The Entrepreneurial Process

Introduction
The entrepreneurial process is defined as the cycle in which mental conceptions and
ideas are transformed and translated into business ideas that represent a profitable
opportunity for the entrepreneur to harness resources and design an enterprise that
allows him/her to exploit the opportunity to make profit - but in the process also
taking calculated risk. The final stage of the process will be the nurturing of the
enterprise and the process recurs in the bid to grow the enterprise as new ideas are
transformed into growth opportunities and the entrepreneurial process recurs.
Various authors and researchers have come up with different models to describe the
entrepreneurial process. According to Moore and Bygrave (1994) the entrepreneurial
process is built on a cycle of four stages: innovation, a triggering event,
implementation and growth. They further argued that during the cycle different
variables interact with the environment to influence the entrepreneurial process. The
interaction between the environment and individual, organisational and sociological
variables define the possible path of each specific entrepreneurial event. Hisrich and
Peters (2002) identified four distinct phases of activities in the entrepreneurial
process which are: identification and evaluation of the opportunity, development of a
business plan, determination of required resources and the management of the
resulting enterprise. The entrepreneurial process therefore has some fundamental
stages common to all models regardless of the author and a combination of these
would give the generic entrepreneurial process. The entrepreneurial process from
literature therefore can be summarised in the model below. To explain the
entrepreneurial process better the following example will be used to apply the
concepts to the real world.

The activity based entrepreneurship process from literature

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Idea generation
Idea generation is the seed of the entrepreneurial process. According to Cronche et
al (2003:50) establishing a new business usually involves an idea that the
entrepreneur pursues enthusiastically. Idea generation therefore is the starting point
of transforming and translating creativity or innovation into a business opportunity.
However, Veerabhadrappa Havinal (2009) argues that the entrepreneurship process
starts with some change in the real world. Kruger (2004) expands that not all ideas
are creative, for some innovations are incremental changes or were developed by
others and adapted for use locally. Sources of ideas usually include prior working
experience, understanding the industry, and knowledge of the market. Scholars have
come up with two styles of idea generation that is scientific and artistic idea
generation.
Scientific idea generation involves a rigorous examination and analysis of the
business environment in which the entrepreneur lives, for patterns and trends that

can be capitalised into ideas or business opportunities. Scientific idea generation

mainly focuses on the business environment and has the danger of pruning other
important factors, like social and political trends, off the idea.
Artistic idea generation on the other hand includes an analysis of not only the
business environment but everything that happens around the entrepreneur.
Concentration is given to economic, political, and social trends, fashion, business
process, services offered, and manufacturing/production process. This style of idea
generation may result in both process and product innovation. It also includes an
analysis of the behaviour of intended audiences and competition is identified,
compared and contrasted for a niche or business edge.
The dangers of idea generation is that the idea might be overrated that is the best
idea doesnt necessarily guarantee success. Value of the generated idea is
embodied in the capability and capacity of the entrepreneur to transform the idea into
a product/service that appeals to the customers and hence capturing a significant
share of the market.
Opportunity Evaluation
Whether the opportunity is identified by using input from consumers, business
associates, channel members, or technical people, each opportunity must be
carefully screened and evaluated. This evaluation of the opportunity is perhaps the
most critical element of the entrepreneurial process as it allows the entrepreneur to
assess whether the specific product or service has the returns needed compared to
the resources required. This evaluation process involves looking at the length of the
opportunity, its real and perceived value, its risks and returns, its fit with the personal
skills and goals of the entrepreneur, and its uniqueness or differential advantage in
its competitive environment. Van Vuuren and Nieman (1999:6) propose that
entrepreneurs need the following entrepreneurial skills:

creativity and innovation

risk taking
Ability to have a vision for growth

The market size and the length of the window of opportunity are the primary basis for
determining the risks and rewards. These risks reflect the market, competition,

technology, and amount of capital involved. The amount of capital needed provides
the basis for the return and rewards. The methodology for evaluating risks and
rewards frequently indicates that an opportunity offers neither a financial nor a
personal reward commensurate with the risks involved.
Opportunity evaluation involves a lot of Research and Development for instance
extensive market research which requires the entrepreneur to be abreast with the
current activities in the market. The opportunity should be sufficiently compelling for it
to be chosen or capitalised on. The focus of the entrepreneur should be on the
opportunities presented to him and their net worth and this is the stage where he
asks whether it is an opportunity worth investing in.
Finally, the opportunity must fit the personal skills and goals of the entrepreneur. It is
particularly important that the entrepreneur be able to put forth the necessary time
and effort required to make the venture succeed. Although many entrepreneurs feel
that the desire can be developed along the venture, typically it does not materialize.
An entrepreneur must believe in the opportunity so much that he or she will make the
necessary sacrifices to develop the opportunity and manage the resulting
organization.
It is helpful to think of the evaluation step as continually asking the question of
whether the opportunity is worth investing in. You are actually constructing and then
continually revising an "investment prospectus."
Five basic questions are asked in evaluating an opportunity.
1. Is there a sufficiently attractive market opportunity?
2. Is your proposed solution feasible, both from a market perspective and a
technology perspective?
3. Can we compete (over a sufficiently interesting time horizon): is there
sustainable competitive advantage?
4. Do we have a team that can effectively capitalize of this opportunity?

5. What is the risk / reward profile of this opportunity, and does it justify the
investment of time and money?
If one can answer all of these questions affirmatively, there is reason to persuade
oneself that the opportunity is worth investing in. This is the first step toward being
able to convince others, whether they are prospective customers, employees,
partners or providers of capital.
An opportunity evaluation centres on considering both sides of the coin; in this case
the entrepreneur should consider the benefits derived against the costs entailed in
undertaking the business idea. The entrepreneur in simple terms should carry out a
cost-benefit analysis to find out how much funding or capital is required to start the
project against the possible benefits to be derived.
Opportunity evaluation is a necessary in identifying a business project that gives high
returns or a high net payoff. The entrepreneur should consider the risk-reward
profile. According to Forlani and Mullin, entrepreneurs consider both variability in
anticipated outcomes and the degree of hazard in a decision alternative to be major
sources of risk. The entrepreneur should assess the possible risk he will expose
himself to by undertaking the project. Possible risks could range from financial risk,
credit risk, liquidity risk, career risk,
Opportunity analysis, or what is frequently called an opportunity assessment plan, is
one method for evaluating an opportunity. It is not a business plan. Compared to a
business plan, it should be shorter; focuses on the opportunity, not the entire
venture; and provides the basis for making the decision of whether or not to act on
the opportunity.
An opportunity assessment plan includes the following:

A description of the product or service

An assessment of the opportunity
An assessment of the entrepreneur and the team, specifications of all the
activities and resources needed to translate the opportunity into a viable
business venture, and the source of capital to finance the initial venture as
well as its growth.

The assessment of the opportunity requires answering the following questions:

What market need does it fill?

What personal observations have you experienced or recorded with regard to

that market need?

What social condition underlies this market need?
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 you describe the

behaviour of this competition?

What does the international market look like?
What does the international competition look like?
Where is the money to be made in this activity?

Planning
The development of a business plan is a more standardized product scope. A
business plan is a written detail of a new business venture. According to (Hirsh,
Peters, Sheppard, 2005) business plan should not be too narrow. An effective
business plan consists of several components.
The first component is a core strategy which can be described as the unique part of
a product, or the delivery of a product of service that will make it stand out. A core
strategy must be broad to avoid limiting the growth of a start-up, but encourage
growth their core strategy was not limited as it later expanded After satisfying the
core strategy, one can assess the need for resources.
The next part of an effective business plan is the written summation of necessary
strategic resources and how to acquire and use them (Hirsh, Peters, Sheppard,
2005). Strategic resources will include personal and human characteristics needed
for the venture launch as well as the necessary money. After identifying key strategic
resources, one can assess how the business will interact with clients and other
business peoples. The next component of an effective business model is the
compilation of partnership networks (Hirsh, Peters, & Sheppard, 2005). Partnership
networks are the relationships needed to launch a new venture successfully. How to
structure the nature of business relationships should be identified and characterized.

After satisfying the relationships of partnership networks, one can advance to the
final stage of a business model, which is how to reach the customers.
The final component of a successful business plan is the written summation of the
customer interface (Hirsh, Peters, & Sheppard, 2005). The customer interface is how
the business will interact with clients. The interface may include how to reach a
particular audience, and the nature of that contact. Once the components of a
successful business model are satisfied, one is ready to advance to the next phase
of the entrepreneurial process, which is to determine the resources.
Company Launch
Launching a new venture and becoming an entrepreneur is an exciting and
challenging task. This is the stage where the dream can first become reality. The
builder then literally turns the dream into reality marking a critical juncture of the
venture. The determination of strategic resources is the last step before launching
the venture and once the venture is launched, initiation of the last phase begins,
managing the enterprise.
Entrepreneurs learn mainly from experience, so the only real way to become an
entrepreneur is to get out there and do it. One can start from scratch and learn it all
by him or herself or look at what others have already done and hope to profit from
their experiences. There are three crucial steps to be taken to start a new venture
and attempts to make short cuts and avoiding some of these steps can be
disastrous. There is, however, no need to take the steps in the same order as
suggested below but one will need to take them during the launch of the enterprise.
The process of launching a new venture can be divided into three key stages of:
1. Forming the enterprise to create value involves setting up a business
entity and protecting any intellectual property. Here the entrepreneur gets
ready to launch the venture in a way that minimises risk and maximises
returns. Once there is a sufficiently compelling opportunity and a plan, the
entrepreneurial team will go through the process of choosing the right form of
corporate entity and actually creating the venture as a legal entity.

2. Implementing the entrepreneurial strategy involves activating the

marketing, operating, and financial plans. After resources are acquired, the
entrepreneur must use them to implement the business plan. The operational
problems of the growing enterprise must also be examined. This involves
implementing a management style and structure, as well as determining the
key variables for success. A control system must be established, so that any
problem areas can be quickly identified and resolved. Some entrepreneurs
have difficulty managing and growing the venture they created.

3. Planning the future involves looking ahead and visualising where the
entrepreneur wants to go setting the foundation for growth. This sets the
mood for managing the enterprise leading the growth stage of the
entrepreneurial process.
Growth
This stage refers to a period in which the entrepreneur decides on the ventures
future growth, development, or demise. It is often referred to as the closing window.
It must be closed because if it is not, competitors will be able to move in after the
entrepreneur and exploit the opportunities themselves. Closing window refers to
building in competitive advantage, in short ensuring that the ventures customers
keep coming back, so that competitors are locked out.
It is the last stage of the entrepreneurial process and relates to that which facilitates
the continued survival of the firm, which may lead to its expansion to some optimum
size determined by the market demand (Glancey, 1998; 18). Growth is critical to the
entrepreneurial success and distinguishes the entrepreneurial venture from small
business (Wickham, 2001:303; Rwigwema and Venter, 2004:36).
Perks and Struwig (2005:171), alerts to the problem of defining growth of a business
because uncertainty exists about growth comprises. The Oxford dictionary defines
growth as An industry that is developing particularly rapidly; a company stock that to
increase in capital value rather than yield high income. Synonymous with growing
are terms booming, rising, increasing, maturing and developing.

There are five indicators for growth and these are; financial, strategic, structural,
organisational and image indicator (Wickham, 2002; 304) as briefly described below.
Financial growth
This is concerned about increases in turnover, costs and investment needed to
achieve the turnover, profits, business assets and all related value added. A firm
achieved this by expanding their business in new areas and trying to improve the
network over all over the country to increase revenue, in the process increasing
investment in equipment and manpower.
Strategic growth
This relates to changes taking place through mergers and acquisitions, exploiting
new markets, new products and new opportunities. Adding new subsidiary which
would concentrate on providing new services for corporates and other organisation.
This gave it a competitive edge to compete with competitors in the industry for
corporate organisations at the same time harnessing extra turnover for the
organisation
Structural growth
Relates to changes taking place in the way the business organises its internal
systems with regard to managerial roles, increasing employees and their
responsibilities, reporting relationships, communication links and increased use of
internal systems to control resources.
Organisational growth
This relates to changes taking place in terms of processes used, organisations
culture, management attitudes towards staff, as well as changes regarding the
entrepreneurs role as the business moves from small to large.
Image growth
This relates to changes taking place in the small business such as becoming more
formal (such as having formal business premises), moving to newly built premises,
redecorating the premises and moving to a new environment.

The activities undertaken in the growth process are linked to five strategic growth
intentions, market expansion, technological change, garnering resources, operations
and organisational development(Man et al, 2002;127).
Market expansion
For businesses to grow, they have to reach a wider business environment by
expanding existing opportunities, discovering of new ones, selling to new markets,
expanding distribution channels, expanding advertisement and promotions as well as
continuous adapting products to changing tastes. Discovery of new opportunities
depends on continually scanning the changing business environment and preparing
to exploit these opportunities ahead of, or not far behind competitors.
Technological change
This includes acquiring new equipment, computerising current operations, upgrading
computer systems, replacing present equipment. It also includes keeping up with
increases in technological knowledge.
Garnering resources
Growth h is dependent on the ventures ability to attract new resources for this stage.
Garnering resources includes evaluating whether the company has resources to
fund the growth strategy, taking action, taking risks, setting linkages with external
factors, consolidating available cash on hand, seeking additional financing and
seeking professional advice. It also includes exploring a wider range of financing
resources, applying for a loan, securing a loan, distributing finance for financing
resources.
Operations
This is where the team is continuously revisiting and streamlining every operational
aspect, from service quality to public relations. Operations aimed at growth include
being product/service- focused and growing the firms specific competences and
skills to overcome constraints and complacence and deploy resources optimally.

Organisational Growth
Growth is dependent on the company structure and the development of the
organisation towards increasing the firms competitive advantage. The venture
cannot afford to acquire asset and set up structures and systems that are incapable
of evolving as the organisation develops. As a venture grows, so does the structure,
until a complex structure emerges.
The growth stage entails a recurrence of the entrepreneurial process as new ideas
have to generated, evaluated, planned for and pursued to realised growth
opportunities. The entrepreneurial cycle then repeats itself within the enterprise
giving rise to the concept of managers being entrepreneurs.

Conclusion
The entrepreneurial process therefore is a function of individuals abilities, social,
cultural, political, psychological, and legal variables interacting with the environment
to give a specific trajectory for each entrepreneurial idea to be pursued. Enterprises
are as different as the entrepreneurs that form them and as well different
entrepreneurship models can be adopted depending on the entrepreneurs ability
and the environment the entrepreneur operates. The model from the Dukes manual
is a generic model that captures the concepts from all the different entrepreneurial
models. This implies that there is no universally accepted model and all models are
applicable in different environments.

References:

Asian Perspective Volume 27, No 3, 2003 pp 125-175.Entreprenuers and the

Entrepreneurial Processes: Historical and theoretical perspectives on

entrepreneurship in the Japanese contexts.

Cronche et al (2003), Introduction to Business Management