Business Ideas over Business Capital

What to do when one has no business idea and no business capital? The good thing about the query, received through email, is the obvious interest in doing business. It’s important to note that much of the risk in doing business lies in the insufficient understanding of the nature, requirements and prospects of the business. Peter Drucker, widely regarded as a management guru, succinctly noted that “entrepreneurship is “risky” mainly because so few of the so-called entrepreneurs know what they are doing.” There is, therefore, everything to gain in asking questions, especially for new entrepreneurs.

We shall treat these questions as our own, as we have asked the same questions while going though our own path of entrepreneurship.

The question on business capital is secondary, so we’ll tackle it first. Our simplistic approach is this — use an amount commensurate to the level of business expertise achieved. There are a number of business success stories with the entrepreneurs starting at P5,000, P1,000 or less. Also, as we’ve noted for those taking the first step, it would be wise for the budding entrepreneur to invest only an amount he’s willing to lose. A new entrepreneur, therefore, wouldn’t need extensive capital and the issue of starting capital ceases to become a big problem.

It’s not hard to see how, in terms of importance, the search for capital is only secondary to business experience. Even in franchising, it’s evident that investing a large capital with no solid business understanding is very risky. When investing in stocks, it would be foolish not to gain more understanding on how stocks work and the performance of the company. Banks and financial institutions understandably extend credit mostly to those with a good business track record. The successful conduct of business opens up more opportunities, a testament to the (fortunate or unfortunate, depending on the point of view) fact that those who have more gets still more, and introduces the entrepreneur to bigger and better sources of capital. We’ve seen financial institutions offer credit lines to successful entrepreneurs.

The more important question, and the bigger problem, pertains to the business idea. What would be a good business? More in point, what is a good business opportunity that better fits the new entrepreneur? Of course, it can be said that a good business opportunity remains a good opportunity — regardless of the personality and capacity of the budding entrepreneur. This may be true, but not all entrepreneurs are created equal, a topic which requires an entirely separate article.

It’s tempting to think that one’s technical expertise in performing the work (service or product), on which the business is built, automatically leads to business success. Being a skilled “technician,” a term we used to distinguish this function from the other roles of the entrepreneur, may not be enough. This is the entrepreneurial myth.

The early exercise that we did, and still do, is to figure out how an existing business makes its money. We ask a lot of questions — questions we direct to ourselves by way of exercise. What is the need meant to be addressed by the business? What is the product? How does it deliver the goods or services? Where does it source the  materials?  What is the market? Market size? Is there still enough market space for new entrants? How does it differentiate itself from other players in the same market? What is the competitive advantage? What are the profit margins? How is it profitable? What is the business process or business strategy employed? Marketing strategy? The questions are endless. We’ve realized that the more we practice the process, the better (or so we think) we get in looking at business opportunities.

Spotting a business opportunity takes a number of forms. Some say it’s a matter of finding a need that is un-served or under-served by the existing market channels, then finding a way to satisfy that need. Demand and supply. Some say it’s looking for innovation, with its variation, the Blue Ocean Strategy. To be sure, there are other creative ways of spotting a good business opportunity.

One of the easier strategies is to copy an existing business. It’s not surprising for new sari-sari stores to pop up like mushrooms the moment one sari-sari store in the area makes it big. The key players in litson manok survived the early onslaught of copycats and is continually challenged by new market players. Even big-capital businesses like real estate are not immune to the copycat strategy. The reason is simple — if a business is doing well, then it should be lucrative and a good business prospect to explore. The victors of the litson manok (or any business venture) wars would say that they were just lucky. Hard work and perseverance won the day. They would also say that they understood the business better and moved with deliberate speed to capture market segments.

So what are we saying? The rules have been simple for us. Do not go into business if you don’t understand doing business in general. Do not go into a particular business if you have not done your homework on that business. There are big rewards in successfully doing business, but there are accompanying risks — more risks if we don’t understand the business. We cannot rely, although we certainly should listen, on what others say about good business prospects. We have to ask questions and we must learn to find the answers ourselves. We have to learn the ropes of business and that means we mostly likely have to start small.

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