Module 2: Recognizing the Potential Market

At the end of this module, I can:

1. Identify the market problem to be solved or the market to be met.

2. Propose solutions in terms of product and services that will meet the need using techniques on seeking,
screening, and seizing opportunities.

a. Analyse the market need.

b. Determine the possible products or services that will meet the need.

c. Screen the proposed solutions based on viability, profitability, and costumer requirements.

d. Select the best product or service that will meet the market need.

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As the saying goes, the most difficult part of every task is where and how you start.. The same is true with
entrepreneurship. You may have all the resources needed to operate a new venture, but it will never be easy to start
one. This module will discuss the proper and efficient ways of starting a business. You will be introduced to the
entreprenuerial process, which starts with identifying and evaluating the opportunity. The heart of this module is the
scanning of the marketing environment where you can formulate a product or a service solution applying the
techniques of seeking, screening, and seizing opportunities . As a result, you will deal with analyzing the need of the
market, think of the potential set of products or services that will meet the need, assess the feasibility of the solution,
and select the best product or service that will address the need.

The Entrepreneurial Process

The entrepreneurial process is a step-by-step procedure in establishing any kind of business that an
entrepreneur has to undergo. It is composed of four aspects.

1. Opportunity spotting and assessment . This is the beginning of the process and is considered the most difficult.
Entrepreneurs at this point take note of interesting trends in their environment. Consumers are reliable sources of
opportunity information because market needs originate from them. Other major sources of opportunity are the glaring
problems in the environment, problems encountered by co-entrepreneurs, new trends, processes, and developments in
the environment. Other minor sources are feedback from distribution or business partners such as retailers,
wholesalers, manufacturers, and technical people that the entrepreneur is working with. The entrepreneur’s toughest
job is to carefully assess the opportunity through estimation of opportunity length, capitalization required, threats,
profitability, and calculation of real and perceived value. Entrepreneurs should also assess if the opportunity is aligned
with their personal goals and attributes. Last, entrepreneurs should already think in advance how they will position the
product Or service in the market and showcase its unique selling proposition. This module will focus mainly on
opportunity spotting and assessment, which represent the entrepreneur’s stimulus in starting a new venture.

2.Developing a business plan. Entrepreneurs should formulate a business plan when they have already spotted
and assessed the opportunities for a market. A business plan is a comprehensive paper that details the marketing,
operational, human resource, financial, strategic direction, and tactics of the business. The business plan will be the core
guide and direction of the entrepreneur in calculating the resources needed, assessing how to obtain these resources
efficiently, and running the business sustainably.

3. Determining the capital needed. A big idea can never be translated into reality if the entrepreneur’s resources
are limited. Therefore, it is mandatory in the entrepreneurial process to calculate the resources needed to establish the
business and compare this against the entrepreneur’s current resources. Caution must be applied in computing the
complete set of resources needed and include only those items that are considered as the real needs in venture creation.
Allowance must be considered as well because there will be times that resources will be inadequate or unsuitable.
 4. Running the business. This is the part where the entrepreneur should use the resources allocated for the new
venture. The business plan prepared in step 2 should already have been implemented. All aspects of the business plan
should be critically observed from operations, marketing and sales, human resources, finance, and strategy
implementation. The entrepreneur should have a control and monitoring system to serve as a check and balance of the
formulated plans.

Table 2.1 summarizes the components and steps in the entrepreneurial process(hisrich,2010)

Table 2.1. Components and steps in the entrepreneurial process

Scanning the Marketing Environment

Scanning the marketing environment is the starting point of any new venture that involves understanding and
knowing the intricacies of the macro environment, microenvironment, and internal environment. With this process of
scanning the general environment, an entrepreneur can recognize various opportunities and at the same time
understand thoroughly the arena where the future business will operate. The process of seeking, screening, and seizing
is adapted to create the most suited product or service for an opportunity. The general rule is to find the opportunity
first before coming up with a new product or service, not the other way around. This is one of the mistakes that budding
entrepreneurs commit in starting a new venture

Seeking, Screening, and Seizing

The 3S opportunity spotting and assessment is the framework that most of the promising entrepreneurs use to
finally come up with the ultimate product or service suited for a specific opportunity. An opportunity is an
entrepreneur’s business idea that can potentially become a commercial product or service in the future. The
entrepreneur serves as the catalyst of creating a value for the costumers through the new or innovated product or
service. As a reward, the entrepreneur earns profits when the costumers are satisfied and delighted

S1: Seeking the Opportunity

Opportunity seeking is the first step and is the most difficult process of all due to the number of options that the
entrepreneur will have to choose from. It involves the development of new ideas from various sources as follows:

1. Macroenvironmental Sources

a. STEEPLED. This is a mnemonic for sociocultural, technological, economic, environmental, political, legal,
ethical, and demographic factors. This represents the general environment where the entrepreneur can identify
business opportunities from and where the future business is about to operate. Any external factor or a combination of
external factors from these eight environmental forces can have a direct effect in opportunity generation and business
sustainability. These will be discussed further later sections.

b. Industry. This is the source of current trend on what is happening in the industry where the future business
will belong to. For example, the entrepreneur should be fully acclimated on what is happening with the rice industry if
he/she wants to establish a rice retailing business.

c. New Discovery or Knowledge. This are new trends that can be the core business model of new venture. For
example, the influx of model applications necessitates businesses to have this platform as one of their transaction
channels.

d. Futuristic opportunities. These are projected new opportunities that can possibly affect to the new business
while it running. For example, Sari sari stores in the future will be able to incorporate financial transactions such as
accepting bills payment and process remittance.

2. Micromarket

a. Consumer preferences, interests, and perception. These are the current needs and wants of potential costumer
that should be discover right away by budding intrepreneur. This way, he/she will be able to take a chance of the
opportunity. A need is recognized when a costumer believes that there is a difference between his/her current
situation versus his/her desired condition. A want, on the other hand, is recognized when a costumer believes
that there is a specific product or service that can perfectly suit the need.

b. Competitors. Recognizing and understanding potential competitors will aid the entrepreneur to develop a
product or service that is unique and will surely stand out from the competition. The 4Ps of marketing
(product,place,price and promotion) will be competitively position if the entrepreneur is familiar with his or her
competitors.
 B. Competitors. Recognizing and understanding potential competitors will aid the entrepreneur to develop a
product or service that is unique and will surely stand out from the competition. The 4Ps of marketing
(product,place,price and promotion) will be competitively position if the entrepreneur is familiar with his or her
competitors.

c. Unexpected opportunities from customers. Oftentimes, the most brilliant ventures comes from the most
unexpected opportunities. It may happen in unlikely situation, unlikely places, and unlikely with people. Existing
problems and bottlenecks often give rise to an unexpected opportunity. What entrepreneur usually do is be on
of the situation and change the market’s perception of a product or service or build a new market. In the
Philippines, there are a number of budding social entrepreneurs who turned unnoticed products into superstar
products that carry also the value of social responsibility.

d. Talent, hobbies, skills, and expertise. Business opportunities do not just come from outside forces, but also
from within the entrepreneur. The entrepreneur’s talents, hobbies, skills, and expertise can be a source of business
opportunity. For example, if the entrepreneur is an artist, why not sell his or her paintings? If he or she is a musician,
why not put up a bar and perform there? If he or she is an expert in home design, why not make it a business?

e. Irritants in the marketplace such as deterrents, problems, complains, and delays. Generally,
entrepreneurs see opportunities in situations where there is recurring problems or sometimes when there is no
more hope in solving the problem. When customers are already sick and tired of the same old issue or problem,
that is when the opportunistic entrepreneur should come in and make a difference.

f. Location. Often, entrepreneurs just have to look at their ecosystem and they will be able to spot a
business opportunity right away. For example, if the entrepreneur’s location has many schools, than a
restaurant, an eatery, or probably a computer shop might be a good business to establish. If the entrepreneurs.
If the entrepreneurs is in an island with awesome beachfront, why not put up a hotel?

Methods of Generating Ideas

Recognizing and understanding a vast sources of opportunities is one difficult activity to do. Also, the methods of
generating ideas may be overwhelming to undergo through. Either one or a combination of the methods given can
be employed by the entrepreneur by generating new ideas.

1. Focused group discussion (FGD). In this method, a moderator handles a very open, free-flowing, and
in-depth discussion with a group of people who can provide insightful ideas about a new product or service that
will fill a market need.

2. Brainstorming. Similar to an FGD, brainstorming is an activity that allows the participants to share
creative ideas using the following rules: (a) no destructive criticism or judgement is allowed, (b) wilder ideas are
accepted, (c) more ideas are preferred, and (d) improvement of others’ ideas is allowed. In short, brainstorming
is a fun discussion with lenient rules.

3. Brainwriting or internet brainstorming. This is exactly the same as brainstorming, except that the
channel used is not face-to-face, but in writing or online. The results of brainwriting or internet brainstorming
usually take longer, as the answers depend on the availability of the participants in answering the
questionnaires online.

4. Problem Inventory Analysis. This method is similar to he FGD except that the participants are already
given an inventory of product or service problems. The participants will just identify from the list given the
compelling problem (s) of a potential product or serviceinstead of generating the ideas from them.

Macroenvironmental Sources: Example of Findings

STEEPLED Analysis
 The result of the STEEPLED scan will aid the entrepreneur in deciding what product or service to set up
and whether this new venture will succeed or not. The focus of this scan is only on the microenvironment.
Again, not all factors can have an effect on the new venture. The important thing is for the entrepreneur to fully
scan these factors so he/she can decide if there is compelling business opportunity or an impending threat.

1. socio-cultural factors. These factors represent a general view of a locality’s traditions, customs,
beliefs, norms, and perceptions. These factors affect how a person of the locality behaves and reacts to
marketing and selling activities.

The entrepreneur should take note of the following sociocultural factors:

• Health consciousness

• Educational level

• Attitudes toward imported goods and services

• Attitudes toward the person’s lifestyle

Attitudes toward product quality and costumer service

• Attitudes toward saving and investing

• Emphasis on safety

• Buying habits

• Religion and beliefs

2. Technological factors. These are composed of innovations of an existing technology or an invention of

a new one mostly on applied science and engineering research areas. Entrepreneurs should always up-to-date
with the technological changes, as these are catalysts in improving a product or service or replacing them
entirely. The entrepreneur should take note of the following technological factors:

• Basic infrastructure level

• Rate of technological change
• Spending on research and development
• Technology incentives
• Legislation regarding technology
• Communication infrastructure
• Access to newest technology
• Internet infrastructure and penetration
3. Economic factors. These factors play a vital role in the scanning of marketing environment because
economic factors directly affect any business venture. These factors include income, expenses, and resources
that cost of doing business and generating income.

The entrepreneur should take note of the following economic factors:

• Fiscal polices
• Price fluctuations
• Stock market trends
• Growth rates
• Inflation rates
• Interest rates
• Exchange rates
• Unemployment trends
 • Labor costs
• Stages of business cycle
• Trade flows and patterns
• Level of customers’ disposable income
• Monetary polices
4. Environmental or ecological factors. These factors should be given much importance in conducting a business
especially when the world has already suffered severely from human-induced calamities. The scan of these
factors will help the entrepreneur determine if the business he or she is entering into will comply with the
environmental standards or will just be a hazard to people, animals, and nature. Moreover, the entrepreneur
will know if the business venture will be suited with the weather conditions in his/her locality.

The entrepreneur should take note of the following environmental factors:

• Weather
• Climate change
• Laws regulating environment pollution
• Air and water pollution
• Recycling
• Waste management
• Attitudes toward “green” or ecological products
• Endangered species
• Attitudes toward and support for renewable energy
5.Political factors. These factors are mostly induced by government policies and administrations, which can have a
strong effect in the entrepreneur’s business.

The entrepreneur should take note of the following political factors and examples:

• Government stability and likely changes

• Bureaucracy
• Corruption level
• Tax policy (rates and incentive)
• Freedom of press
• Rule of law
• Government effectiveness
• Political rights
6. Legal factors. Related with political factors, legal factors are government laws and regulations that can restrict
or allow business activities.

The entrepreneur should take note of the following legal factors and examples:

• Anti-trust law
• Discrimination law
• Copyright, patents/ intellectual property rights
• Consumer protection
• Employment law
• Health and safety law
• Data protection law
7.Ethical factors. These are the factors that will serve as an entrepreneur’s guide on how to be ethical in running
the business.
 The entrepreneur should take note of the following ethical factors:

• Ethical advertising and sales practices

• Accepted accounting, management, and marketing standards
• Attitudes toward counterfeiting and breaking patents
• Attitudes toward development and well-being of employees
8. Demographic Factors. These are the characteristics of the people in the target market.
The entrepreneur should take note of the following demographic factors:
• Population growth rate
• Age distribution and life expectancy rates
• Gender distribution
• Social distribution
• Family size and structure
• Minorities
S2- Screening the Opportunity
By now you ready feel overwhelmed with how vast S1 (opportunity seeking) is, but you don’t have to worry that
much. This concept has been inculcated to you to see the universe of opportunities an entrepreneur can derive from the
macroenvironmental and microenvironmental sources. The key here is in the effective choosing or careful diligence.
Entrepreneurs should start with the big picture. This is the best way in ensuring that the entrepreneur has scanned the
best potential business to venture into. Once the compelling opportunities are identified, S2 will be next crucial step.
Opportunity screening is the process of cautiously selecting the best opportunity. The selection will depend on
the entrepreneur’s internal intent, i.e., the main objective that the business will accomplish in the entrepreneur’s life,
and the external intent, which will address the compelling needs of the target market. The entrepreneur should apply
due diligence and independent judgement in selecting the opportunities that have a potential and eliminate those that
are not within the scope of the entrepreneur’s risk appetite. Risk appetite refers to the entrepreneur’s tolerance of
business risks.
Time must be considered by the entrepreneur in screening the opportunities at hand, as it is considered one of
the most critical resources of an entrepreneur. Time should only be devoted to worthwhile opportunities. Therefore,
entrepreneurs must always be sharp-eyed for real opportunities. They must be able to intelligently say no to low-
compelling opportunities and proceed with sensible ones. The crafting of a business plan starts only when entrepreneurs
already said no to many opportunities and said yes to one forceful opportunity, to which they will devote their time and
resources.
Detailed here are the important elements that are always present in a compelling opportunity. The
entrepreneur should say no to an opportunity if it does not contain any of these business opportunity elements:

1. Has superior value to customers

2. Solves a compelling problem, issue, a need, or a want
3. Is a potential cash cow
4. Matches with the entrepreneur’s skills, resources, and risk appetite
The Opportunity Attractiveness Test
The Opportunity Attractiveness Test (OAT) (Youngleson, 2009) aims to assist entrepreneurs in ensuring that the
opportunity that they will venture into is an attractive and feasible prospect. This is not the “be all” in the road to
entrepreneurial success but a framework to measure how compelling an opportunity is. This test is designed to detail
each entrepreneurial aspect into small chunks to come up with a sound entrepreneurial decision. The entrepreneur
must answer this test realistically avoid overestimation or underestimation. All the risks must be accounted and
assessed first.
These can come from different aspects of the business such as operations, market, economy, and finance. These
risks must be estimated and measured to determine the impact to the potential business.
The answers in this test will be the guiding principles of the entrepreneur in writing the business plan. The components
of the OAT will be used to channel the entrepreneur’s direction in data gathering. It is vital that this test must be
carefully reviewed over and over again before finally going to the last step of seizing the opportunity. At the of this test,
the entrepreneur should be able to at least decipher the relative attractiveness of the business opportunity. Ultimately,
the decision lies in the risk appetite of the entrepreneur.
Because each venture is unique, some components of this test might not be applicable to all businesses. It is the
job of the entrepreneur to discern which among these components can put an equitable weight to components that are
relevant to the potential venture. The entrepreneur can also customize this test to better suit the screening
requirements of new venture. In summary, with the four business opportunity elements and this OAT, the entrepreneur
can’t go wrong in his or her new venture. The key is effective diligence.
1. The “concept” and the “strategy”. The entrepreneur should think of the business’ existence. He or she can do
this through crafting a brief vision statement. A vision statement is simply defined as what the business should do in the
future. The entrepreneur should also devise a value creation proposition, i.e., the value that the product or service will
offer to the target customers or the satisfaction of the needs or wants of the target customers. The proposition should
be compelling enough to influence the behaviour of the target customers. Influencing the behaviour means enticing the
target customers to pay an above average or a premium price on the product or service. The entrepreneur should also
understand the importance of the timing of the business. He or she should ask: is it really necessary to establish the
business now? Last, the entrepreneur needs to devise a differentiator or a positioning strategy──what difference will the
new business inculcate to the target customers as compared with the rest? Is this compelling enough to influence the
behaviour of potential customers?

2. Opportunity metrics. These are considered as the opportunity’s critical success factors. The factors will approximately
determine the attractiveness of the new venture depending on the total scores that it will generate and the risk appetite
of the entrepreneur. Table 2.2a-g consists of the basic metrics necessary in starting up the business. The answers,
however, require extensive research, so the entrepreneur must be careful in answering this metrics table. Moreover, the
entrepreneur can extend scoring system depending on the complexity of the industry and the venture itself. In this
example, the entrepreneur can put 5 as the highest score and 1 as the lowest score. Again, the weight of each factor
should be determined by the entrepreneur.

Table 2.2a Opportunity metrics for market potential

Table 2.2b. Opportunity metrics for financial feasibility

Table 2.2c opportunity metrics for exit strategies or harvest option

Table 2.2d Opportunity metrics for competitive advantage

Table 2.2e Opportunity metrics for management team

Table 2.2f Opportunity metrics for strategic differentiation

Table 2.2g Opportunity metrics for assessment of personal resources

Total attractiveness score

at the end of this test, the entrepreneur should first compute for the total scores per factor. Then, a
corresponding weight or percentage should be given as to the importance of the factor to the venture’s overall
standing. This weight must be multiplied to the total score accumulated per test. The entrepreneur should also establish
at tiered scale of description on the total attractiveness score.

sample tiered scale:

4.00-5.00 – very attractive

3.00-3.99 – attractive
2.00-2.99 – tolerable but must take caution and due diligence of the risk
1.00-1.99 – not attractive or too risky.
S3-Seizing the opportunity

Opportunity seizing is the last step in opportunity spotting and assessment. This is the “pushing through” with
the chosen opportunity. Entrepreneurs should make the best out of this opportunity, they should exert effort and full
dedication for the success of the new venture. The entrepreneur’s idea can be any type of innovations listed here.

Innovation is the process of positively improving an existing product of service. It is a key driver for economic
growth. Innovation is inevitable as the world constantly changes. Therefore, products and services must also adapt to
these changes. There are three types of innovations according to the degree of distinctiveness.

1. Breakthrough innovation. These innovations, which may also include inventions, occur infrequently as these
establish the platform on which future innovations in an area are developed. Breakthrough innovations must be
protected by a patent, a trade secret, or a copyright. Examples of breakthrough innovations include the internet,
the computer, or the airplane.

2. Technological innovation. These innovations occur more frequently than breakthrough innovations. These
innovations are technological advancements of an existing product or service. These innovations need to be
protected, too. In relation to the examples given, technological innovations include the wireless fidelity or Wi-Fi,
the laptop, and the jet airplane.

3. Ordinary innovation. These innovations occur ordinarily as the name implies. They are commonly originating
from market analysis and technology pull instead of a technology push.

This means that the market has a strong influence in the implementation of an innovation. Relating again to the
given examples, examples of ordinary innovations are unlimited internet plans of telecommunications
companies, a wireless mouse, and an airbus for economical

Entrepreneurs often encounter a problem in defining a “new” product or service, or identifying its
components or features. Examples of these include drastically improving the packaging and not the product
itself, adding one extra step in the service delivery process, or simply augmenting a product or service. The
“newness” is also independent on the eyes of the market and the company. The entrepreneur must then
establish that the new product or service offered will provide true value to the customers and influence their
behaviour. Further, the new product or service should increase the profitability potential of the enterprise.

Product or service planning and development process

In the seeking process, one opportunity stood out from a number of sources. This opportunity was
tested according to its attractiveness and feasibility in the screening process. The last process, hold the seizing
process, involve refining and developing this opportunity. The refining process is called product or service
planning and development process. It has five key stages
1.Idea stage. In this stage, the entrepreneur determines what are the feasible products and/or services that will
perfectly suit the opportunity. Usually , a market evaluation is conducted by the entrepreneur to assess whether the
new product or service ideas will be accepted by the market using values and benefits to consumers as metrics. On
the other hand, the value of the new products and/or services should also be assessed if these will benefit the
entrepreneur. Product and services that are unappealing to the market should be eliminated should be eliminated at
this stage.

2. Concept stage. Once the acceptable product or service has already been identified, it will go through the concept
stage. In the concept, the developed idea undergo a costumer acceptance test. This test includes getting the initial
reactions of the primary target market and the distribution channel. Conversational interviews are conducted to
understand costumer preference on physical characteristics and attributes of a product or the physical evidence and
characteristics of a service. Both favorable and unfavorable results will be used to devise and acceptable product or
service. These will also be used to compare the new idea with the competition with regard to superiority or
inferiority. Once all of the necessary pieces of information are gathered, the entrepreneur can already proceed with
the next stage.

3.Product development stage. In this stage, the entrepreneur leverages on the information generated from
prospective costumers via the concept stage. Actual reactions from prospective costumers are determined. The
entrepreneur will conduct a costumer panel where the actual product samples or actual service samples will be
given or rendered to panel of potential costumers. The participants’ task is to critique the actual product or service
and record the good qualities and inferiors attributes. They are also given sample of competitors’ product of services
for comparative purposes. Consumer preference will largely be based on methods such as multiple brand
comparisons, risk analysis, level of repeat purchases, or intensity of preference analysis (Hisrich, 2010)

4. Test marketing stage. This stage validates the work done from the first three stages to measure success in the
commercialization of the product or service. Actual sales results will be the foundation of the consumers’
acceptance level and will be the basis in commercializing the product or service.