MODULE NO.

4: Product Development, Operations, and

Financial Plan

LESSON NO. 4: Product Development, Operations, and

Financial Plan

At the end of this module, the students will be able to;

1. Understand the fundamentals of product development.
a. Develop a product or service description
b. Create a prototype of the product or service
c. Test the product prototype
d. Validate the service description of the product with potential
customers to determine its market acceptability.
2. Describe the 4Ms (method, man power, machine, materials) of operations in
relation to the business opportunity.
a. Select/pinpoint potential suppliers of raw materials as well as
technology/ machine requirements and other inputs necessary for the
production of the product or service.
b. Discuss the value/supply chain in relation to the business enterprise
c. Recruit qualified people for one’s business enterprise
3. Develop the business model
4. Forecast the revenues of the business
5. Forecast the cost to be incurred
6. Compute the profits
7. Create the company’s five-year projected financial statements.

Entrepreneurship and Economic Development of the Philippines 1

 Overview

The business plan will not be complete if the operations and financial plan are
not included. These two play a crucial role in ensuring that the business is operationally
feasible and financially viable. Even if the marketing plan looks promising, the business
will not be successful without a detailed operations and financial plan. These two will
tell if the big idea generated through product development process is realistic.
This module will introduce you to the fundamentals of product development and
the operational requirements of a business represented by the 4Ms – manpower,
method, machine, and materials. You should learn the methods before
commercializing a product or service. You will understand how to identify and comply
with the business requirements before running an enterprise. You will also know the
importance of crafting a business model as a blueprint of the business operations.
Last, you will be taught on how to account actual and future performance of a business
enterprise through reparation and analysis of financial statements.

Entrepreneurship and Economic Development of the Philippines 2

 Study Guide

Toward the accomplishment of this module, learners are expected to:

 Read the topics and contents in depth;

 Access the links for further readings (if possible);
 Answer all the provided learning activities;
 Complete the assessment task at the end of the module;
 Submit the assignment on or before the indicated deadline; and
 Consult various reading materials for additional information.

The module is composed of several parts that will help you attain the set
outcomes and apprehension of the lessons. This includes:

 Topic Presentation;
 Guided Exercises/Learning Activities;
 Assessment;
 Assignment; and
 References.

The parts of this module are laid out to assist you to better understand and
assimilate the contents of this session. As we are conforming to the New Normal, this
module will serve as a paramount instructional material to cater the diverse needs and
situations of our learners. Because of this, it is crucial that you do not only finish the
module but to also comply with the following requisites/outputs:

 Summary on website’s privacy policy;

 75% passing score in assessment; and
 On-time submission of module.

Entrepreneurship and Economic Development of the Philippines 3

 Learning Competency

1. Understand the fundamentals of product development.

a. Develop a product or service description
b. Create a prototype of the product or service
c. Test the product prototype
d. Validate the service description of the product with potential
customers to determine its market acceptability.
2. Describe the 4Ms (method, man power, machine, materials) of operations in
relation to the business opportunity.
a. Select/pinpoint potential suppliers of raw materials as well as
technology/ machine requirements and other inputs necessary for the
production of the product or service.
b. Discuss the value/supply chain in relation to the business enterprise
c. Recruit qualified people for one’s business enterprise
3. Develop the business model
4. Forecast the revenues of the business
5. Forecast the cost to be incurred
6. Compute the profits
7. Create the company’s five-year projected financial statements.

Entrepreneurship and Economic Development of the Philippines 4

 Topic Presentation

Fundamental of Product Development

Before commercializing a new product or service, the entrepreneur must focus
first on refining the product or service and validate its market acceptability. This new
product does not have to be a totally new product. It can be a new product line from
the existing business of the entrepreneur, a product line expansion, an enhancement,
or a repositioning of an existing product. Product development is the process of
developing, testing, and commercializing a product or service with the ultimate
objective of solving the problem of the primary target market. It is composed of four
sequential steps: (1) developing a product or service description, (2) creating a
prototype, (3) testing the prototype, and (4) validating the market.

Product or service Description

The product or service description simply describes how a product or service
works and how it benefits the customers. A clear product or service description is
important because this will serve as the blueprint of all business operations. Therefore,
the entrepreneur has to take note of the following regarding the product or service
description:
1. It should directly address the primary target market in a personal manner
using everyday language. The entrepreneur should put himself/herself in the
customer’s shoes, where the product description will be addressed to.
2. It should highlight the features that will cater to the customer’s needs or
address the customer’s problem.
3. Realistic superlatives should be used for the product description. Motherhood
statements such as “world-class service or product excellence” may not
matter to the customers at all.

Creating a Prototype of the Product or Service

After defining the product or service, you may now proceed with one of the
most exciting but also very challenging parts of product or service development: the
creation of a prototype. A prototype is a preliminary model or sample of a new
product or service that is created to test a product concept or service process. This is
an exciting process for the entrepreneur because he/she will be able to see that
his/her ideas will soon become a tangible reality. The entrepreneur’s creativity and
ingenuity will be used in creating the prototype.

Entrepreneurship and Economic Development of the Philippines 5

 According to Entrepreneur (www.entrepreneur.com), creating a prototype
lessens implementation/commercialization risks and provides the entrepreneur a
bunch of advantages as follows:
1. Creating a prototype enables the entrepreneur to engage in trial-and-error,
provides room for improvements, and refines the functionality of the product
design or service process. It is very expensive and risk-intensive to
commercialize a product without creating a prototype.
2. Creating a prototype provides the entrepreneur a window to test the
performance and specifications of various materials and service processes.
Every detail of the product or service should be scrutinized carefully, and all
flaws be addressed right away before commercialization.
3. A prototype helps the entrepreneur effectively describe the product or service
to the product team. Members of the product team include marketing,
operations, engineers, suppliers, business partners, and legal and human
resources. It provides the product team the information needed to create the
right product or service as planned.
4. Creating a prototype elicits respect from key stakeholders and customers. At
the same time, a prototype gives credibility to the entrepreneur. Some
entrepreneur only present vague and big ideas but no details as to its
feasibility and implementation.
Creating a prototype is stage where the entrepreneur can experiment,
develop, and make some improvements in the potential product or service. The
objective of the entrepreneur as this stage is to verify if the product or service
concept will work as the simplest, fastest, and cheapest way.
One technique for creating the best prototype is by studying the competitor’s
product or service. The entrepreneur will try to scrutinize the parts and functions, as
well as the design and other attributes of that product, in hopes that he or she will be
able to address some problems in the competitor’s products and come up with the
most efficient and effective prototype. As for the services, the entrepreneur may try
availing the competitor’s services and will take note of their operations, such as
service delivery, location, facilities, and ambiance. He or she will then take note of
the pros and cons of the service to create a prototype, simulate the service by trying
it with his or her friends or relatives, and then get their feedback.
Some entrepreneurs create a video presentation or a miniature prototype, so
they will be able to explain the details, if the product is to be viewed by a panel of
specialists (e.g., engineers, developers, scientists). The scope should be related to
the entrepreneur’s budget. After creating the prototype, he or she should be ready to
test it.

Testing Product Prototype

All the efforts exerted in the creation of a prototype will be put to waste if the
prototype will not be tested. Testing the prototype is a vital process before an actual
product or service is launched to the market. Testing the prototype will uncover the
final loopholes that need to be fixed before commercialization. It gives the
entrepreneur a leeway to examine and scrutinize the prototype and provide feedback
as to what can be improved before the launch. These improvements and changes

Entrepreneurship and Economic Development of the Philippines 6

 must be completed first before moving forward to the next step. For a prototype that
has already been refined, testing is for the last time after the changes have been
made ill validate its readiness for commercialization. The following testing methods
are applied by the entrepreneur:
1. Focus group discussion – the participants will provide relevant insights
about the new product or service. The objective of the FGD is to identify
errors, deficiencies, and issues that may impede the success of the product.
Participant also need to provide suggestions, and practical solutions on how
to improve these deficiencies.
2. Legality and ethical test – prior for launching, the entrepreneur must ensure
that the product or service complies with all relevant laws and regulations and
has a necessary license or permit to operate a particular business. For
example, food products must be cleared first with the Bureau of food and
drugs (BFAD) before manufacturing/production of goods or offering of the
service does not generate ethical issues such as being threats to health,
safety, and environment.
3. Safety test – The entrepreneur must ensure that the product is safe to use,
safe to be consume (food and beverages), and safe to be applied (cosmetics
products). The product should not in any way harm the customer or put the
customer in peculiar situation. In services the entrepreneur must ensure that
the processes to be performed by the service provider must not be
detrimental to the safety and health of the customer.
4. Product costing test – The entrepreneur must examine every stage of the
manufacturing process or every process of the service blueprint to evaluate
and finalize the costs involved. This is the time when the entrepreneur can
match the expected costs versus his/her budget. Modification in the
manufacturing process or service blueprint can still be made at this point to
align with the cost objective of the entrepreneur.
5. Component test – Each component of the product or service must be tested
independently to identify component failures for goods or service failures for
services. Any failure identified must be redesigned and tested again until it
becomes fully operational and functional.
6. Competitors’ product/service test – The entrepreneur must test a similar
line of products or the competitors’ product or service itself to compare and
get the best practices to be applied to the new product or service.
Testing the product prototype is mandatory to ensure that the product or
service will not fail the customers and will deliver its definitive purpose. This will elicit
customer’s satisfaction and, eventually customer loyalty and retention. This is the
time to approved that the concept formulated by the entrepreneur will work and is
feasible in real life. All the mistakes accounted for and the improvements to be fixed
should be performed first prior to commercialization of the product or service.

Entrepreneurship and Economic Development of the Philippines 7

 Validation of Market Acceptability
Validation of market acceptability is the process of finding out if the intended
primary target market will be buying the product or availing the service. Market
acceptability is a critical factor that the entrepreneur must validate before launching
the product or service, because this can strongly suggest if the business will be
successful or not. It either validates or disconfirms the perception of the entrepreneur
about the suitability of the chosen primary target market. It also test whether the
value proposition and unique selling proposition are appropriate there’s a need to
improve on them. This is also the time to deeply understand the value that the
product or service brings to the customers and their prospective purchase behavior,
because it helps the entrepreneur build the relevant and meaningful product or
service. This process is the last step before the product or service can be introduced
to the market. The following objective questions are more likely to be answered in the
whole process of market acceptability validation:
1. Will the primary target market like the product or service?
2. Will the primary target market like the product or service when it is already in
the market?
These questions can easily be answered if the entrepreneur will perform the
following activities:
1. Use the most strategic marketing research too (FGD, survey, observation,
interview, online survey, e-mail, or a combination of these research tools),
wherein the entrepreneur can get the most relevant answer in the cheapest
way possible.
2. Prepare relevant open-ended question that answer the objective above. Do
not go around the bush and be straight to the point. Keep the questions to a
minimum because the target market got get bored and the finish the whole
questionnaire.
3. Find the market experts who also target the same market but are not directly
competing with the entrepreneur. For instance, a market expert sells cars to a
specific market segment and it so happens that an entrepreneur sells real
estate. The entrepreneur can leverage on the knowledge of the market expert
regarding that market segment because they almost have the same
demographic data requirements. The entrepreneur can use these data to
improve the product or service.
4. Collate all the data, analyse them, and prepare a summative report that
answers the objective questions that were mentioned earlier.

The 4ms of Operation

The operations plan in an important part of the business plan because it
simply states the detail in operating in business. Operations management, on the
other hand, controls the implementation of the business plan. A strong operations
plan should have the four operational aspects called 4ms of operations; the methods,
or the processes to be followed in effectively manufacturing or delivering product or
service; the manpower, or the right human resources who will handle certain

Entrepreneurship and Economic Development of the Philippines 8

 business operations; the machines, or the technology used in efficiently operating the
business, and the materials to be used in creating a product or performing a service,
which includes supply chain management.

1. Methods
The methods aspect represent the day-to-day operations of a business. It
describes how an entrepreneur will run the business from all facets of the business
such as the manufacturing of goods, service delivery process, distribution of goods
and services, logistic for delivery of goods, and inventory management, to name a
few. The entrepreneur has to be very detailed in formulating these processes and
must ensure that the customer experience will be pleasant and seamless. Internally,
the processes must also abide with industry standards and policies where the
business belongs (e.g., ISO certification)
The entrepreneur must also set standard operating procedures (SOPs) both
in manufacturing goods and rendering of services. These SOPs must be monitored
to validate compliance. The entrepreneur must also critically consider the effects of
these processes to the environment and to the public.
Manufacturing of goods (Schaper and Volery, 2004)

The entrepreneur who will engage in producing his or her own products will
have to consider the basic guidelines and principles in manufacturing. Manufacturing
is the process of translating raw materials onto finished goods that are acceptable to
the customer’s standards. It consists of three elements:
• Inputs- the materials or ingredients to be used in creating the product
• Process- the transformation phase where inputs are processed by manpower
and machines to come up with the final product
• Output- the final product of the process stage, which is intended to be sold to
target customers
The entrepreneur must also consider the most efficient manufacturing site in
which the manufacturing process will take place. Depending on the entrepreneur’s
objective and financial capacity, he/she can opt to have any of the following
manufacturing sites:
• Home-based – Most startups do not have financial capacity to establish a
manufacturing site. Thus, their only option is to manufacture goods at home.
This option is the cheapest and highly flexible. The entrepreneur can start
with products that are usually manageable to be processed at home such as
food products and customized clothes.
• Commercial space for rent – This is advisable if the business really requires a
commercial space for the processing of goods and if the home option is not
viable anymore. A commercial space gives the entrepreneur a more
specialized and suited manufacturing site than manufacturing at home.
However, this is more expensive than manufacturing at home and requires
long-term commitment because the entrepreneur will need to sign a lease
agreement.

Entrepreneurship and Economic Development of the Philippines 9

 • Commercial space purchase – This option requires the biggest amount of
capital expenditure, but it also provides the entrepreneur substantial freedom
and flexibility to design and run the commercial space. Compared with
renting, purchasing a commercial space is considered more of an investment
than an expose.
Once the entrepreneur has chosen a manufacturing site, he/she should
consider location, where the delivery of raw materials and finished goods will be
conducted. The transportation routes from or to the manufacturing site should be
efficient, so that the delivery of raw materials and finished goods will be seamless.
The location should also be accessible to major types of transport vehicles. Last, the
location must operate in an environment-friendly manner so as not to contribute to
various types of pollution in the environment.
The internal layout or the floor plan of the manufacturing site must also be
critically done by the entrepreneur because it affects the efficiency of the business
operation. Each space should be maximized to save on manufacturing costs
(specifically overhead costs). An efficient floor plan illustrates how raw materials and
finished goods can efficiently be transferred, processed, and released from one
processing unit to another. There are two options for the floor plan: (1) the product-
based layout, where the facilities are prearranged according to the flow of the
manufacturing operations, and (2) the process-based layout, where the facilities are
grouped according to their function.
Last, the entrepreneur must prepare a manufacturing process flow, which
serves as a step-by-step guide of the employees and the manufacturing equipment.
The objective of the process flow is to ensure that the right inputs are properly used
in production, that the process is performed according to the set standards, and that
acceptable outputs are produced. Not having a process flow will result in
inconsistencies in the process, high expenses, and disagreements among
employees.
The entrepreneur’s ultimate objective for all the operational processes is to
ensure that maximum efficiency are met – from the requisition of materials to
processing them into finished goods up to the distribution to customers.
Service Delivery Process
The entrepreneur who will engage in a service business must be more
meticulous when it comes to the service delivery process. This is because
services are intangible, and the only way the customer can appreciate the
service is by remembering how pleasant his/her experience was. Moreover, a
seamless service saves the entrepreneur a huge chunk in operational costs.
Service entrepreneur must prepare a detailed flowchart of the service
business, which is also called a service blueprint. Every process in the
blueprint must be relevant to the service business to minimize wastage. The
service bottlenecks must be addressed immediately to avoid customer
complaints. Bottlenecks is a part of the process where there is an apparently
inefficiency and where the customer waits longer. The service entrepreneur
must develop script that the service provider will follow to serve the customers
better and to establish standard processes.

Entrepreneurship and Economic Development of the Philippines 10

 In terms of the floor plan, the service entrepreneur must design it
according to the most efficient way in performing the service, which can be
based on the internal structure of the service business, service delivery
requirements, or customer requirements. For example, a barber shop should
place the receptionist in front so that customers can easily inquire of the
service that they will avail.
Distribution Method
One of the basic processes to be considered thoroughly is the
distribution process. Distribution is the processes of bringing the products or
services to customers. In selling physical goods, the entrepreneur must plan
the location, the processes, and the distribution of the products to the
customers. The entrepreneur mat also buy the finished goods from the
manufacturers and plan how to distribute them efficiently to target distribution
centers or the customers. Distribution is not a straight process from the
entrepreneur to customers; thus, the term supply chain or distribution channel
was coined. The manufacturer will deliver the products to the distributors, to
the wholesalers, to the retailers, and then finally to customers. Each member
in the supply chain will have a fair share in the profits, which may be
squeezed if the supply chain grows longer. This is why there is a tendency to
impose higher markups on the product price. It is now up to the entrepreneur
on what distribution channel strategies he/she will employ depending on the
product or service he/she will offer.
As mentioned, there are certain people involved in the supply chain.
First is the manufacturer. The manufacturer handles the invention,
development, and production of the product or service. Entrepreneurs can be
manufactures of a product or a service. Most often, budding entrepreneurs
become manufacturers when they introduce a new product. Most established
products or services in the market are owned by top corporations. The great
thing about being a manufacturer is that entrepreneurs can manage the entire
supply chain. Manufacturers take charge of acquiring materials, production
and delivery schedules, product quality, and inventory or safety management.
Manufacturers also handle product delivery, marketing, and selling. Because
of this, manufactures often seek the help of distributors or agents for the
distribution of goods.
Distributors are entrepreneurs who often buy products or services to
the manufacturers and sell them at a markup price to either wholesalers or
retailers. Distributors buy the products in bulk for discounted price. The
bought products or services are now owned by the distributors, so any
damage, spoilage, or other liabilities to the product will be their sole
responsibility. Distributors become wholesalers when they sell the product to
another distributor.
Agents, on the other hand, don’t own the products or services
because they do not buy these from the manufacturer. Instead, they negotiate
with buyers as to how much or how many are to be sold, so the manufacturer
will be able to deliver the goods directly to the buyer. Agents get the
commission for every product sold. Some agents to consignment, wherein
agents get the products in advance to demonstrate them live to the

Entrepreneurship and Economic Development of the Philippines 11

 customers. If unsold, agents just return the merchandise to the
manufacturers. They are not held liable for any damages or losses incurred.
Manufacturers turn to distributors when they have limited resources or
they don’t have people with expertise in selling the product. The distributor or
agent can assist the entrepreneur/manufacturer in the following: (1) sharing
industry knowledge, behavior, and activities of the primary target market, (2)
pertinent rules and regulations imposed by the government, (3) best practices
in marketing and selling product, (4) best practices in operating the business,
and (5) their respective sticky relationship with business associates such as
suppliers, financial institutions, or retailers, to name a few.
Payment Process
The entrepreneur must also establish a seamless payment process.
Generally, there are no problems if the customers pay in cash. But there are
instances when they do not want to pay in cash and are usually attracted by
flexible and payment terms such as credit cards, instalment plans, or a simple
accustomed-friendly counts payable or pautang. The entrepreneur must
ensure that credit payments are seamless and that the customers are aware
of terms and conditions of the credit.
Some entrepreneurs put point-of-sale (POS) machines in their shops
to accommodate those who will pay through their credit or debit cards. For
traditional ones, they put the credit purchase in a ledger and indicate the due
dates. Ones the due arrived, the entrepreneur has to collect payments from
the customers. The objective for all entrepreneurs is to ensure efficient
collection of accounts receivables and avoid bad debts. He/she must conduct
due diligence first before allowing a customer to purchase via credit.

2. Manpower
At the beginning of the entrepreneur’s business, he/she usually maximizes
himself/herself, his/her partner, or his/her family members to handle all the aspects of
the business. But as it grows, the entrepreneur will need the expertise of qualified
employees that can handle operational functions, so that he/she will be free from
daily activities and can thus focus on the strategic and management functions of the
business. The entrepreneur needs a plot a table of organization based on his
business objectives. Each position has to be relevant.
To verify if a position is really necessary, the entrepreneur must devise a detailed job
description and job qualifications of the future employee. This will be his/her basis in
deciding whether to hire an employee or not. The entrepreneur must be very keen in
selecting and hiring an employee. He/she must ensure that due diligence is
performed to check the background of the applicant. Manpower is one of the highest
costs of operating a business but is also the most instrumental to its success. Having
the right people encompasses a myriad of advantages.

Job Description
Job description enumerates the duties and responsibilities of the potential
employee, including the scope, limitations, and terms and conditions of employment.

Entrepreneurship and Economic Development of the Philippines 12

 The heading of a job description is the job title, which is the summary of what the
employee will do. The entrepreneur should devise a respectable and decent job title
because the title boosts the self-confidence of the employee.
After the job title is the compensation and benefit is the compensation and
benefit range, which details the potential salary and benefits that the employee will
get. Next are the duties, which clearly describe the job that the employee will assume
with allowance for flexibility. Duties are usually high-level descriptions only.
Responsibilities and accountabilities follow next, which must be communicated well
to the employee so that he/she knows what to expect with the job.
Work schedules, including work hours, must also be clearly indicated in the job
description. The specific days and working hours must be written so that the
employee will be able to align the work schedule with his/her personal schedule.
Work schedules are highly driven by business requirements (e.g., a security agency
business will need to indicate the work schedules of the security guards it will hire).
Employee Qualification
In hiring suitable employees for the job needed, entrepreneurs will have to
look for the following criteria:
1. Educational background – This gives the entrepreneur an idea on the
degree of the candidate’s knowledge of basic things. However, it is not the
sole factor in selecting candidate.
2. Work experience – This will tell him/her what to expect from the applicant
and what he/she can potentially contribute to the business based on his/her
past positions and experiences. This will also establish the training needs of
the candidate.
3. Specific skill or knowledge – This one is important especially on technical
jobs that require high proficiency. It will be easy for entrepreneurs to place
highly skilled people into specialized jobs because they can help right away.
This is also less expensive because entrepreneurs don’t have to train them
thoroughly to acquire such skills. Examples of potential candidates that have
specific skills or knowledge are engineers, architects, accountants, and
information technology specialist.
4. Work attitude – This deals with the worker’s integrity and how he/she deals
with his/her coworkers, bosses, and customers. Entrepreneur also need
people with relationship skills because communication is important in applying
their expertise. A good work attitude involves being punctual, having good
leadership and communication skills, being a team player, making ethical
decisions, obeying superiors, and being passionate and dedicated to the
company. Entrepreneurs, however, will decide what they are looking for in
selecting the candidate.

Preparatory Selection of Job Applicants

Once the job description and employee qualifications are finalized by the
entrepreneur, he/she now preselects a set of candidates for the positions required.
When the business is already sizeable, entrepreneurs usually establish a human

Entrepreneurship and Economic Development of the Philippines 13

 resource (HR) department that will handle the selection and recruitment of
candidates. The entrepreneur can initially choose from his/her personal list
trustworthy people whom he/she thinks can contribute to the business venture. If this
list does not exist, he/she can turn to employment agencies or manpower agencies
that can do the job.
Headhunters help companies find a set of people suited for their
requirements. They usually charge a finder’s fee once the entrepreneur has decided
to accept an applicant. Manpower agencies, on other hand, recruit temporary
employees under a short contract, usually on a six-month period. The entrepreneur
can also opt to advertise job vacancies via print such as general circulation
newspaper or other publications if the intention is to promptly get a candidate from
the public. If the intention is to hire candidates with specific knowledge or skills, the
entrepreneur must turn to magazines or publications of the specific industry where
the prospect belongs (e.g., the magazine blueprint if the entrepreneur wants to hire
architects)
One viable option is to consider recommendation and referrals from friends,
relatives, or business partners with an untainted reputation. Recommendations from
those with doubtful characters should of course not be considered by the
entrepreneur. Another move is to look for his or her business network, or the people
whom the entrepreneur has worked with in the past. This is a better way of
preselecting the employee than the traditional way (interviews) because the
entrepreneur already knows the work ethics and qualifications of the potential
employees.
Last, one of the revolutionary ways of preselecting potential employees is
through digital media. With the power of the internet, an entrepreneur can easily post
job vacancies through his or her web site, social media accounts, e-mails, online
affiliates, search engines, podcasts, or blogs. He or she can also choose to advertise
via mobile through either short message service (SMS) or mobile application, or
simply mobile apps.
Selection of job applicants

Once the potential candidates are pooled, the entrepreneur must now do the
difficult task screening them and picking the most qualified and most suited for the
job. Preliminary screening can easily be done because the entrepreneur will just
need to refer to the required qualifications and eliminate those who did not qualify.
The entrepreneur or the HR department can now conduct a series of interviews for
the shortlisted candidates with the objective of getting the most qualified candidate
for the job.
Some established businesses even conduct qualifying examinations in math,
English, and logic before they hire an employee. Some may give qualitative
examinations or psychology tests that require the candidates to answer in essay form
or in multiple choice. Here are some common questions being asked in an interview.
However, it will be up to the entrepreneur or the HR personnel to ask relevant
questions to the interviewee.
1. What are your strengths that you can contribute to our organization?
2. What are your weakness that can prevent you from working effectively in our
organization?

Entrepreneurship and Economic Development of the Philippines 14

 3. What exactly did you in your previous job(s)? How will these past experiences
contribute to our organization?
4. What were your significant milestones in your previous job(s), and why do you
consider them as such?
5. Can you discuss the things you now about our organization? Why are you
interested to join our organization?
6. What are your career plans for the next five years if given the chance to work
with our organization?
7. Can you describe your work ethic? How do you work with a team and with
your superior?
Depending on the business requirements, the entrepreneur or the HR
personnel will ask more specific questions related to traveling out of town or
overseas, working at night or at odd hours, working on holidays and weekends,
willingness to do other functions, and so on. Both the entrepreneur promotes and the
candidate must set realistic expectation for both parties. In reality, the entrepreneur
promotes the business to a candidate by starting how good the company is and how
great it is working for them. Conversely, the candidate also sells himself/herself by
citing his/her work experience or educational background. Both parties should be
aware of this in the interview process. Nevertheless, it will be up to the entrepreneur
or the hiring manager to decide based on the responses given by the candidate and
his/her credentials. Table 4.1 shows a list of basic requirements for a candidate to be
considered for specific positions.

Entrepreneurship and Economic Development of the Philippines 15

 Table 4.1. Educational background, specific skills or knowledge and work experience
needed in selected positions.

Educational background and

Position Work experience
specific skills or knowledge

Operations • Preferably has a degree Worked as a member of

manager for a in business ad major in operations staff or as an
retail store operations management; operations manager in
having a master’s degree any industry
in business ad is plus
• Knowledgeable in MS
office applications and six
sigma (a disciplined
approach for eliminating
operational defects), and
has good leadership.

English teacher for • Has an education degree Worked as an English

foreigners in English or languages teacher in a university or
worked in a call center as
• Eloquent speaker and a
a trainer
good listener, patient with
students, adaptive to
foreign cultures

Fast food crew • High school graduate Worked with a fast food
chain or restaurant; those
• Physically fit, pleasing
without experience are
personality, customer-
still qualified because
service oriented
training will be provided

Baker • At least a high school

graduate and win TESDA
certification
• Physically fit, efficient,
and fast worker

Job offer
Once the entrepreneur or the hiring manger has been convinced already of
the credentials and the interview answers of the candidate, the job contract is now
prepared. A job contract generally summarizes the candidate’s employment with the
business. It usually includes the following details: (1) rank or position of the
candidate, (2) a list of responsibilities or deliverables and its scope and limitations,
(3) the salary and benefits including vacation and sick leaves, (4) work schedule, (5)
probationary period if any qualifications to become a regular employee, (6) the

Entrepreneurship and Economic Development of the Philippines 16

 duration of the contract, and (7) resignation procedure (e.g., 30-day notice or leave
immediately.)
Employee development
Training people is one of the biggest investments of an entrepreneur or a
businessman. Therefore, he or she must devise strategies on how to keep
employees satisfied working in the company. Training starts with employee
orientation. Employee orientation is usually one-to-two-day sessions that summarizes
the history of the business, its vision and mission, policies and procedure, culture and
norms of the business. This also includes introduction to the employees and
superiors, the tour of the work place, and the discussion of daily responsibilities and
accountabilities including key performance indicators (KPI) and key result areas
(KRA) of the employee. KPIs and KARs are the basis of the entrepreneur for rating
the performance of the employee- if the employee is exceeding expectations,
meeting expectations, or seldom meeting expectations.
For startup entrepreneurs whose budget are really tight, they usually conduct
on-the-job training (OJT) as the most practical tool in training the employee under a
supervision of a team leader or manager. This will spare the entrepreneur the cost of
further classroom training because the employee is already productive and exposed
to the real job an what he or she experiences from on-the-job training will serve as
learning investment. The manager’s role is to closely supervise, train, and monitor
the initial performance of the new employee and provide him or her constructive
feedback on how to efficiently and effectively deliver the job. There should be a
check and balance especially during the first few days of the OJT. Constructive
feedback should be given by the supervisor to the employee, and all errors
committed should be rectified immediately to prevent recurrence.
Other practical options that the entrepreneur can use as training tools are the
buddy system and mentor-mentee training programs. The buddy system is a training
program wherein an expert team member is assigned to assist a new employee until
his or her function. The objective of the expert employee is to train the new employee
until he or she masters the job. The mentor-mentee program, on the other hand, is a
training program for supervisors, wherein they will be mentored by a senior executive
or senior officer of the business. The objective is to train the supervisor to handle key
decisions and strategic tasks that will eventually become part of his or her job once
he or she climbs the organizational ladder. Entrepreneurs must prepare a succession
plan to ensure business operations still continue even in their absence or the
absence of key employees, or when they decide to retire or resign.
When the employees is already familiar on what he or she does on a daily
basis and the supervisor already noticed a substantial improvement in the
employees’ performance, the entrepreneur or the management should now take the
employee to the next level. The entrepreneur can send the employee for further
training through extensive leadership training, part time or full-time bachelor’s or
master’s degree programs, or short-term technical/specialized courses.
One of the emerging and practical training development programs these days
are enrolling in online learning programs or webinars (seminar on the web). A
webinar is a practical way of learning because the entrepreneur or the employees
does not need to go abroad or out town just to get the necessary training. It is also
very flexible because the entrepreneur can learn at his or her convenient time or

Entrepreneurship and Economic Development of the Philippines 17

 place. The employee can also expand his or her horizons and be rotated in different
areas of the business (e.g., form marketing to operations or vice versa).
The entrepreneur can also conduct internal training programs led by
component subject matter experts to discuss the intricacies of each department to
the newly hired employees. To keep abreast with the external factors, the
entrepreneur can send himself or herself or the employees to attend international or
local symposia, workshops, conferences, and seminars. Internally, the entrepreneur
must also conduct annual strategic planning and include key employees to devise
tactics and strategies for the business in the next coming years.
Employee training and development is a major thrust of every entrepreneur
because employees are the best assets of a business enterprise. For one, this
human resource aspect helps the business reduce costs; remember that whenever
employees commit errors as a result of lack training, the business incurs
unnecessary cost. As a result of employee training, productivity also increases
because as the employee learn his or job every day, he or she becomes more and
more productive. Moreover, the full potential of employees are optimized especially
when their skills and talents are recognized. These will result in the increase in value-
added contribution of the employees. Employees will also feel important and needed,
therefore, they will continue to be motivated and committed the business. Indirectly,
they also become brand ambassadors of the business who promote their products or
services to their circle.
Another upside of training is that employees build camaraderie when put
together in one training session. This elicits smooth working relationships with one
another, especially of the role of one employee coincides with another employee. All
of these result in a positive bottom line (net income), because reduced costs and
increase in productivity mean increase in revenues.
The greatest challenge for all entrepreneurs is constantly motivating and
keeping high performing employees. Because of their track record and
achievements, they can easily transfer to other competitors, which means all training
investments to high-performing employees will be gone, higher costs for training new
employees, potential decrease in productivity, and customers transferring to
competitors as well. Therefore, the entrepreneurs and the HR department must
devise an effective talent management program to gain the employee’s loyalty. Here
are several strategies for talent management.
1. Providing employees with a very competitive salary package that includes
guaranteed bonuses, performance bonuses, commissions, and other
monetary incentives.
2. Nonmonetary benefits such as medical coverage, different types of leaves
(vacation leave, sick, leave, emergency leave, birthday leave, maternity or
paternity leave, study leave), decent and notable job titles, flexibility in work
schedule, awards and recognition for excellent performance, inspirational
leaders, transparency and fairness in employee performance evaluation, and
channels to which employees can provide constructive feedback without the
risk of being fired.
3. Additional (optional) benefits such as annual trips (international or local),
work-from-home opportunities, scholarships, transportation and

Entrepreneurship and Economic Development of the Philippines 18

 communication allowances, free meals and drinks, fitness programs, sports
programs, and other work-life balance programs.
Entrepreneurs must be able to be objective when evaluating the performance
of employees. They must be confused on the business objectives and if the
employees are the able to meet these objectives. They must do all possible
strategies to save high-performing employees because losing them outweighs the
salaries and benefits that you will spend on them. On the other hand, nonperforming
employees must be motivated by the entrepreneur to make them more productive,
unless replacing tem in necessary or when these employees find better career
options. Nonperforming employees are a liability to the company.

3. Machines
Most businesses would not be able to operate without the aid of machines.
Machines can be described as “best friend” of manpower in producing goods and
offering services. They go hand in hand. Sometimes, machine can even replace
employees. Machines have become one of the 4Ms because they are a very
important aspect of goods and service production, and they have changed the way
entrepreneurs conduct business. Machines are not only limited to physical equipment
but can also pertain to new technologies that help business operations become
standardized and seamless. Without machines, business operations will be
cumbersome, and with low quality.
Equipment and other facilities
Depending on the product that the entrepreneur produces or the service that
he or she offers, the facilities must be strategically placed in the manufacturing site or
in the service delivery area. The entrepreneur must prepare a facility plan the details
the most economical way to manufacture the product or offer the service by placing
the facilities where they can be efficiently used.
The sizes and shapes of the facilities and equipment affect the entire
operations process, so the site must adapt to how big or small the pieces of
equipment are. The site must also be conductive, well-ventilated, and well-lit, so that
the employees can manage the machines efficiently. There should be fire exits and
safety reminders on how to use the facilities to ensure safety of the employees. The
equipment to be used should all be compliant with safety requirements to prevent
accidents.
For pieces of manufacturing equipment that are complicated to operate
(including delivery vehicles) the entrepreneur must ensure that the employee went
through rigorous training or certification to operate them. The entrepreneur must also
allocate space for the storage of equipment, including the parking of delivery
vehicles. He or she must also be aware of the power consumption of each of the
equipment to analyze the cost of producing the goods. Ultimately, the goal of the
entrepreneur is to maximize the pieces of equipment to their full capacity to minimize
manufacturing or service delivery costs.

Entrepreneurship and Economic Development of the Philippines 19

 Telecommunications and Information technology
Regardless of any business the entrepreneur will venture into,
telecommunications and information technology equipment is mandatory. These
pieces of equipment include mobile phones or smartphones, tablet computers,
phablets (phone and tablet in one), landline phones, laptops or desktop computers,
POS machines, software programs, and business web sites. These tools aid the
entrepreneur in making business processes fast and convenient. Here are the
advantages of have telecommunications and information technology equipment in a
business:
• Landline phones- order-taking, telemarketing, and teleconferencing with
business partners and customers
• Mobile phones (smartphones, tablet computers, phablets)- mobile application
for order-taking, mobile application for payments, mobile marketing, social
media marketing, teleconferencing with business partners and customers,
marketing research, mobile banking, and internet promotions.
• Laptop and desktop computers- order-taking, internet marketing, making
conference calls with business partners and customers, marketing research,
online banking, preparing reports such as financial statements, business
case, inventory reports, and legal and compliance reports.
• POS machines- charging customers’ debit or credit card, tracking sales,
storing data, analysing purchases
• Accounting and inventory software- accounting all business transactions and
profitability, monitoring sales and inventory.
• Web site- order-taking, 24/7 marketing, having online conversations with
customers, tracking customer activities online, collecting customer information
The responsibility of the entrepreneur is to protect this pieces of equipment
physically and against fraudsters who will be using these information to malign or
steal from the business. These machines carry confidential information. Therefore,
they should be protected with strong passwords and used only by authorize
employees. Employees must be trained to keep every piece of important information
confidential, including passwords. Software programs must always be updated and
checked against viruses and hackers. POS machines must always be in working
condition and must be referred to be banks when not properly working.
There must be a business continuity plan (BCP) should machines not work
properly. The entrepreneur must select reliable suppliers for these machines so what
when contingencies arise, they may be able to provide immediate replacements or
repair them quickly. The entrepreneur can also negotiate with suppliers to provide
discounted prices for bulk purchases.
On the information technology side, the entrepreneur must appoint two or
more reliable information technology experts whom they can call whenever there are
issues encountered in the software and computers. Both physical and nonphysical
equipment should be covered in the event of loss of property due to fortuitous events
and accidents, machine breakdown, manual faults, or interruptions of business.

Entrepreneurship and Economic Development of the Philippines 20

 4. Materials
Whether the entrepreneur will offer products or cater services, he or she has
pinpoint a number of dependable suppliers of quality raw materials and supplies. The
supplier must have a consistent and sufficient amount of raw materials and supplies
that can accommodate the demand of the entrepreneur. In short, the selection of
suppliers will not cause interruption in the production of goods or serving the
customer. From the onset, the entrepreneur should decide on what route to choose
when it comes to materials requisitioning. Options include the following: (1)
manufacturing own products or offer services; (2) outsourcing of manufacturing or
service activities to a third party; and (3) purchasing own product or service from
service from present suppliers.
In manufacturing the entrepreneur’s own products or offer services, a huge
chunk of capital must be prepared because all the expenses in manpower, machines
feasibility thoroughly, as the risk is larger with this option. A set of competent
employees must be employed to handle the machines or service the customers. But
these challenges can be augmented because the entrepreneur can be very specific
in the details that he or she wants for the product or service. He or she can also
closely monitor the quality of products or services, strategically design the production
or service blueprint, as well as its schedule, and more flexible in deciding on the
production quantity. On the marketing side, the entrepreneur will also have the
opportunity to build his or her own brand identity. Most importantly, the profits will all
go to the entrepreneur or the manufacturer.
Outsourcing is the process of appointing a third party manufacturer to do
manufacturing operations of the business. These third party companies already have
an expertise in handling and manufacturing these products, supplies, or inventories,
and because they manufacture, they produce goods in bulk. These drives the
companies to create products or services tailored to the entrepreneur’s needs at a
lower cost. Some outsource companies offer to provide the services for the
entrepreneur.
Outsourcing provides the entrepreneur a chance to provide the operation
details to the third party. No changes in the brand name in identity will be
implemented because the entrepreneur still holds the rights to such. Outsourcing
saves the entrepreneur from buying expensive machines, renting locations, or hiring
manpower, as the operational aspect of the business will be transferred to the third
party. This scenario, however, poses risks, especially when the outsource party
closes its business, when it runs out of supplies, when it breaches the service-level
agreement, when it produces substandard products or services, or when the service
stops. The profits are also shared with the third party, which does not happen when
the entrepreneur creates the product in his or her own. Also, because it knows how
the entrepreneur’s business work, and the third party can easily shift to other
companies.
The entrepreneur, therefore, must protect its product through a trademark or
a patent, and a noncompeting agreement or nondisclosure agreement. A patent is
the right to protect the entrepreneur regarding the product or service. A trademark,
on the other hand, is a sign or symbol that helps distinguish the product from others.
A nondisclosure agreement (NDA) states that the third party will be given full access

Entrepreneurship and Economic Development of the Philippines 21

 to any confidential information provided that it should not be disclosed to anyone
else.
One option that an entrepreneur has is to make use of multiple outsource
parties. Having multiple outsource parties can be an advantage because of the
following: (1) it helps continue the operation even if one of the third party stops; (2)
the entrepreneur will have greater bargaining power on the price and scope of the
product, and (3) the entrepreneur may have a choice to switch to other parties if one
of them does not perform well.
Purchasing finished products from a manufacturer or offering the services of
another company is another viable option for the entrepreneur. In this setup, the
entrepreneur cannot own the brand name of the product or service. Moreover, the
manufacturer or the original service is allowed to sell the entrepreneur’s competitors.
In short, the entrepreneurs is just one of the many distribution hubs of the
manufacturer or the original service provider. This setup is prevalent in distribution
businesses, retailers, sari-sari stores, and franchises.
Same with outsourcing, buying finished products or offering servicer to
another company spares the entrepreneur of the costs of machines and full-time
manpower. Therefore, the entrepreneur can use his or her funds for the purposes.
This setup also allows the entrepreneur to buy and sell a broad range of finished
products and established services. They usually compete on the indirect aspects of
the business such as customer experience or physical attributes of their business.
Another disadvantage is that the manufacturer or original service provider can just
easily take the entrepreneur off its list when it wants to. The manufacturer or service
provider can also charge unreasonable prices to the entrepreneur or, worse, go
directly to end customers and give them lower prices to bypass its relationship with
the entrepreneur.
Logistics
Entrepreneurs/manufacturers can also venture into distributing their products
on their own without the aid of a distributor or agent. This is where the entrepreneur
must understand and implement and efficient logistics management. As discussed
earlier, the entrepreneur/manufacturer is responsible for manufacturing,
warehousing, transportation, inventory management, marketing, and selling the
product or service.
Warehousing is storing the finished goods manufactured in a facility until they
are distributed to end users. Warehousing cost is usually substantial. Therefore, the
entrepreneur should think of ways on how to reduce the cost of warehousing by
either buying an economical warehouse or renting an inexpensive space.
Transportation will also be a major cost in logistics management. It is the
process of efficiently transferring the products to retailers or customers. The
entrepreneur/manufacturer must purchase energy-efficient vehicles that can carry a
reasonable amount of merchandise to prevent inefficient trips. The
entrepreneur/manufacturer can also use the presence of distribution hubs. The
distribution hub is where the entrepreneur/manufacturer carries multiple products.
Instead of delivering per product to retail outlets, the entrepreneur/manufacturer can
consolidate all the products needed by the retail outlet and deliver just once.

Entrepreneurship and Economic Development of the Philippines 22

 Inventory should also be tracked religiously by the entrepreneur/
manufacturer. Each of the inventories in the warehouse, distribution hubs, and
manufacturing sites should be monitored. The law of supply and demand must
always be taken into account. There should not be a surplus of inventory especially if
the entrepreneur is selling perishable goods. The entrepreneur must be
knowledgeable about the life span of the products that will be sold. The
entrepreneur/manufacturer must also ensure that there is enough space to store and
stock inventory, depending on storage requirements (e.g., product is required to be
stored in cold temperature). To protect the products from fortuitous events, the
entrepreneur must insure them with a reliable insurance firm.
It can be surmised that the entrepreneur is not selling well if there are too
many products left after a long period of time in his/her inventory, or he/she is
producing more than what is demanded by the customers. The key with inventory
management is understanding the historical and current demand data as well as a
future trends to avoid unnecessary costs in producing too many products. Bear in
mind that making too many products can incur manufacturing costs, storage costs,
and costs of spoilage.

The Business Model

According to Don Deebelak in his article “Developing a Great Business
Model” on the entrepreneur Web site, the entrepreneur must adapt the dynamics of
traffic lights in developing the business model. These are the 3 “green lights” or the
positive signals that can help entrepreneurs develop ideal business models and
eventually succeed. On the other end, there are 3 “red lights” or negative signals that
entrepreneurs should be wary of.
The green lights

1. Target high-value customers. These customers are often misinterpret as

affluent or high-end customers, but this is not always the case. A high-value
customer is (1) someone who is easy to find, (2) someone who is willing to
pay a price that will reasonably profit the entrepreneur, (3) someone who is
easy to persuade with the least promotional effort, and (4) someone who can
join the bandwagon of customers that, when consolidated, can generate a
substantial amount of revenues aligned with the profit objectives of the
entrepreneur. Customer do not only mean end customers or retail customers;
they can also be partner retailers, distributors or corporate customers. The
entrepreneur’s objective is to find these customers. If unable to do so, he or
she can choose to tie up with strategic partners who fit the profile of a high-
value customers.
2. Offer products or services with the great value. As discussed in Module 3, the
value proposition and unique value proposition should always kick in as
compelling reasons for customers to choose your product or your service. He
or she must also devise an efficient distribution system where the flow of
goods or service delivery is convenient, fast, and available when needed. He
or she can also collaborate and synergize with relevant partners to offer
excellent customer experience to customers. The entrepreneur should also
offer products or services with great value coupled with attractive and
reasonable prices as a result of lean manufacturing. Aside from the core

Entrepreneurship and Economic Development of the Philippines 23

 product or service, he or she can also provide customers with other related
product or services and customization options to complete the overall value of
the product or service being offered. With the influx of technological
advancements such as the internet, third party outsourcing, and synergies
between businesses, the arena of the entrepreneurs around the world has
become ultracompetitive. Therefore, the entrepreneur must always be in the
lookout on whether his or her product or service still provides value or is
already outpaced by the competition.
3. Offer products or services with reasonable profits. There are two ways of
achieving reasonable profits: (1) increasing markup (2) decreasing
operational costs. The most practical way to achieve reasonable profits
though is to decrease operational costs. This is because increasing the
markup, as compared with the prices of competitors, will decrease the
attractiveness and competitiveness of the product or service. Therefore,
profitability cannot be maximized. Decreasing the operational cost is a
controllable strategy in increasing profits of the business as lower cost means
higher profit margin. As discussed in the 4Ms of operations, the entrepreneur
should (1) devise an efficient distribution system, (2) lessen unnecessary
manpower efforts as much as possible (3) apply lean manufacturing
processes, and (4) add support products or auxiliary services that can
increase revenue without adding substantial cost.
The Red Lights
1. Satisfying the customer becomes too costly and irrational. The entrepreneur
must calculate the cost and profit associated with serving the customer before
pursuing the business. There are times when entrepreneurs are blinded by
how big the profit margin can be for a sale of a particular product or service.
But little do they know that there are numerous associated after sales costs
that can even exceed the profit margin derived from the actual sale. In
marketing, the term lifetime value of a customer was coined to understand the
potential value that a customer can bring to the business in the long run. But
there are obvious red flags, which are collectively called customer satisfaction
costs that can impede the success of an entrepreneur. These are as follows.
a) Warranty- because some products are not sturdy as they should be, the
business will incur unnecessary warranty costs that can even surpass the
cost and profit margin of the margin.
b) After sales costs- some products or services require extensive technical
support, installation, and customer service. These after sales costs might
even surpass the actual sales price of the product or service.
Once the costs are identified, the entrepreneur will rectify the situation by
transferring the cost to another party or through outsourcing to lessen the cost
of servicing the customers. He can also instruct his sales team to just focus
on business aspects that do not require too much customer satisfaction.
2. Being a market leader is difficult to sustain. One of the characteristics of an
ideal business model is capitalizing on the business’ structure as a market
leader through improving the features and benefits of its existing products or
services, adding new product lines or services, or expanding by tapping new
customers. However, there are signs that it will be difficult to sustain being a

Entrepreneurship and Economic Development of the Philippines 24

 market leader if the following conditions exist; (1) if there are major customers
purchasing the entrepreneur’s product or services, (2) if there are major
players in the industry that control the majority of the distribution network, (3)
if technology has changed the way the entrepreneur operates the business,
compelling him/her to invest on rigorous product research and development,
(4) if technology replaces the need for the entrepreneur’s product or service,
and (5) if the competitors can easily tap the market of the entrepreneur.
Maintaining the market position has a large dependency on the overall
condition of the market.
3. Return on investment (ROI) takes too long and too small. Entrepreneurs did
venture in a business enterprise because they want to earn profits for the
purpose of sustainably. ROI is very important to the entrepreneur because it
validates that the business is doing well and hat money is flowing in as
expected during the planning stage. An ideal business model is characterized
by a reasonable ROI earned at the right time and with the right amount.
However, if reports sat that ROI is less than approximately 25% in the first
three years of business operations, it is a sign that the entrepreneur is not
operating an ideal business model. Another sign is that production of
additional products or services requires an ample amount of additional
capital. Moreover, only less than 50% of the capital required will be allocated
to revenue-generating activities such as selling and manufacturing. It is also a
red flag if the present capacity is also not capable to produce or handle new
commitments; therefore, additional investments must be made again to
accommodate the new demands. The last sign is the uncontrollable industry
factor where generally everyone in the industry always has unacceptable
ROIs.

The Financial Plan

One of the most difficult parts of the business plan is the financial plan. Not all
entrepreneurs are adept with accounting procedures, rules, and reporting policies.
However, there is no choice for the entrepreneur but to be familiar with numbers. The
sustainability of a business depends on a meticulous monitoring of finances. This is
the portion of the business plan that speaks of the product or service performance. It
also provides the entrepreneur financial data such as liquidity, cash flow, and
financial standing of the business. The financial plan also gives the entrepreneur
bases for his or her decisions on financial matters such as offering credit terms to
customers, applying for a bank loan, expand, or sell the business. Without proper
accounting of business activities and transactions, the entrepreneur will be at loss on
where his or her business is leading his or her.
Financial management begins when the entrepreneur starts to raise capital
for the business venture. Capital is the money the will be allocated by the
entrepreneur to establish a business. If shouldn’t be mixed with the personal money
of the entrepreneur. A business is a separate entity and should not be mixed with the
personal finances of the entrepreneur.
A number of the entrepreneurs produce capital out of their personal savings.
This money came from a disciplined habit of consistently saving when the
entrepreneur used to be an employee. Some of the budding entrepreneurs borrow
money from families or friends, whereas some look for interested inventors or

Entrepreneurship and Economic Development of the Philippines 25

 stakeholders. The entrepreneurs can also turn banks decisions on the business
performance (i.e., the net income of the business). Some startups may find it difficult
to secure a loan from banks because of the performance angle as one of the
qualifications
Collateral refers to high value asset that is submitted by the business to the
bank when applying for a loan and will be subject for repossession if the business
default. Regardless of where the capital was sourced, putting this capital at risk one
of the major reasons that most entrepreneurs are afraid to engaged in a business
venture. But those who take the risks also gain the experience and use this
experience to succeed. Not all entrepreneurs became successful the first time they
ventured into business. All of them experienced failures and used these failures to
their advantage.
Factors affecting estimation of revenue
A business opportunity can only be considered a real one when the
entrepreneur recognizes that the opportunity may bring him or her revenue. Revenue
is the output of a sale wherein the sales price exceeds the cost to procedure the
product or render the service. Revenue is considered earned when the product is
already sold or service has been rendered regardless if the business is paid in cash
or credit. Revenue is considered deferred when the product or service has not yet
been delivered or sold but the customer already paid in advance.
After establishing that the business opportunity will really bring revenue, the
next step is to estimate how big the revenue is on annual basis. This will give the
entrepreneur an inkling on where his or her hard-earned money will go. It is not easy
to estimate potential revenue, as it requires a thorough analysis of external and
internal factors that can affect the business. All of it will appear realistic and will not
mislead the entrepreneur.
1. The economy and the external primary target market. Similar to finding
business opportunities, estimating revenue is greatly affected by the entire
economy and the behaviour of the primary target market. The entrepreneur
must be able to incorporate the overall health of the economy and its
estimation of projected revenue. He or she needs to know if the economy is
either booming, stable, or slowing down. However, there will be times when
the overall economy is not a reflection of what the entrepreneur’s primary
target market is experiencing. Therefore, the entrepreneur must also separate
revenue estimation for the primary target market as to whether it is booming,
stable, or slowing down. For example, the overall Philippine economy is
growing but, the target of the entrepreneur A is the class D, and the economic
condition of the members of this socioeconomic class is still worsening. He or
she must be able to reconcile these and come up with realistic estimates.
2. The external competitors. The entrepreneur must devise a comprehensive
competitive profile matrix- a chart that details the relevant data of both direct
and indirect competitors and how these factors affect profitability. Direct
competitors are those that offers exactly the same product/product lines or
services but influence or affect the entrepreneur’s market (e.g., if the
entrepreneurs sells softdrinks, his or he market share will affected by those
who sell other beverage products such as mineral water, iced tea, juices, or
alcoholic drinks).

Entrepreneurship and Economic Development of the Philippines 26

 The entrepreneur must plot the strengths of each competitors, its financial
data, and its respective market share. A thorough analysis must be conducted to
assess whether the entrepreneur will really earn from the business opportunity.
When entering a market dominated by stronger and larger competitors, the
challenge for the entrepreneur is to come up with a highly differentiated product or
service with a very strong unique selling proposition. Otherwise, he or she will be
“eaten alive” by these large players. What these large players will do to beat a
newbie in the market is reduce their prices leveraging on economies of scales and
still earn profit. To compete, there is no choice for the entrepreneur but also reduce
price, thereby greatly affecting profitability.
When entering a market with weaker or smaller competitors, the challenge is
to compete with them directly. Unlike the first one, however, there is a bigger chance
here to succeed and take away the market with no competitors.
The entrepreneur can also enter a market with no competitors. This rarely
happens though; these days, there are virtually no unique products or services, or
there are only few entrepreneurs who want to venture in an entirely different market
that no one has tried yet. An example of this is venturing in a war-stricken area where
the risk is very high because the entrepreneur has no competitors to share his or her
market. Also, entrepreneurs can impose unreasonable prices, as the buyers have no
bargaining power because they have no choice.
Aside from basic financial data, the entrepreneur must also be vigilant in reviewing
and assessing the business and marketing strategies of the competitors must be
emulated and altered a bit by the entrepreneur, and those that were certified as
ineffective must not be repeated to avoid unnecessary losses. Understanding the
strategies of the competitors allows the entrepreneur to neutralize its effects to his or
her business.

Entrepreneurship and Economic Development of the Philippines 27