ENTREPRENEURSHIP STUDIES

GST 203 LECTURE 2

IDENTIFYING BUSINESS IDEAS AND OPPORTUNITY EVALUATION

Objectives of Topic
a) To enable students to be aware of sources of venture ideas and business opportunities
b) To enable students to recognize the process of opportunity recognition in their environment.
c) To enable students understand the process of generating ideas and opportunities.
d) To enable students to use their creativity and innovativeness in identifying business ideas
and tap other sources of idea generation.
e) To enable students to scan the business environment in terms of entrepreneurial
opportunities and threats.
Learning Outcomes
Upon completion of this topic, students would have been able to:
a) Examine opportunity; taking into consideration the criteria used by successful entrepreneurs,
Angels and venture capital investors in evaluating potentials ventures.
b) Discuss the difference between an idea and an opportunity
c) Generate some new venture ideas that will eventually be used in the business planning

process.
IDENTIFYING BUSINESS IDEAS
There is need to understand that, business idea is not same as business opportunity. Though, a
business idea may lead to an opportunity, however, not in all cases. A business idea is simply a
conceived notion of a probability, while an opportunity is a realisable activity (based on the
outcome of a feasibility study) that can occur prior to the formation of a business venture or after
formation.
Identifying a business idea is a holistic exercise because it takes ones Personality, Passion, Skills,
Talent and Resources to actualize this.
You may think that it is not easy to find a business idea that works for you. If you take one step at
a time you will discover that it is simpler than you think. It is important to remind you that YOU
ARE A VITAL PART OF YOUR BUSINESS.
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Your personality, passion, skills, talent and resources will play an important role in

developing a business idea that will work for you.

In any society, various levels of need exist for the different classes in the society.

Identifying Business Ideas & Opportunity Evaluation........

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Changes in taste and fashion, the rapidly changing socio-economic structure and the demand
for development and industrialization have a role to play in altering the nature and level of
need for members of these classes.

STEPS IN IDENTIFYING AN APPROPRIATE BUSINESS IDEA

Identify Your Passion: as an individual, there is need to carry out an in depth search of your person
in order to identify what gives you joy, what inspires you, what activity gives you intrinsic
satisfaction each time you find yourself doing it? Such drive or motivator is referred to as passion.
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The essence of having passion is that it helps you perfect such activities (example: the
passion for music makes one understand the rhythm, master the lyrics, see the flaws in the
beats and believes he can do better).

Passion for anything simply gives you the ability to proffer better and easier ways of
achieving that activity, and by proffering better and easier way to get it done and make it
more productive, you are creating value.

Look for a Business Idea: This is the second step in developing an appropriate marketable idea.
Think about the kind of business you want to venture into. A good idea is expected to play the role
of both enhancing personal benefits positively and creating economic development. It is also
important to determine if the business idea or venture is feasible from both technical and
commercial point of view.
Look at Your Skills: The basic question here is do I have the basic skills to actualize my business
idea? What skills do you require to actualize your dream? Is it inherent or you need to acquire the
needed skill?
Look at Your Talents: The basic question here is, are my natural abilities in line with my business
idea? When talent meets or combines with skill it forms a viable business idea.
Look at The Market Needs: In order for a business to be successful, it needs to fill a gap in your
community, local area or industry. It is usually better to develop products that would satisfy a need
at the market place. However, you must ask the following questions:
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What is your business idea?

Who are your potential customers?

What do these customers want?

How much of the product is the customer willing to buy?

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What measures are needed to ensure a repeat purchase?

Do I wish to be the market leader?

Do I need to develop new products? If yes, what new product development process
should be put in place?

What advantages do I have in serving customers?

What is your response to existing and customers competition?

How far can you go in serving customers needs?

Can you match your skills and talents with what the market needs?

Look at Your Resources: Resources are those assets you have now which may include money,
machinery, skills, talent, friends and contacts.
Look at Businesses around, you can link up with, Share Business with or Support: A common
mistake in setting up a business initiative is to recreate the wheel i.e. to start similar business or
duplicate a service around your area. It is a sound business secret to be different! Being different
will give your business a competitive edge and a step up to success.
AS A RULE
Do not start a business you do not possess the basic skill or talent to operate and do not enter
a business that you do not have a market for or the market is already in existence.
SOURCES OF BUSINESS IDEAS FOR ENTREPRENEURS
There are lots of sources entrepreneurs can derive business ideas from; however, it would require
the creativity and innovativeness of the entrepreneur to identify these business ideas from the
available sources. Some of the sources entrepreneurs can generate business ideas from are;
i.

Consumers: The entrepreneur should pay attention to his potential customers; this can take

the form of monitoring their ideas either by mentioning it informally or by formally arranging for to
express their opinion.
Ideas could emanate by monitoring what consumers need. In some cases entrepreneurs could ask
customers what kind of product they need to satisfy a particular want, or what they like or dislike
about a product.
ii.

Research & Development: Entrepreneurs could establish an R & D department to enable

them to generate ideas that will be used in developing a new product. Entrepreneurs should
constantly embark on environmental scanning, investigating markets, communities, institutions and

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online to enable them identify or generate ideas that will be used in developing new products or
improve on existing products or services.
iii.

Existing Companies: Existing companies could also establish a method of evaluating goods

and services offered to a particular segment by other producers, thereby uncovering ways of
developing new and better products.
Existing companies source for raw materials and also depend on smaller firms for various

support services, thereby encouraging entrepreneurs to fill the gap.

iv.

Government: Government agencies such as SMEDAN, CBN and Industrial Development

Centres (IDC) can assist business entrepreneurs in obtaining specific products and business
information. New products and business ideas could also come in response to government policies.
v. Distribution Channel: Information could be sought from middle men such as retailers,
wholesalers and agents. This is because they are familiar with the wants of the consumers or the
target market
DEVELOPING IDEAS INTO VIABLE OPPORTUNITIES
Take 3 important stages;
i.

Idea generation (Identification of ideas based on passion, societal needs etc)

ii.

Idea screening (determining if your talent, skills and resources can support idea)

iii.

Idea analysis and evaluation (Environmental scanning and feasibility study)

BUSINESS OPPORTUNITY EVALUATION

The establishment of any business is a product of an idea. A business idea comes as a result of
careful meditation and search of the environment, identification of opportunity and taking bold
steps towards actualizing it. A good business opportunity is indeed a key success factor for
entrepreneurship.
To set up an enterprise, the entrepreneur has to undergo the entrepreneurial experience. The
entrepreneurial experience begins with the idea for starting a new venture. The idea has to be sifted
and refined so that he can identify a new product or service to be produced or offered. However, one
has to systematically make a feasibility study and scrutinize the business plan of the proposed
venture before doing so.
Opportunity Evaluation / Analysis
What market need does my idea fill?
What personal observations have I experienced or recorded with regard to that market need?
What social condition underlies this market need?
Identifying Business Ideas & Opportunity Evaluation........

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What market research data can be marshalled to describe this market need?
What patents might be available to fulfil this need?
What competition exists in this market? How would I describe the behaviour of this
competition?
What does international market look like?
What does international competition look like?
Where is the money to be made in this activity?
SOURCES OF BUSINESS OPPORTUNITIES IN NIGERIA
Various sources of the initial new venture idea exist for business entrepreneurs. Some of these
sources are:
1. Entrepreneurs' Social Networks: Social networks encompass all the people an individual
knows, family members, friends, and business associates. People within an entrepreneurs
social network can help expand the boundaries of his rationality by expanding the
knowledge and information levels of entrepreneurs, which can lead to the identification of
more ideas and the recognition of more opportunities.
2. Prior Experience: Ones experiences in previous occupations, environments or with peers
are often source of entrepreneurial ideas and opportunities.
3. Existence of a Similar Business: In environments where businesses are preoccupations of
its residents generates admiration from potential entrepreneurs who work towards
establishing and running their own enterprise, especially if existing enterprises are
successful ones.
4. Hobby/Personal Interest: Ones interest is usually a very pervasive factor in successful
entrepreneurship. The need to identify ones interest and the possibility of it being converted
and exploited as a business venture requires that individuals are alert to evaluating the
entrepreneurial opportunities that are inherent in that interest.
5. Market Research: A deliberate search of the demand and supply levels of particular
products or services may spin information on unexploited niches in terms of supply or
demand gap to be filled. The gap may be the need to provide goods or services for markets
that are under-served, customers changing tastes and preferences that are unfulfilled,

Identifying Business Ideas & Opportunity Evaluation........

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customers needs unidentified and the need for to serve a segment of the market in terms of
pricing, packaging etc.
6. Electronic and Print Media: Some surveys are often given wide publicity in both print and
electronic media. Information on business feasibility studies, business prospects and
challenges are made known to the public. This engenders interest in business startup.
DIFFERENCE BETWEEN IDEAS AND OPPORTUNITIES
A major step in any entrepreneurial venture creation process is the recognition of the opportunity by
the entrepreneur. Opportunity recognition connotes perceiving a possibility for new profit potential
through:
(a) The founding and formation of a new venture, or
(b) The significant improvement of an existing venture.
From this broad definition, opportunity recognition can be conceived of as an activity that can occur
both prior to firm formation and after formation of the firm through into the life.
An idea for an entrepreneurial business does not necessarily equate to an opportunity although it is
always at the heart of an opportunity. Entrepreneurship is a market driven process, other factors
must exist to support the new product idea for it to become an opportunity as potential customers
must want the product. Hence, we can think of the idea as a stepping stone that leads to an
opportunity. Opportunity recognition is therefore a process.
SCANNING BUSINESS OPPORTUNITIES IN NIGERIA
Once the entrepreneur perceives opportunities, it becomes important to scan the environment.
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It is quite possible that many of the promising opportunities might not make commercial
sense.

Scanning involves close examination of the environmental conditions and their impact upon
the business idea.

It is an attempt to look beyond the immediate opportunities to the emerging trends.

An attempt can be made to modify, adapt, rearrange, substitute, combine, reverse, etc.

Business opportunity scanning is the study and interpretation of the political, economic, social and
technological events and trends which influence a business, an industry or even the total market.

Identifying Business Ideas & Opportunity Evaluation........

By Elikwu Michael (PhD in View)

Business opportunity scanning is necessary to decide strategy. Opportunity scanning can take place
in business eco-system, covering technology, economy, market, finance, competitors, demography,
supplier, government and labour markets.
Scanning for Business opportunities cover:
a)
b)
c)
d)
e)
f)
g)
h)

Technology, basic research and development, application of research and development;

Government regulations;
Economic conditions;
Buyer strengths;
Demographic, economic, attitudinal, awareness, educational;
Labour markets;
Competitors; and
Supplier strength.

Two more factors of the, the environment and legal factors, are defined within PESTEL analysis.
The segmentation of the micro environment according to the six factors of PESTEL analysis is the
starting point of the Business opportunity scanning. The six environmental factors of the PESTEL
analysis are the following:
Political factors:
Taxation policy
Trade regulations
Government stability
Unemployment policy, etc.
Economic factors:
Inflation rate
Growth in spending power
Rate of people in pensionable age
Recession or boom
Customer liquidation
Socio-cultural
Age distribution
Education levels
Income levels
Consumerism
Diet and nutrition
Population growth
Life expectancies
Religion
Technological factors
Technological changes
New or improved distribution channels
Improved communication and knowledge transfer, etc.
Environmental factors
Laws on waste disposal, energy consumption, pollution monitoring, etc
Legal factors
Unemployment law
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Health and safety

Product safety
Advertising regulations
Product labelling, etc.
Ecology
Affects customers buying habits
Affects the firm production process
Potential suppliers
Labour supply: quantity and quality of labour available.
Material suppliers: delivery delay, level of competition to suppliers
Service providers: special requirements.

VALIDATING BUSINESS IDEAS AND OPPORTUNITIES

Entrepreneurship is the capacity and willingness to take risks and develop, organize and manage a
business venture for process of starting a business, developing a business model, acquiring the
human and other required resources, and taking full responsibility for its success or failure.
Deciding and validating a business is a process that involves:
1.
2.
3.
4.

Opportunity scouting
Opportunity Scanning
Choosing most feasible and viable business idea (Feasibility analysis)
Developing business plan

Opportunity Scanning
Once the entrepreneur perceives opportunities, it becomes necessary to scan or carry out close
examination of the environmental conditions to determine their likely impact upon the business
idea. This includes

Macro environmental analysis

SWOT analysis
Product/Service Analysis

Macro-environmental Analysis

Political environment-government ideologies and policies

Technological environment invention and innovation
Socio-cultural environment customs, norms, traditions, values, religion, ethnics
Legal environment labour and business laws, e.g. copyright, trademark infringement, dumping

and unfair competition.

Economic environment liberalization, globalization, economic reforms

Identifying Business Ideas & Opportunity Evaluation........

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SWOT ANALYSIS

Strengths positive internal factors that contribute to an individuals ability to accomplish

his/her mission, goals and objectives e.g. staff experience

Weaknesses negative internal factors that inhibit an individuals ability to accomplish his/her

mission, goals and objectives e.g. finance

Opportunities positive external options that an individual could exploit to accomplish his/her

mission, goals and objectives e.g. increasing demand for product in question.
Threats negative external forces that an individual could exploit to accomplish his/her
mission, goal, and objectives. These could arise to competition, change in government policy,
economic recession, technological advances, etc.

FEASIBILITY ANALYSIS
Entrepreneurs do not lack creative ideas, but .Is a particular idea a viable foundation for creating
a successful business?
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Feasibility study address the question: Should we proceed with the business idea?

A feasibility analysis: Is the process of deciding the Right Business Idea and being creative and
innovative to get the best bet.
- It serves as a filter, screening out ideas that lack the potential for building a successful business
before resources to building a business plan. Is an investigative tool.

Elements of a Feasibility Analysis

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Industry and
Market Feasibility

Product or Service
Feasibility

Financial
Feasibility
Industry and Market Feasibility Analysis
Two areas of focus:
1. Determining how attractive an industry is overall as a home for a new business.
2. Identifying possible niches a small business can occupy profitably.
Five Forces Model
Five Forces interact with one another to determine the setting in which companies compete and,
hence, the attractiveness of the industry:
Rivalry among companies in the industry
Bargaining power of suppliers
Bargaining power of buyers
Threat of new products
Threat of substitute products or services
Threat of Substitute
Product or Service Feasibility Analysis

Primary research: Collect data firsthand and analyze it

- Customer surveys and questionnaires
- Focus groups
Secondary research: Gather data that already has been compiled and analyze it.
Prototypes
In-home trails

Financial Feasibility Analysis

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Capital requirements an estimate of how must start-up capital is required to launch the

business
Estimated earnings forecasted income statements
Return on investment combining the previous two estimates to determine how much investors
can expect their investments to return.

DEVELOPING BUSINESS PLAN

The business plan is a written document that serves as a roadmap or blue print in the entrepreneurs
journey from start-up to project implementation. It is a written summary of:
An entrepreneurs proposed business venture
The operational and financial details
The marketing opportunities and strategy
The managers skills and abilities
A business plan is the best insurance against launching a business destined to fail or mismanaging a
potentially successful company.
Essential Functions of Business Plan

It helps the entrepreneur to decide where he wants to go.

It helps him to determine the viability of the venture
It provides guidance to the entrepreneur in planning, organizing, and even in identifying

possible roadblocks.
It is a pre-requisite to obtain finance.

A Business Plan Must Pass 3 Tests

1. The Reality Test proving that: a market really does exist for your product or service. You
can actually build or produce it for the cost estimates in the plan.
2. The Competitive Test evaluates: a companys position relative to its competitors.
Managements ability to create a company that will gain an edge over its rivals.
3. The Value Test proving that: a venture offers investors or lenders an attractive rate of
return or a high probability of repayment.

Key Elements of a Business Plan

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Cover Page and Table of Contents Name and address of business and principals. Nature of

business, statement of financing needed, statement of confidentiality of report.

Executive Summary a brief overview of the complete business plan to give true picture for

quick reference.
Mission Statement how the business will get to where it wants to go
Company History how the business comes into existence and its prospects.
Business and Industry Profit future outlook and trends, analysis of competitors, market

segmentation and industry forecasts.

Business Strategy (Cost leadership, focus or differentiation)
Description of Products/Services types, effects, demand satisfaction drive
Market Strategy market segment, estimated market share, demand analysis, distribution,

pricing, etc
Competitor Analysis strength and weakness of existing entrepreneur areas to take to

advantage.
Description of the Management Team profile of principal staff, experience and skills to

exploit.
Plan of Operations manufacturing process, physical plant, machinery and equipment, names

of suppliers of raw materials.

Projected Financial Statements proforma income statement, cash flow projection, proforma

balance sheet. Break-even analysis, payback period, sources and application of funds.
Organizational Plan form of ownership, partners or principal shareholders, authority of
principals, management-team, background, roles, and responsibilities of members of

organization.
Business Environment Analysis likely areas of weaknesses and challenges, new technologies,

competency plans.
Attachments and Maintenances letters, market research data, leases or contracts, price lists
from suppliers.

Conclusion
Launching a new business begins with opportunity scouting and idea generation. Opportunity
scanning and feasibility analysis help an entrepreneur settle for a particular enterprise. Creating a
business plan will be valuable primarily because of the process itself. The business planning process
may provide insight to increase the chance for success. The business plan: entrepreneurs benefit;
lenders and investors demand it.
SELF-ASSESSMENT QUESTIONS
1. What do you understand by the term business opportunity? What is the relevance for an
entrepreneur?
2. Differentiate between Business ideas and opportunities
3. Differentiate between a feasibility study and business plan
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