Stockholders or Shareholders – owners of a stock corporation.
 Members – owners of a non-stock corporation.
 Certificate of Stock – an evidence of ownership of a corporation.

CLASSIFICATIONS OF CORPORATION:

Stock Corporation – authorized to issue shares of stock to stockholders.

1.
Non-stock Corporation – not authorized to issue shares of
2. stock to stockholders.
Domestic Corporation – organized under the laws of the Philippines.
3.
Foreign Corporation – organized under the laws of the foreign country but has the
4.
authority to operate in the Philippines.
Nature of Entrepreneurial Venture

 Nature – refers to whether the business is simply selling a product, manufacturing a product, or
rendering a service to customers.

CLASSIFICATIONS OF ENTREPRENEURIAL VENTURE ACCORDING TO ITS NATURE

1. Merchandising
- Merchandising business – engaged in the buying and selling of products or goods. There is no
alteration made.
2. Service
- Service business – provides services to customers.
CLASSIFICATIONS:
A. Non-professional service (e.g. laundry shops, car repair shops, beauty
parlors, educational institutions, and banking institutions)
B. Professional service ( e.g. law offices, medical clinics, and auditing and
consultancy services)
3. Manufacturing
- Manufacturing venture – a producer of goods or products.
- engaged in buying raw materials and supplies to be processed into
finished products.
- 4 Ms (manpower, method, machine, and materials)
4. Agriculture
- Agricultural Entrepreneurial Venture – engaged in the production of agricultural goods and
animals.
- may sell its products as raw materials of finished goods.
5. Hybrid Business
- Hybrid Entrepreneurial Venture – possess the characteristics and nature of combined types of
business entities.
- it is inherent in the business to produce and sell goods and at the
same time provide services to the customers.
6. Special Corporation – special types of business may include cooperatives, joint ventures, and non-profit
organizations.

Production system

PRODUCTIO
INPUT N PROCESS OUTPUT
 o Input

1. Manpower
2. Materials
3. Machine
4. Design
5. Instructions

o Production Process – “transformation or conversion” process. the materials are transformed

into the final product with the aid of manpower and machine.

1. Procurement or acquisition of raw materials and manufacturing supplies.

2. Inspection of materials and supplies upon receipt at the receiving section.
3. Storage of acquired materials and supplies.
4. Issuance of materials and supplies to the production line.
5. Inspection of damaged or broken goods and assessment of losses.
6. Rework or repair of defective goods.
7. Transfer of finished goods to the storeroom.

o Output – represents the final products from the production process and distributed to the
customers.

FOUR Ms OF PRODUCTION

1. Manpower – the human workforce involved in the manufacture of products.

- The most critical and important factor of production.

MANPOWER CRITERIA:

1. Educational qualifications and experience required for the job.

2. Status of employment, whether permanent or temporary.
3. Number of workers required for the job.
4. Skills and expertise required for the job.
5. Appropriate time the worker is needed.
6. Conduct of background checking and issuance of requirements.
7. Amount of salary or wages and other mandatory benefits.
8. Availability of potential workers in the community.

2. Method or Production Method – the process or technique of converting raw materials to finished
products.
FACTORS AFFECTING THE SELECTION OF THE METHOD OF PRODUCTION:
a. Product to produce,
b. Mode of production,
c. Manufacturing equipment to use, and
d. Required skills to do the work.
 Product to Produce
o Product – the physical output of the whole production process.
o Heterogeneous Product – has dissimilar characteristics, parts, and physical
appearance. It can be easily identified from other products.
o Homogenous Product – has a physical appearance, taste, or chemical
content that can hardly be distinguished from that of the other products.
 Mode of Production – refers to how the product will be produced.
PRODUCTION SYSTEMS:
1) Intermittent Production System – adopted when the production process is
basically short and the machines are frequently changed.
a. Project method – the product is usually substantial in size and is
bound by a specific time to complete it.
b. Job order method – the production is completed by a single employee
or a batch of employees.
c. Batch method – the production undergoes several stages and the
product is transferred from one worker to another.
FEATURES:

i. There is a variety of products to be manufactured.

 ii. The production flow is not continuous.
iii. The production is dependent on the orders of customers.
iv. The volume of production is not material.
v. The machines are for general purposes.
vi. The sequence of operations is based on product design.

2) Continuous Production System

- Adopted when the demand for the product is considered constant.
- Production is not based on the order of customers but for the
stocking of inventories.

FEATURES:

i. The production process is continuous.

ii. The production is not based on the customer’s order but on the
anticipated demand.
iii. The production is considered standardized.
iv. The products are usually homogenous.
v. The products are produced in large quantities.

3) Just-in-time Production System

- goods are produced just in time when the market needs or demands for
them.
- designed to eliminate wastage of resources and to increase productivity.
3. Machine – the manufacturing equipment used in the production of goods or delivery of services.

ELEMENTS IN SELECTING THE TYPE OF EQUIPMENT TO PURCHASE:

A. Types of products to be produced.

B. Production system to be adopted.
C. Cost of the equipment.
D. Capacity of the equipment.
E. Availability of spare parts in the local market.
F. Efficiency of the equipment.
G. The skills required in running the equipment.

4. Materials – the raw materials needed in the production of a product.

FACTORS TO CONSIDER IN THE SELECTION OF RAW MATERIALS:

A. Cost
B. Quality
C. Availability
D. Credibility of suppliers
E. Waste that the raw material may produce