Entrepreneurial

Mindset
Prepared by: Assoc. Prof. Altagracia A. Silaya
VISION AND MISSION
Chapter 1
The Practice of
Entrepreneurship
Learning Objectives:
• Combine the two views of entrepreneurship for new ventures;
• Relate the start of entrepreneurship in the Philippines;
• Develop the skills important in entrepreneurship;
• Express the truths about entrepreneurship;
• Distinguish each type of entrepreneurship;
• Adapt entrepreneurship as a method;
• Contrast between managerial and entrepreneurial thinking; and,
• Justify deliberate practice od entrepreneurship
The Skills Important in Entrepreneurship
In the creation approach, entrepreneurs are able to
learn through action and manage uncertainty by developing
theses five important skills. These skills could only work for
those who are eager to take action. In order to develop these
skills, an entrepreneur needs to learn by doing. Putting an
idea into action is the most important thing to live a more
entrepreneurial and influencing life.
 The Skill of Play
An entrepreneur with the skill of play usually allows his
imagination to explore, exposes his mind to a treasure of opportunities
and potentials and is very innovative. It was Piaget, the well-known
child psychologist who had been commending the benefits of play for
decades. Entrepreneurs may benefit and enjoy as if playing while doing
creative things that can boost relations with others, solving problems
ideation and other exercises.
 The Skill of Experimentation
The Skills of experimentation call for entrepreneurs to act so as
to learn. Acting to learn means attempting to do something from such,
learning from such attempts and structuring said learning when the next
thing similar happens. Experimentation in entrepreneurship refers to
making action. Action could be in the form of going out in the
entrepreneurship refers to making action.
 The Skill of Empathy

The Skills of empathy means being sympathetic with the feeling,

situation, purposes, opinions and wants of other people. Empathy is
putting ones’ shoes in the shoes of others. Simply, it is relating to the
feelings of others when placed in a similar circumstances.
 The Skill of Creativity
The Skills of creativity means being open-minded and letting
loose ones ability to create, discover opportunities and resolve problems.
Based from researchers, entrepreneurs students are more creative
compared to students in other business courses. The intention in using the
skill of creativity is not just to discover or search for opportunities but to
form them.
 The Skill of Reflection
In order to make sense of the previously discussed
skills, an entrepreneur should develop the skill of reflection.
Reflection organizes all the four skills mentioned here.
Taking time to reflect is the most vital skill of all skills.
There are several ways to do reflection, namely: Narrative,
Emotional, Perceptive, Analytical, Evaluative, and Critical.
 The Skill of Reflection
1. Narrative – It is describing what happened in terms of what took
place, what was said and the people involved.
2. Emotional – This centers on the feelings and the management of
these feelings during a certain situation.
3. Perceptive – It focuses on ones insights and feedback as well as the
others in addition to how various views, needs or inclinations
affected the experience.
4. Analytical – It is rationalizing about skills and understanding
obtained from an experience and relating what has been learned to
anything heard about before.
5. Evaluative – This concerns on what went well as well as what went bad
or whether the experience was useful or not.

6. Critical – This is considering the role played in a situation, the

approach applied, what could still might be done, the lessons from the
experience, queries in mind and anticipation of the possible result.
 The Truths about Entrepreneurship

There are really no shortcuts when it comes to

entrepreneurship, Entrepreneurs must understand that it is a
hard commitment and there is no quick formula for
success. Here are some truths about entrepreneurship:
 Entrepreneurship is Not Solely for Startups

A startup this new company that is just starting to progress and

looking for a feasible business model. Startups are typically
small and primarily funded and operated by a few founders or
one person. Traditionally, when a person starts a business, he is
called an entrepreneur.
Entrepreneurs Do Not Have Exceptional Personality Qualities

In reality, there is really no evidence to prove that intrapreneurs

possess special personality qualities above others. Although
without a specific proof, traditionally there are four recognized
qualities of entrepreneur which are being achiever, an influencer, a
risk taker and open-minded for uncertainty.
 Entrepreneurship can be Taught Yet Entails Practice

Nowadays, entrepreneurship is already taught in colleges and universities

worldwide. However, most schools teach entrepreneurship as a linear
process just like in the manufacturing business. Linear process consists of
identification of opportunity, knowing resources needed, obtaining
resources, planning, implementing and harvesting once the business has been
in place. Simply, the linear process teach entrepreneurship as something
predictable.
 Entrepreneurs are Not So Much Risk-Takers

There has been an existing stereotype about entrepreneurs that they are
“gamblers’’. Although there is really no valid proof on this typecast about them,
this suggests that entrepreneurs take more risk compared to anyone. Gambling in
its context is really risky, because everything is left to chance, In reality anything
in life is risky because no one holds the future.
Entrepreneurs Work in Partnership More than They Compete

Working in partnership not only works with the rest of the entrepreneurs but
also with target consumers, with prospective investors and with family and
friends. Customer relationship is essential, investment requires trust and
relatives and friends are necessary as support groups. Partnership usually
brings about more efficiency additional, fresh ideas and produce ingenuity
and innovation.
 Entrepreneurs are More on Doing than Planning

Most people believe that any business to succeed requires a business plan piece of
researches, not all successful companies had wrote a formal business plan. Perhaps
people would wonder how this came about. Simply, this successful entrepreneurs
had acted. They went out of the streets, talked to people, relate with customers,
buzz about their offerings whether product or service and most importantly they
form a solid networking. These successful people had really practiced being real
entrepreneurs. Gathering timely data as guide for the next level decision is part of
their action.
 Entrepreneurs is Truly a Life Skill

I lot of people as well as organizations these days consider entrepreneurship as a

skill that is useful in every human's life. As a life skill entrepreneurship can offer
the methodological way of thinking, opportunity identification, specific way of
problem-solving, adapting to new situations and governing one’s goals and
ambitions. Said life skills is not only for entrepreneurs but also for other
professions. Some of these life skills include.

1. Resilience – This is being able to deal with setbacks through bouncing back
and refocus after failure.
2. Agility – This is responding speedily and conclusively to adjust to dynamic
changing environment and situations grab new opportunities and be
competitive.
3. Negotiating – This is about setting boundaries, ensuring for a good relationship
and understanding that a good rapport is necessary to give any business the best
chance of success.

4. Problem solving – This concerns creating solutions from minor technical

difficulties to major financial headaches.

5. Relationship building – This involves the give and take relationship of the
entrepreneur with the supplier investor even his employee. Define relationship
building number.

6. Mindfulness - This is the ability to disconnect from the pressure and focus on
being in the moment by techniques such as breathing and meditation to better
manage one thoughts and feelings and escape from being burdened by them.
Types of Entrepreneurs
Intrapreneurship

Intrapreneurship refers to encouraging people to discover high risk, high

reward concepts with the support of a big corporate organization. Google for
instance is an example of a company that supports its employees to provide
the 20% of their time for innovative projects. This is the very reason why
about half of the company's new products come from intrapreneurship.
Entrepreneurs Inside

Entrepreneurs inside is almost similar with intrapreneurship. The only difference

between the two is that entrepreneurs function inside any type of organizations
such as government agencies, nonprofit organizations, religious entities, self-
employed and even cooperatives, whether they are a big or small. These type of
entrepreneurs must be supported by management. However, often it becomes
difficult for these entrepreneurs to practice entrepreneurship due to resistance of
management to support novel ideas.
Buying a Franchise

A franchise is a type up license bought by an intrapreneur as the franchise from an

existing branded business (franchisor) so that they may do business under the name
of said bran. The license serves as the right to open the business using the brand's
proven business model and system, it's proven pricing, products and promotional
tactics. For a franchisee, it is the best to buy the right brand. A franchise has the
complete access to the brand’s logos, slogans, signages, and other things related to
it.
Buying a Small Business

Another way to enter the business world is buying a small business. In this manner,
the entrepreneur buys out the existing owner and takes the management and
operations of the small business. This normally involves more upfront cost and also
present less risk than starting from zero. In buying small business, the new owner
may be able to acquire valuable patents or copyrights or have the opportunity to
drive an unprotective business in an existing direction with his expertise.
Social Entrepreneurship

Social entrepreneurship means pursuing innovative applications

that are likely to solve community-based problems. Many
entrepreneurs are able to find solutions to social problems such as
water shortages, education, poverty, and global warming. Social
entrepreneurs may try to produce environmentally friendly
products, serve an underserved community, or focus on
philanthropic activities.

In the Philippines, Bayani Brew is a good example of social

entrepreneurship. Bayani Brew products are ice teas using
indigenous ingredients such as lemongrass, pandan, and sweet
potato tops. Farmers supply the local and indigenous ingredients
to help them in their livelihood.
Family Business

A family business is owned and managed by members of the family that is usually
handed down from generation to generation.

Family businesses are prevalent not just here in the Philippines but worldwide.
Shoemart, Metrobank, the Aboitiz Group, and D.M. Consunji, Inc. (DCMI) are
among the many owned and managed brands by some of the most influential
families in the Philippines.

Fu Pu Kuo San Tai is the famous Chinese saying which literally means “wealth
does not pass three generations”. The Chinese saying, possibly from experiences
says that the first-generation founder works hard to construct the business. The
second generation becomes heir to it and grows the family wealth, while the third
generation waste it and puts an end to the business.
Serial Entrepreneurs
A serial entrepreneurs is an entrepreneur who constantly crops up with fresh ideas
and start new business this is different from the classic entrepreneur who only had
one idea to start with this venture then play an important role on its daily operations.

Oprah Winfrey is an example of a serial entrepreneur. She

is a famous American philanthropist, media leader, and
best known for her award-winning talk show “The Oprah
Winfrey Show”. She started her career as a local TV
anchor. In 1986 she created the Harpo productions, Inc.
This production company owned the rights to the “Oprah
Winfrey Show” from 1988 onwards.
Entrepreneurship as a Method

A method is a systematic way of doing a task while a process is a sequence of

steps to take to obtain something usually entrepreneurship is considered a process
with steps that could lead to a successful business.

The entrepreneurial method mainly consists of five effectual principles. Based on

the works of Sarasvathy, today, much said about effectuation theory. Effectuation
is the idea in entrepreneurship that the future is unpredictable yet controllable.
There are five principles behind effectuation which are:

1. Bird in Hand - this principle of effectuation means creating solutions using

the resources available at the disposal of entrepreneurs instead of having
goals in mind. If one is trying to build a new venture he should start with his
available means. Knowing who they are, what they know, and who they
know are three important things that could make possible the success of any
venture in this principle.
2. Affordable Loss - In order to limit the disadvantage risk, an entrepreneur
should define his affordable loss. This means only investing much that
entrepreneur is willing and can afford to lose. If it is an affordable loss in the
possible gains are big then the decision can be implemented. In this way
failures could be prevented earlier and only work for what is possibly could
be controlled.
3. Crazy Quilt - This is about entering into new partnerships that can bring in new
opportunities and reduce uncertainty. Here, the business should become successful
through cooperation with other people and companies and not competition.
Jollibee Foods Corporation (JFC), the largest fast-food chain in the Philippines,
partnered with Globe Business, the enterprise and information and
communications technology (ICT) arm of Global Telecom, to centralize its express
delivery service to one convenient number: #8-7000. Using technology, Jollibee
was able to elevate IT service delivery and able to adopt a customer-centric focus
in their operations.

4. Lemonade—When looking for new opportunities, entrepreneurs may encounter

mistakes and surprises. Apparently, bad surprises and unexpected turns are not
always negative; entrepreneurs see them as new opportunities. Using this
principle, entrepreneurs always expect these surprises and must welcome
contingencies.
5. Pilot in The Plane - entrepreneurs in this principle believe that the future
is really something that needs to be controlled and not try to predict. Hence,
the focus should be on those entrepreneurial activities that are within the
bounds of one's control.
 Components of the Entrepreneurship Method

Identify Desired Impact

In successfully forming a new venture, an entrepreneur must combine his

curiosity, drive and motivation to achieve something beyond the bounds of
himself. Entrepreneurship is seldom about profit concerns. Given that companies
are formed with profit as motive, the main objective is primarily deeper than
money. Most entrepreneurs pursue what they wanted to do, some love being
autonomous and being able to control their experiences at work.
Begins with Means at Hand

The current resources at hand is an important component. These resources need to be ready
for use to accomplish immediate action “who am I”, “what do I know” and “whom do I
know” are the three essential questions that when answered correctly and honestly bring
understanding about the resources at hand.

Describe the Idea Today

The desired impact and the means at the hand should be combined to fully describe the
idea today. Only then that an entrepreneur could start action today with the resources he
has today.
Estimate Affordable Loss

Risk is apparently relative. High risk for one may not be the same for others. Therefore, risk
is difficult to calculate and can be used and as effective criterion for decision-making. Instead
of estimating risk, entrepreneurs think about the things they are willing to lose. These things
to lose include money, reputation, time and opportunity cost. Once the entrepreneur is able to
control of these three things, he is also avoiding to make fear and failure control him.

Reflect and Be Honest

Sometimes entrepreneur may have thought of giving up the business. The question is what
shall be his considerations? Once the entrepreneur will no longer has the desired impact or
has exceeded his affordable loss, that he make quit. Otherwise, the entrepreneur must think of
the next step to do to sustain his venture.
Take Small Action

The first option is just a small step to get going. Each step must not be extreme but still this
can be done. Once, every step is properly calculated and affordable loss is estimated, the
entrepreneur can control his risk.

Network and enjoin others in the journey

Rather than competition, the practice of entrepreneurship is about collaboration and co-
creation. Sharing one's ideas and enjoining others to be part of the entrepreneurship
bandwagon shall also increase the entrepreneur's resources, expand the possibilities available
as well as confirm his idea.

Build and Learn from What Has Been Learned

Every entrepreneur should evaluate his performance. Evaluating performance is improving

one's idea. At this step, nothing is right or wrong, just making things better. It is always best to
celebrate when success comes. However, when failures happen, embrace them because of the
learnings that comes from them.
Managerial and Entrepreneurial Thinking

Managerial thinking is usually best to apply during times of certainty. Managerial thinking
uses information and data as basis for decision making. Managerial thinking is used
primarily by big and well-established companies, where goals are planned, problems are
transparent and information is reliable and reachable.

Entrepreneurial thinking on the other hand, refer to the ability to identify opportunities in
the marketplace and discovered the most fitting ways and time to take advantage of them. At
times, it is basically referred to as the ability to discover and pursue the problem-solution
fits.
Here is the table that differentiates between managerial and entrepreneurial thinking:

Managerial Thinking Entrepreneurial Thinking

Manage and mitigate risk Evaluate and embrace risk

Safeguard inventions and insights Exchange ideas and share learnings

Avoid falling Fail fast and try again

Work within the confines of the current Think in terms of possibilities

environment

Increase the bottom line Create value and make a difference

Table 1 Managerial vs Entrepreneurial Thinking

 Chapter 2
Entrepreneurial Mindset
and Opportunity
Recognition
Learning Objectives:

The learners should be able to:

• Compare fixed and growth mindsets;

• Generalize characteristics in essentials of entrepreneurial
mindset;
• Assess entrepreneurship as a habit;
• Consider opportunity recognition using mindset;
• Integrate structured strategies of forming ideas;
• Propose pathways towards the identification of opportunity;
• Recommend ways on using information rightfully to create
impact; and;
• Adapt the IDEATE model in opportunity recognition
Mindset its Characteristics and Essentials

A mindset is a belief that qualities like intelligence and talent are fixed or
changeable. Carol Dweck coined the word mindset in her book Mindset. It was
based on her research about the personalities of successful people. She found that
successful people have different mindsets, which are fixed versus growth mindsets.

People with fixed mindsets perceive that their talents and abilities are set. They
consider their brains and talents are sufficient to become successful and endure life
by becoming smart. On the other hand, people with a growth mindset trust that
their traits can be changed, developed, and strengthened by working on them.
These people are certain That their abilities could be developed by commitment
determination and obviously hard work
 Fixed Mindset Growth Mindset
I'm either good at it, or I'm not. I can learn anything I want to.

When I'm frustrated, I give up. When I'm frustrated, I persevere.

I don't like to be challenged. I want to challenge myself.

When I fail, I'm no good. When I fail, I learn.

Tell me I'm smart. Tell me I try hard.

If you succeed, I feel threatened If you succeed, I'm inspired.

My abilities determine everything. My effort and attitude determine

everything.

Table 2 Fixed vs Growth Mindset

 Characteristics of an Entrepreneurial Mindset

1. Curiosity - being curious is really shared among successful entrepreneurs.

Curiosity leads to questions, any questions lead to answers. This trait strengthens
the ability to understand things with a new standpoint. Nobody really knows
everything, and curious people are conscious of this.
2. Commitment - this is continuing to keep going and persist amid problems.
Rejection and disappointments are essential elements of an entrepreneur's life
which need to be endured.
3. Optimism - tough attitude forwards challenges makes up successful entrepreneurs.
Every time a situation happens, the entrepreneur should be hopeful in exploring its
many learning opportunities.
4. Flexibility - entrepreneurship is a challenging field with its unpredicted demands
and continuous problems. It helps to be supple to deal with a series of difficult
situations, solve problems easily and make progress from obstacles.
5. Ownership – successful entrepreneurs always trust that their success comes from
their own ability. Simply they have high internal locus of control. Whatever life throws
at them, they will be able to make or break them through their own actions, decisions
and responses.

6. Leadership - a successful intrapreneur always guides, motivates and empowers his

team. It is usual for him to share his vision with his team to inspire these people.

7. Connection – In entrepreneurship creating a network is very important.

Entrepreneurs must choose those people that would form his collective links so that he
could breed his idea.

8. Self-respect - in business, it is also vital to take care of both the body, mind and
spirit. Taking care of oneself daily through rest, exercise and diet is essential. Always
have ample rest and sleep for renewing ones’ energy.
Entrepreneurship as a Habit

A habit is an unconscious behavior done often and regularly. Good habits

can be acquired using “habit loop”. This habit loop it's a process where in
the brain makes decision whether to store or repeat such behavior.
Rewarded behavior is most likely repeated there are three habits that
required most to be nurtured and be practiced entrepreneurial mindset.
 The Self- Leadership Habit

1. Behavior focused - this strategy concerns enhancing self-awareness to manage behaviors

especially when dealing with essential but not so good task. Here are the ways to
accomplish this strategy:

a. Self-Observation - This increase the consciousness of how, when and why

entrepreneurs behave the way they do in some situations.
b. Self-goal Setting - This concerns the process of planning goals of entrepreneurs.
c. Self-Reward - this is about paying oneself after accomplishing the set goals with
either tangible or intangible rewards.
d. Self-punishment - this is allowing intrapreneurs to evil wait their behaviors in order
to reform them.
e. Self-Curing - this is making lists and notes or writing motivational posters as
reminders of the planned goals.
2. Natural Reward - This is about making every task enjoyable by emphasizing the
positive aspects of each task and its importance.

3. Constructive-Thought - This means creating positive and productive means of

thinking that are advantageous to the performance of entrepreneurs.

The Creativity Habit

Creativity is the capacity of turning fresh ideas, insights, inventions, products or

artistic objects that are considered to be unique, useful and of value to others into
reality. It is the ability to observe the world in different and novel ways, to discover
unseen patterns, to make associations between apparently unconnected phenomena,
and to produce solutions.
Opportunity Recognition Using Mindset

An opportunity is a means to generate profits by creating unique, innovative

and desirable products or services which are not being found in the market
yet. In order for an opportunity to be feasible, the idea should be able to
create value.

Opportunity recognition is a process by which individuals and businesses

makes use their entrepreneurial mindset in order to establish new business or
ideas. This is done using continuous brainstorming to find new and
innovative ways of solving problems. Such opportunity could be a new
business concept or possibly new products or services to satisfy customers’
needs and expectations.
How to Start with Ideas

There are several approaches in forming ideas from the not-so-formal through a
more formal way of creating ideas. Here are some structured strategies of forming
ideas.

1. Analytical - this is about breaking a problem into details or looking at a problem

in a common way to produce ideas on improving or innovating products or
services.

2. Search - this involves linking personal experiences that are significant to the
existing problem this also illustrates the ability to be resourceful in looking for
connections between objects that appears to have no obvious relationship at first.

3. Imagination-Based - this is interrupting doubts and dropping restrictions to

produce fantasies or make believe situations. Sometimes, intrapreneurs need to
be playful in their minds so that they can think of ways that are impossible.
4. Habit-Breaking – Sometimes, the human mind needs to depart from usual
patterns to stimulate creative insights. In order to explore a new perspective,
entrepreneurs should think of the opposite of something.

5. Relationship-Seeking - This is establishing a link between concepts that are not

usually connected. The intention here is to pull the mind into making connectivity
that seems to be unnoticed.

6. Development - This employees the modification of existing concepts to make

improved choices and new potentials. One way to do this is to brainstorm.

7. Interpersonal - This needs interaction with a group to generate ideas.

Brainstorming is also commonly used to highlight creativity towards new
opportunities.
 Four Pathways to Opportunity Identification

Find Pathway

This pathway assumes that opportunities exist independent of entrepreneurs and are waiting
to be found. Generally, an opportunity is found when the entrepreneur sees a clear problem in
develops a solution the problem is known to most, but the entrepreneur is “the one who acts
on the potential solution”.

Search Pathway

This is used when entrepreneurs are not quite definite what type of business they want to
jump in. Hence, they engage in an active search to discover new opportunities. Everyone has
certain information sets or knowledge bases. Through actively searching this sets,
entrepreneurs are able to access a wealth of information and discover new opportunities.
Effectuate Pathway

This is about the way that uses the entrepreneurs is skills, knowledge and abilities to unearth an
opportunity that suits him. Such opportunity comes from the experiences, abilities, networks and
intervene risk confidence to make action especially during times of uncertainty. Effectuate
pathway is not simply discovering opportunity but really creating it using “what you know”,
“whom you know” and “who you are” as an entrepreneur.

Design Pathway

This is the most difficult yet the most-value creating pathway. By focusing on the unsatisfied
need of the market particularly the latent ones, the entrepreneur is able to discover valuable
opportunities. Latent needs are those needs that customers do have but do not know they have.
This pathway is considered most difficult because this needs practice and creating thinking
before discovering real unsatisfied needs.
 Alertness, Prior Knowledge and Pattern Recognition

Alertness

In reality information is everywhere. Information are just waiting to be discovered.

However, only entrepreneurs that possess alertness could possibly do this thing. Alertness
refers to the ability to easily pinpoint opportunities in the environment.

Prior Knowledge

Prior knowledge is the information gathered from the combined life and work
experiences. Studies shown that entrepreneurs that have knowledge about the industry
and market in combination with broad network are able to recognize better the
opportunities around them most entrepreneurs that had knowledge and experiences in the
market, industry or customers can be able to apply this to their respective businesses.
Pattern Recognition

Pattern recognition refers to identifying relationships between seemingly

isolated things or locations. This recognition, happens when people make
connections up that's tipping point and create opportunities. Often, when
“connecting dots” there are constraints that block the way. Real entrepreneurs
ignore these things and try to find ways to look beyond constraints.
 Chapter 3
The Use of Design
Thinking
Learning Objectives:

The learners should be able to:

• Define design thinking;

• Illustrate the design thinking process;
• Combine storytelling with the design thinking process;
• Adapt observation and insights in the design thinking
process;
• Design interviews in the design thinking process; and,
• Prepare experiments in the design thinking process.
What is Design Thinking?

For the Chief Executive Officer, Tim Brown of IDEO, design thinking is “a
discipline that uses the designer’s sensibility and methods to match
people's need with what is technologically feasible and what is a viable
business strategy can convert into customers value and market
opportunity”.

Basically, design thinking is a constant process of trying to find innovative

solutions to problems through deep understanding and empathy of the
targets user. It seeks to develop complete understanding of the people
involved in the problem through solution-beast approach and not those
common problem-solving methods.
 The Origins of Design Thinking

In the 50s and 60s onwards, design-thinking emerge because of the issues of collective
problems holding up significant societal changes by engineers, architects and industrial
designers at the time. In his 1969 book entitle “The Sciences of the Artificial”, Herbert
A. Simon first mentioned about design thinking as a way of thinking. Cognitive scientist
and Nobel Prize laureate, same one since then contributed numerous ideas in the
principles of design thinking.
The Design Thinking Process
The Hasso Plattner Institute of Design of Stanford provides a five-step process in design thinking. In
reality, the process follows a flexible and non-linear fashion, rather than sequential steps. The process
often occurs in parallel and be repeated iteratively.

Figure 2 The Design Thinking Process

 The five phases of Design Thinking

Emphatize: Research About Users’ Needs

Using research, the first step in the design thinking process allows to obtain understanding of the
people who experience a problem before designing a solution to serve them. Empathy describes the
ability to put oneself in another person's shoes to really see the world through peoples in a given
context or situation.
Here are some key empathy-building methods to gain a deeper understanding up the users pulse:

1. Empathy interviewes - The objective of the interview is to find out as much insight as possible
using an open conversation the most effective way of an interview is constantly asking “why?”
Even if the answer has already been given.
2. Immersion and Observation - Users should be observed in their natural environment or immerse
in a certain situation while they are in action.
3. Extremely Users - Usually the extreme users are the ones sought to re-structure the problem and
discover fresh insights.
4. Ask what, how, and why in curiosity - the what, how, and why abusers behavior must always
be considered this line of questioning can lead the observation into more abstract user
motivations. The “what” question shall give details of what actions has taken place. The “how”
question considers the manner of completion of the action that happened in the “what”. With the
“why”, educated guesses could be formed about the user’s motivations and emotions as he
completes the action.

Define: State Users’ Needs and Problems

The first step towards defining a problem is to find who the user is, what is his needs and then
develop insights from the answers. Send step has been done in the empathize stage. Then the
actionable design problem statement is defined in a human-centred manner to clap all the
answers together in the empathize stage. The purpose of this problem statement is to establish
the core problems and generate tangible and actionable ideas to solve the problems.
Here are some guidelines in generating the question under the design thinking process:

1. Strengthen the good - In design thinking, all the positive aspects of the customers’ needs are
intensified.
2. Eliminate the bad - With design thinking, all the bad components witness in the problem are
taken out.
3. Search the opposite - Using design thinking, the problem needs to be transformed into
opportunity.
4. Enquiry of the Assumptions - This is step in design thinking consists of enquiring about the
assumption at hand.
5. Pinpoint the Unanticipated Resources - How Bing design thinking, some other resources not
stated by the customer can be South on how they can be controlled.
6. Form an Analogy - The same thinking also includes the manner of creating relationships
between the problem at hand and unconnected images.
7. Breakdown the Problem into Pieces - This is where again analysis comes into picture for a
short while before the problem definition can be synthesized.
Ideate: Challenge Assumptions and Construct Ideas

In this stage, designers are prepared to start generating ideas. The concrete background of knowledge
from the first two stages means everyone can begin to “ think outside the box”.

There are numerous ideation techniques such as Brainstorm, Brainwrite, Worst Possible Idea, and
SCAMPER. In order to encourage free thinking and to magnify the problem space, Brainstorm and
Worst Possible Idea sessions are normally used.

1. Brainstorm - this is more relapse and informal way of solving a problem using imaginative
thinking. Often times, please stop an idea seem a bit crazy. This ideas are original and creative
solutions to a problem.

2. Brainwrite - this is a serial process of asking participants to write down their ideas about a
specific question or problem on sheets of paper. Each participant passes his ideas on to
someone else, who reads the ideas and adds new ideas.
3. Worst Possible Ideas - This is a technique where members of the team look for the worst solutions in
ideation periods. This is a diverse way of examining their ideas, contest assumptions and obtain insights
in discovering great ideas. In this way it would strengthens creativity and boost the confidence of team
members.

4. SCAMPER – The SCAMPER method is a concept that aims to look for solutions to problems. The
SCAMPER technique is more engrossed on the process of discovering unfamiliar and nobody solutions
to problems. The goal also is improving a product or service. Actually, SCAMPER stands for an
acronym and each letter is stands for one thinking technique.

a. Substitute - a designer may look for something to replace that will result it improvements of
concept, product, service or process.
b. Combine – sometimes, the solutions are already at hand at that really something new. An idea
might not work alone, but a combination of some ideas, processes or products could work best.
c. Adapt – often, there is already the right solution to a problem, but still unknown yet.
Sometimes, an idea could solve one or more problems.
d. Modify - at times, a situation or problem could offer a new insight or added value this could
help isolate which among the part of process or concept is vital.
e. Put to another use –This is making the idea or concept works into a different use compared
to what is originally planned.

f. Eliminate – In the same process like the Lean Six Sigma, this concerns eliminating waste due
to inefficient processes. Removing ineffective procedures could reform them,

g. Reverse - This is doing things that are completely against the original purpose in order to see
something from a different angle.

Prototype: Start to Form Solutions

A prototype is low-cost, scaled-down quick working sample of entrepreneurial ideas for new
products or particular features found in this products. It is a taster of what will ultimately become
a finished product a prototype shows how a product will work and look like.
There are numerous types to prototyping. It is always essential to choose the right type of
product which suits into some constraints such as time and resource.

Low fidelity – This consists of paper prototypes that are used in the early stages that are
constantly improved during the process. This prototyping makes improvements easy and
fast.

Medium fidelity – This prototype concerns the product that is made with practical
functionality's based on a storyboard and user situations.

High fidelity – Often, these prototypes are mistaken for the final product, be cause they look
closely like the would-the actual end product. This prototypes may provide the most
convincing experience of the product having the real functionalities.
Test: Try Solutions Out

The complete product is tested in real life environment using the best solutions in the
previous step. The results that are produced out of the test are normally used to redefine
one or identify further problems. Designers can go back to the previous step to make
repetitions, adjustments and improvements to consider alternative solutions.

Here the stakes are high, if the final users are contented with the product, then it will go
into production. While if the end users are not happy, then the process is reiterated in
addition to integrating the feedback and then reframe the problem. Testing is the
opportunity for users to try out the prototype. It is the chance for the designer to observe on
purpose and gather finale process data.
 The Power of Storytelling

Storytelling is the core of the structure and functions of every human being to connect events as a complete
experience through time. Hence, storytelling makes it an important and effective tool in course of design
process of both products and services.

Usually, every story has the following elements:

1. Domain/What – This is the definition of the topic that is the concern of the story. In the design process, it
can be the problem of a consumer that should be resolve.

2. Players/Who – These are the people involved in a story. In the design process, the main player is the persona
who represents the demographic information of the consumer who faces the experiences.

3. Story flow/How – There are three main chapters for each story namely the beginning, middle, and end. In
every story there is problem that could be part of the middle stage which is the target in the design process.
 Observation and Insights

Collecting information about the target consumer is a vital part of the design
thinking approach. Knowing what customers think or feel is the initial step
towards making innovative products and services that they want and need.

Curiosity is the core element in digging differ into design thinking. Being a keen
observer is a vital to be curious and knowing why things are the way they are,
why things seems not to work or why people act the way they do. Being curious
is a mindset that help in better understanding of the things around through
observation. Observation makes a person look into the finer points. Curiosity on
observation must work hand-in-hand by inquiring about assumptions to
understand what is unknown.
Observation Techniques

Based from the perspective of Spradley, here are the nine dimensions for observational
purposes:

DIMENSIONS DESCRIPTION

1. Space the physical layout of the place/s

2. Actor the range of people involved
3. Activity a set of related apps people do/or activities that happen
4. Object the physical things that are present
5. Act single actions that people do
6. Event a set of related activities that people carry out
7. Time the sequencing of events that takes place
8. Goal the things people are trying to accomplish
9. Feeling the emotions felt and expressed
Table 4 Dimensions for Observations
An important and helpful tool to use for classifying and construing observations collected during user
research field studies and usability testing efforts is the AEIOU. It was in 1991 that Rick Robinson and his
team developed AEIOU at the Doblin Group.

It stands for the five dimensions namely:

1. Activity - This comprises action and behaviors with specific goals in mind, and the process executed to
accomplish them.

2. Environment - It details the overall context and characteristics of the space where activities are being
observed.

3. Interaction - It consists of both interpersonal and person-artifact interactions. Proximity and space
may also play a significant role within theses relationship.

4. Object - This sets the items within the environment and how they are used. It is essential to note both
the fundamental and minor use of objects and how people connect them to do their activities.

5. User - This includes the people within the environment that are being observed. The key information
comprises their value and biases, behaviors, needs and relationship.
Interview

Interviewing is an important tool to identify and emphasize with customers' needs from fresh ideas and
find out new opportunities. This is another way of gathering data by the designer. This approach could
be a substitute or support to observation. An expert interviewer should be open-minded, a skilled
listener, a keen observant, flexible and exhibits patience.

Interview Techniques

1. Make the interviewee relaxed - The interviewer must dress in a manner similar to the customers
being interviewed. He may offer some drinks and have a little talk prior to the start of the interview.
2. The interviewer should be on time and heading to the right direction - The interviewer should
prepare some scripts as reference which can be useful to provide focus when asking questions. With
prepared scripts it will mean less time to conduct the interview.
3. Concentrate on the customers and not on the documentation - The interviewer must always focus
on the conversation with the customers to make the discussion flowing. He may bring with him a
recorder, so that all things could be documented.
4. Ask open ended questions - The interviewer must not ask question answerable by “yes” or “no”. Open-ended
westerns are those which require more thought and more than a simple one-word answer.
5. Listen, refrain from talking - The interviewer ought to be attentive to what is being said by the customers. He
needs to keep his questions short and impartial. Do not fill the space during the process made by the customers.
6. Encourage but not influence - The interviewer should avoid saying things that may direct the customers into
something. He must only show little signs of encouragement such nodding his head or merely smiling.
7. Follow ones feelings and drill down - sometimes there is a need to make clarifications in order to examine
something in depth. The interviewer may ask follow-up questions such as why and what else.
8. Repeat to confirm - for very significant topics, the interviewer should try retreating back what the person said.
He can occasionally get to interesting results through this. Firstly any misinterpretation could be corrected.
Secondly, any slight difference with the true opinion can be realized and change into a more refined answer.
9. Thank the customer at the end of the process – Politely, the interviewer should show appreciation for the
time and effort given by the customers. This is also the chance for the customers to ask questions of their own.
Experiments

Experiment is an approach of approving or disapproving the soundness of an idea or hypothesis.

Certainly, there must be a clear objective that is a doable and outcomes from this experiment out be
reliable. On the other hand, a hypothesis is a statement of assumption that is tested using research and
experiments.,

Three types of experiments:

1. Trying out new experiences – Here entrepreneurs try new experiences like going to other countries,
working for several businesses or learning new skills in order to create new business ideas.
2. Taking apart products, processes and ideas – In this type of experiment entrepreneurs try taking
things apart and then later placed them back together. This represents inquisitive, creative and
disruptive entrepreneurial mindset.
3. Testing ideas through pilots and prototype – Pilot experiment is a small-scale study directed
towards evaluating the viability of a product or service. A prototype has been discussed as an
unpolished version of a product or concept that is made before the pilot testing.
 Arts and Science Applied to Entrepreneurship

Entrepreneurship is both an art and science. The fact that entrepreneurs

come up with new ideas that most open are worthless to others make
entrepreneurship an art. Entrepreneurs imagine and create something that
no one else did. As an art, entrepreneur must have a creative thinking skills
to make some ingenious ideas and make the entrepreneurial process a great
success.

Science, on the other hand, close for combining new information into
prevailing models for adding new models, to a superior body of
knowledge. An entrepreneur continually challenging his assumptions,
construct on what he already knows and constantly make adjustments to
stay relevant in his environment.
 Chapter 4

Building Business Models

Learning Objectives:

The learners should be able to:

• Understand the concept of a business model;

• Design the business model canvas for a startup;
• Select the network of key partners;
• Choose key activities essential to the value proposition;
• Formulate a good customer value proposition;
• Recommend the relationship the startup should form with the customer segments;
• Select the customer segment/s to serve;
• Propose for the channels to use to communicate with customer segments; and,
• Prepare lean canvas for startup.
 What is business Model?

According to management guru Peter driver: “a business model is supposed to

answer who your customer is, what value you can create/add for the customer
and how you can do that at reasonable cost”. Simply, a business model defines
the foundation of its company core value proposition, targeting customers, key
resources, and assume revenue streams.
Different Types of Business Models

1. Manufacturer – A manufacturer is a person or a registered company which makes finished products

from raw materials in an effort to make a profit the goods are later distributed to wholesalers
retailers who then sell them directly to customers. Examples of manufacturers in the Philippines our
Ajinomoto Philipines, Alaska milk and Century Pacific Foods among others.
2. Distributor – A distributor is an entity or a company that purchases noncompeting products or
product lines he stores them in warehouses, Emily sells them to retailers or directly to the customers.
Auto dealers are example of distributors.
3. Retailer – A retailer is a person or business that purchases good from the wholesaler or directly from
the manufacturer. Retailers normally do not produce their own items they purchase goods to sell
those goods in small quantities to end consumer. Online retailer giants include Best Buy, Walmart
and Target.
4. Franchise – a franchise can be a manufacturer, distributor or retailer. It is a method distributing
products or services involving a franchisor. In the Philippines, Jollibee MacDonald’s and Pizza Hut
are examples of retailing businesses. MacDonald’s though is the best example which has 93% of its
franchised restaurants worldwide.
5. Brick-and-Mortar – It is a model that refers to the old-fashioned street-side business that sells
products and services to its customers face-to-face in an office or store that the business owns or
rents. Grocery stores, dentist, gas stations, local grocery in walk in banks or example of brick-and-
mortar businesses.
6. Breaks-and-clicks – It is a model where a company combines its online and the physical presence.
Customers may place their orders online and then pick up the products from the physical stores. This model
provides the advantage of flexibility because it can show its products to customers who live in places where
brick-and-mortar stores are not present. These day, most businesses selling apparel and shoes items in
Divisoria use this model.

7. Direct sales – In this model, products are directly sold to the customers. Selling could in the form of a
face-to-face conversation or small gathering. The former Tupperware used to have house parties to sell its
products. The salesperson gets a commission of every sale. Even in this age of technology, there are still
companies that make use of direct selling such as Avon, Boardwalk, Dakki, Fern, and Forever living.

8. High touch – This model uses a lot of human interaction and involvement in order to the experience
highly personalized. This type of business operates on trust and credibility to earn revenues for the
company. Here the highest involvement of the customer with the business the more pay they give and the
more loyal they become. Hair salons and auto dealers make use of this model.

9. Family-owned – This is a family that is owned and operated by a family. The decision-making are
controlled by family members. Some examples of this type of model are the National Book store, ShoeMart,
Jollibee and Robinsons.
 The Business Models Canvas

In his earlier book “Business Model Ontology” Alexander Osterwalder,

the Business Model Canvas consisting of nine segments for its building
blocks. This business model can be written in one-page canvas. Later he
wrote a comprehensive description of this business model in his
bestselling book “Business Model Generation”.
Here is the template of the business model canvas of Ostewalder.

Figure 6 Business model Canvas

Key Partners

Key partners are the network of suppliers and partners that may provide the business
model more effective. Entrepreneur could partner with other business, governmental, or
non-consumer entities that can help the business model works. Strong partnership could
be a tool to business success.

Four different types of partnership

1. Strategic alliances – This partnership is an arrangement between non competitors to

help each other do an equally advantages task but retaining their independence. For
instance, a new cafeteria business could with several suppliers of coffee beans.

2. Coopetition – This partnership is an agreement between competitors to help share the

risks that these companies may take. Companies could be partners in forming
awareness for their shared industry, to gain new users
3. Join-ventures – This is when two businesses because of their mutual interest agreed
to for a completely different company. A new market or a new geographic area could
be the reasons for combining the resources in a joint venture. For example, a cheese
company may opt to form a joint venture with a milk manufacturer for a cheese
manufacturing in another place.

4. Buyer-supplier relationships – These are the most usual type of partnerships in

businesses. Such relationships make certain that there will be a dependable spring of
supplies coming in. On the part of the supplier this means a stable established
customer for their product.
Key Activities

Key activities are the most essential activities in achieving a company's value proposition
and to operate successfully. The key activities are mostly a bridge between the value
proposition and the customer segment, certainly, the entrepreneur has to consider his
channels and customers relationships when coming up with the key activities for the
business model.

Here are the categories of key activities:

1. Marketing – Adding value by promoting products and/or services such as advertising a

product to create awareness and hence demand.
2. Sales – This concerns selling a product and/or service. For instance, personal selling
includes creating customer relationships, discovering solutions to the customers’
problem and closing sales.
3. Design – This is about forming designs of various items. For example, an apparel company
creates design of its lines of clothing for presentation to the outsourced manufacturers.

4. Development – This is adding value through developing products and services. In case of
software company, it develops a software product which could probably be customized based on
the need of the customers.

5. Operations – The manufacturing of products and delivery of services. Designing manufacturing

in delivering a product in big quantities and certainly of highest quality or some of the activities
under this. Most companies are under this activity particularly because a lot of business models
are in manufacturing.

6. Distribution – This is about reaching out to the customers to sell to them and delivering the
items to them. To illustrate, a repair shop provides warranty services of an item bought by a
customer.

7. Customer experience – Customer service, consulting and customer support are some of the
activities involved here.
Key Resources

Key resources describe the most important assets required to make a business model
work. These are the resources that allow an enterprise to create and offer a value
proposition, reach target markets, maintain good relationships with customer
segments, and gain revenues.

Here are the four categories of resources:

1. Physical – These are physical assets which are considered tangible resources that
a company make use of to form its value proposition.

2. Intellectual – These are non-physical, intangible resources such as brand, patents,

proprietary knowledge, copyrights, and even partnerships. Customer lists,
customer knowledge, and even the company's own people, are also form of
intellectual resources
3. Human – Employees are the biggest and most vital resources of any company but are
often overlooked. In service-oriented companies which require great deal of creativity
and extended knowledge, human resources very vital. Customer service representatives,
software engineers or scientists are good examples.

4. Financial – All businesses have key resources in finance, however some will have
stronger financial resources compared to others. Cash, lines of credit and the ability to
have stock option plans for employees are some examples of financial resources.
 Customer Value Proposition

Customer value proposition (CVP) is a business’s way of generating value in their

product or service when targeting potential customers. A value proposition is a
statement consisting of the reason/s someone should do business with the company.
This is computed through adding all the benefits that the product could provide to
the customers. CVP is a description of the users’ experiences that he will come to
realize upon buying and using a product without customer value propositions
companies are walking blindly in the market.
Different Types of CVPs

Value proposition All Benefits Favorable point of Resonating focus

difference
Consisting of All benefits customers All favorable points of The key point of
received from a market difference a market difference whose
opening offering has relative to the improvement will be the
next best alternative bird the greatest value to
the customer for the port
foreseeable future
Answers the customer “why should our firm “why should our form “What is the most
question purchase you're offering?” purchase you're offering worthwhile for our firm
instead of your
to keep in mind about
competitors?”
your offering?”

Requires Knowledge of own market Knowledge of own market Knowledge of how own
offering offering and next best market offering delivers
alternative superior value to
customers compared
with next best alternative
Has the potential pitfall Benefit assertion Value presumption Requires customer value
research
Table 7: Types of CVPs
Customer Relationships

Customer relationships are the types of relationship a company forms with its particular
customer segment. These relationships are essential in order to gain customers keep them and
grow sales with them.

Here are some types of customer relationships

1. Personal assistance –Founded on human collaboration, the customer can

communicate with a real salesperson to provide help during and after the sales
process.

2. Dedicated personal assistance – This is the deepest and most intimate type of
relationship that that involves assigning a salesperson to an individual customer. This
kind of relationship usually develops over an extended period of time.

3. Self-service – Basically there is no direct relationship that exists here, although all the
essential things to assist customers help themselves are given.
4. Automated services – This is a combination of customer sub service and automated processes.
For instance, automated services are able to identify individual customers and their
characteristics hence they can be given information about their orders.

5. Communities– User communities can be used by companies to be more close and connected
with their current and potential customers. It is a trend now to keep online communities to
exchange information and help solve each other problems. Tsikot.com is the leading automotive
website and community in the Philippines. It offers auto classifieds, forums, reviews, galleries
and a lot more. Tsikot is the most popular car users community in the country.

6. Co-creation – Basically, this is an extension of the traditional customer-vendor relationship.

Here customers have the chance to co-create value with the company such as in designing and
innovating products. A good example is “IKEA”, a digital platform that promotes the
participation of customers and fans to design new products.
Customer Segments

The customer segment refers to demographics such as age, ethnicity profession end/or
gender; or psychographic factors which include spending behavior, interest and
motivations. A company may select a single group or several groups to target with its
product and services.

Here are the various types of customer segments:

1. Mass – This is basically unegmented market in which product with must appeal
products such as aspirin orange juice soft drinks paperback romances and the like
are offered to every customer.
2. Niche– This market speaks of a customer segment with very distinct characteristics
and extremely specific needs. This segment is necessitates a highly customized
product, custom made to fit their need.
3. Segmented – There are businesses that select the upper products and/or services to
customer segments that have very small differences in their need requirements. In
this segment, the company forms various customer value proposition based on the
small differences in the customer segments.
4. Diversified – Some companies open select differentiated customer segments. Basically
these customer segments have very diverse needs and wants. Although there may be some
overlaps among the profiles of customers, the company still see it is profitable to invest in
attracting these customers. One of the diversified companies in the Philippines is San
Miguel Corporation.

5. Multi-sided platform – This type of customer segment is used when customer segments
are reliant with each other, which makes it a necessity to serve both sides of the balance.
Channels

Channels are the touch points through which a company communicates

with its target customers. Hence, they play a big role in defining the
customer experience and providing value. An entrepreneurship
understand which channel is appropriate to reach his target consumers.
There are five phases that the channel may pass through but it may
cover more than one of these spaces at a time.
1. Awareness – This is the marketing and advertising phase. Set base entails educating the
target customers about the features of the product and or services and how this operation
should be of value to them. Google and other search engines plus YouTube, Instagram,
Facebook are good examples.

2. Evaluation – In this phase, the customer evaluates, read about or uses the product or avail
of the service in order to formulate an honest opinion about it.

3. Purchase – This phase is the actual sales process. Here the customers buy their chosen
product and/or service. The sales process represents the exchange of a particular product
and/or service for money.

4. Delivery – Also known as the fulfillment stage of the process, this is the phase when the
promised value proposition has reached the customers.

5. After Sales – This space centres in giving customers care and support after for chase it
offers the customers to call when they have a problem or make queries about the product.
There are also different channel types, which are:

1. Direct channels – Direct channels are those that the entrepreneur owns or
has control over. This could be his physical store, website, or salesforce.

2. Indirect channels – Also known as partner channels, the company makes

use of intermediary in place its product or makes the service obtainable at
the partner store.
 Value Proposition Canvas

It was Alexander Osterwalder who developed this value proposition

canvas. His aim is to guarantee proper fit of the product and the
market. Simply, the value proposition canvas make certain that a
product and/or service takes into consideration the values and needs
of the customers. The value proposition canvas consists of two
building blocks namely the customer's profile and a company's value
proposition.
Customer Profile

The customer profile points to the customer segment that the company shall serve its
product and/or service offering. A customer profile should be created for each customer
segment as each segment has distinct gains, pains, and jobs.

Figure 4 Value Proposition Canvas

Customer Gains

Customer gains include all the expectations and needs of customers things that may delight them
and other stuffs that may intensify the possibility of these customer embracing a value proposition.

Here are some types customer gains:

1. Required gains – When buying a product or being provided by service, these are the very basic
expectations by the customer.
2. Expected gains – These gains are beyond the basic ones, but even these are not present in the
product and/or service, said offering can still provide its basic purpose.
3. Desired gains – These gains are the customers preference when it comes to product and/or
service. These are the most sought-after and cherished gains by the customers.
4. Unexpected gains – These gains are the potential benefits of the product and/or service for
which the customer is unaware until these are introduced to him. A touch screen capability of
a Smartphone is a type of an unexpected gain for customer
Customer Pains

Customer Pains are situations which either avoid the customer from getting a job done or the
negative experiences, emotions and risk that the customer experience before, during or after a
job. Said pains include the following:

1. Productivity pains – These pains include the inefficiency of the businesses that the
customer experience.
2. Support pains – These are pains felt by a customer when he is not assisted during the
buying process.
3. Financial pains – These are pains that involve money in particular that often a customer
spends too much for a product and/or service when his intention really is to spend less.
4. Process pains – These means those that create friction to buyers because of the
substandard process of the business.
 Customer Jobs/Jobs-to-be-done

Customer jobs describe the functional, social and emotional tasks customers are trying to do, challenges they
are attempting to resolve and needs the desire to satisfy in their personal and professional lives. The following
are the types of this job.

1. Functional jobs – These are the regular in particular jobs that the customer is trying to do and is working
towards.
2. Social jobs – These consists of the manners of customer desires to reflect his image in a social
environment.
3. Personal/emotional jobs – These include how a customer works toward feeling a certain way some people
feel they can rush from a tough task and then do another task after like having a gym practice before
dinner time.
4. Supporting jobs – Often customers also purchase value, hence moving a supporting task. Here are the three
rows of customers that may assist in supporting jobs.
a. Buyer of value – This task is any purchase of value that makeover from evaluating choices at hand
up to paying for the product that have been chosen.
b. Co-creator of value – These are jobs for which a consumer has a direct hand in the manufacture up
the product with the company.
c. Transferor of value – These are jobs at the end of the product use such as disposal of product trash
or giving the ownership of the product to another person because it has no value anymore to the
original owner.
 The Lean Canvas: A Business Model Canvas Alternative

The Lean Canvas as proposed by Ash Maurya is developed version of the Business Model
Generation. It outlines a more problem-focused approach and appropriate to use by small
entrepreneurs especially those creating startups businesses.

Figure 6 The Lean Canvas

 Chapter 5

Customers and Markets

Learning Objectives:

The learners should be able to:

• Examine the market and its customers;

• Compare the different types of customers;
• Distinguish the perfect customer;
• Create the customer persona;
• Design a customer journey map for the identified persona;
• Assess market size using various approaches;
• Adapt intrapreneurship marketing; and,
• Develop one's personal brand.
Market and Customers

A market is any place where manufacturers, distributors and retailers sell and consumer buy. Physical
shops high streets or websites are example of a market.

It is essential really to understand customers, their needs, their personality, their attitudes and even
their budgets. A company needs to bring to mind a “hunger” in a customer to buy its certain products.
Essentially, here are the things that customers look for when buying an offering whether a product or
service or both.

1. Price – Majority of the customers look at price when buying a product or availing of a service. It
is a reality that every customer purchases within his budget limit.

2. Experience – These days, almost everyone is busy doing their activities. Most customers wanted
to buy things that are readily available. The market today contains so many alternatives to choose
from.
3. Design – The design of the product must always be appealing to customers.
4. Functionality – It is always expected by the customer that the product he is buying can serve its
purpose.
5. Convenience – The product and/or service must be always readily available for the customer,
otherwise he will not buy the product and possibly look for an alternative.
6. Reliability – The product should be dependable and it should meet the customers’ requirements
and expectations every time he buys it.
7. Compatibility – The product should be well match with the other products that the customer is
already consuming.
Customers are the essential component of every business because they are the ones
who uses and judges the quality of those product and/or services being bought from
the market.

Types of Customers

The Potential Pandoy (Potential customer)

In principle, Pandoy cannot be considered a customer yet. However, he needs a little

bit of convincing and assistance to hopefully change into quickly making him a paying
customer. He may show interest in the product and/or service offering by filling out a
contact form, signing up in a newsletter or asking a question through live chat or
personal message. (PM).
New Netnot (New customer)

New Netnot is the fresh customer who has just bought something for the first time from a
business. An entrepreneur must always be watchful in dealing with first time customer, as
the saying goes “first impression is the last impression”.

Impulsive Icoy (Impulsive customer)

Impulsive Icoy is the customer that make instant buying decision based on craving or whim
provided that the conditions are right. He is highly influenced by his current mood when
shopping. He needs not much convincing to buy for as long as he wants to buy something
with less steps.
Discount Daboy (Discount customer)

Discount Daboy is a customer who never buys a product and/or avail a service on full price
but only on a discounted rate.

Loyal Lando (Loyal customer)

Loyal Lando is a satisfied customer that keeps coming back to one’s store for more
purchase. Lando is a good brand ambassador that can make recommendations of a business
to his family and friends, thus attracting a stream of new customers. A customer like him
can help an entrepreneur grow his business using word of mouth. The role of entrepreneur is
to make certain that Lando stays happy about the product and/or the service as well as the
business.
 Customer Personas

User persona is a short fictional properly of an ideal user or customer. An

entrepreneur must need to conduct market research to produce a brief
combination of actual or acceptable customer details. This user persona
includes a fictional name and photo, important demographics, user needs
and desires, goals, motivations, activities, pain points, and quotes.
 Customer Journey Map

A most popular and favorite tool for imagining the customers

experience/s is the customer journey mapping. A customer journey
map is a representation of a typical customer experience over time
instead of a snapshot. It is different from the discussed customer
persona. The emphasis of a persona is on the person, while a customer
journey map highlights their experience. A customer journey map is
basically a story intended to give awareness of the customer's complex
buying trip.
Here is an example of Customer Journey Map is about an online grocery store.

Table 9 Customer Journey Map

 Market Sizing

The market size refers to the aggregate number of

possible buyers of product and/or service in an industry
and the aggregate revenue that these sales may produce
over the course of a year. It is vital and beneficial to
know the possible market size prior to the introduction
of a new product, new product line or new line of
business.
The market size is divided into four broad categories, namely:

Figure 7 Categories of Market Size

1. Potential available market (TAM) – The potential available market is the total possible value that
represents the global market of products and/services sold over a definite timeframe without any
limits of geography and other factors. This assumes the 100% market share.

2. Total addressable market (TAM) – is the potential value of product and/or service sold a
particular customer segment. This shows the number of customers in the core market around the
world who are in need of the entrepreneur’s product and/or service offering. TAM is irrespective
or competition.

3. Serviceable Available Market (SAM) – SAM is the subset customer of the total addressable
market (TAM) who can be reached and ready to buy goods or services using one revenue
stream/channel.

4. Serviceable Obtainable Market (SOM) – This is the subset of the SAM that will realistically get to
use a product and/or avail of the service. This is the target market who the entrepreneur shall
primarily serve to.
What is Entrepreneurship Marketing

Entrepreneurial marketing is more about a marketing spirit that distinguishes itself from
traditional marketing practices. This type of marketing for entrepreneurs avoids many of the
fundamental principles of marketing are usually aim for big and well-known companies. It
makes use of new and non-traditional marketing practices that makes entrepreneurs stand out
from their competitors.

Here are some of the marketing strategies that makes a lot of entrepreneurs successful when
used in combination.

1. Relationship marketing – The emphasis of this is on building a solid connection between

the brand and the customer.
2. Expeditionary marketing – This involves forming markets and creating innovative
products. Here the entrepreneurs company acts as a leader rather than a follower.
3. One to one marketing – Here customers are marketed to us individuals. All
marketing airports are tailor-fitted.

4. Real time marketing – This makes use of the power of technology to interrelate with
a customer in an actual time.

5. Viral marketing – It places marketing messages on the Internet like Facebook and
Instagram so they can be shared and expanded on by customers.

6. Digital marketing – This considers leveraging the power of Internet tools like e-mail
and social networking to back-up marketing efforts.
 Creating a Personal Brand

A personal brand is the one that differentiates an intrapreneur from the rest
of his competitors this type of branding forms a lasting impression in the
minds of the customer about the quality of his product and or service.

For example, Apple is Steve Jobs, Microsoft is Bill Gates and Facebook is
Mark Zuckerberg. Personal branding is not only meant for big companies. It
is also applicable for startups or new ventures because customers shall
gauge the value of the offering based on this brand.
Here are some the benefits of personal branding:

1. Trust and authority – With a personal brand entrepreneur can build trust with his customers
and position himself as an authority and a thought leader in the industry.
2. Get featured in media –With a personal brand, it easier for entrepreneur to pitch and be
found by media like online publications, magazines, television, radio, podcast, and others.
3. Build a network – With a personal brand it clearly articulates who the entrepreneur is, what
he does, and how he helps others.
4. Attract more customers – Building a personal brand that positions an entrepreneur as the go-
to expert in a particular industry or niche helps him to draw a lot of his ideal customers.
5. Premium pricing – With a strong personal brand charging premium prices for products and
services is justifiable. Without a brand, an entrepreneur becomes a commodity that
competes on price.
6. Create a lasting platform – Overtime, a business will surely evolve. An entrepreneur may
even jump to multiple businesses in diverse industries over the course of his career. A
personal brand stays with him as he moves from one venture to the next.
 Chapter 6
Network and Founding
Teams
Learning Objectives:

The learners should be able to:

• Assess the power of networks.

• Express the value of networking to entrepreneurs.
• Recommend some ways of doing networking.
• Consider ways to start networking.
• Decide which incubators and accelerators to join.
• Choose members of the founding team through networking.
• Recommend other characteristics of the founding team.
 The Power of Networks

Networking in business is an art form that an entrepreneur

must be expert about. Networking concerns connecting
people which will be beneficial for each other’s business.
Networking is done because of the benefits an entrepreneur
hopes to earn from good networking. The entrepreneur has
to be clear about what he hopes to achieve through
networking.
 The Value of Networking to Entrepreneurs

A wise investor does not only invest in money but in relationships as

well there should always be investment in people besides spending
money and effort in planning.

In her book “Your Network Is Your Net Worth: Unlock the Hidden
Power of Connections for Wealth, Success, and Happiness in the Digital
Age”, author Porter Gale appears that the net worth of any business is
not just about the size of its portfolio but also the entrepreneur's ability
to work with people who have similar passions and values like him.
 Ways in Doing Networking

Networking through Social Media

Social media is the trend today which is why it is easy to build a network through it. LinkedIn,
Facebook, Twitter and even Google Plus are some business groups where entrepreneurs may join
easier and start forming networks.

Networking through business events

An entrepreneur ought to join business meetings, events, awards and seminars so that he can
personally interact with people in the industry. LinkedIn, MySpace and WisdomBuilder are some
network club sites where entrepreneurs may join.

In the Philippines, membership with the Rotary Club is a beneficial way to network both
personally and for business. Here entrepreneurs may meet with professionals who have diverse
backgrounds and could exchange ideas, form beneficial and lifelong friendship with them.
 Start Networking

Entrepreneurs know exactly that without those people that help them along the way
they will not reach their success. A strong professional network can help to reach the
goals open refiners. The network may help solve very difficult business problems and
can possibly offer word-of-mouth recommendations to increase one's customer base.

Here are some recommendable ways of restarting networking to entrepreneurs:

1. Enhancing the profile – Being visible and getting noticed are the rewards of
joining networks. When an entrepreneur attends business meetings and social
events, his face becomes familiar to other people in the business. A great start for
an entrepreneur to start his networks is to have active participation in advisory
committees, expos and conferences.
2. Offering help first – A lot of people are joining networking events because of the problem
they are facing that needs to be solved immediately by other individuals. The best start to build
networks is to ask questions and discover how to add value to challenges being faced by others.
An entrepreneur must contribute for something valuable for the network
3. Connections – It is always the “who” and not the “what” which is important to any business.
There must be great sources of connections for any entrepreneur to really be successful in
business.
4. Be a resource on social media – As mentioned earlier social platforms like Facebook, Twitter
and LinkedIn are great and effective means to network for entrepreneurs. In order to build trust
among fellow followers an entrepreneur may make comments and involved with the right
industry content.
5. Do basic press outreach – Local media is an important element of networking. People in this
filed can help in narrating the success of an entrepreneur to a larger audience.
6. Opportunities – Opportunities for an entrepreneur is abundant when he joins networks.
Opportunities such as joint venture, client leads, partnerships, speaking and writing breaks as
well as another business are among the extensive opportunities in the list.
 Incubators and Accelerators
Here are some of the differences of incubators and accelerators:

Basis of distinction Accelerators Incubators

Definition Accelerator is a place for Incubator is a place for new
existing business that helps small businesses and startups
them achieving growth in that offer support staff and
their businesses. equipment for further
development.
Objective Support startups with an Support startups with a
array of business support structured program along
resources and services, fixed curricula.
orchestrated by incubators.
Time Period Intense three to four-month Less time pressure and less
network intensive
 Business model Large mentor-driven business Smaller mentor network
network
Entrance All can apply Restricted and depends on the
incubator
Selection Extremely selective Usually less selective
Equity ratio Take 6 to 8% equity stake No equity stake was taken
Resources Ample Some
Area The Web, mobile, IT Biotech, Medtech and products

Selection process Competitive – essential to Competitive – based on

business model available space and resources

Services Fast-test and validation of ideas, Management support, IP right

with mentoring support from assistance, networking and
experienced entrepreneurs and access to external financing.
seed-funding
Table 14 Incubators vs Accelerators
An incubator is a business place that helps startup businesses and new entrepreneurs to develop
their products and ideas by supporting them with services such as training, management support,
intellectual property (IP) rights assistance, resources and even shared office and facility spaces.

Here are some notable incubators in the Philippines:

1. Al-Dado Banatao Incubator – Located inside the AIM building in Legaspi Village Makati
City, it was launched in June 2016 through the partnership of Philippine Development
Foundation (PhilDev) and the Asian Institute of Management (AIM).
2. Kickstart Ventures – This is subsidary of Globe Telecom that offers mentorship for six
months incubator period and even fund those chosen startups that can solve real life local
and global problems. Some chosen startups of this incubator that are already successful
include kalibrr, Tripid, Ava, ZAP and Apptivate.
3. Ideaspace Foundation – While kickstart is offered by Globe, this time ideaspace is
an incubator firm backed by its competitor which is Smart Communications. One
of its notable incubatees from this mentoring program was Pinoy Travel, online
bus booking service that had successfully launched its service.
4. Launchgarage – This program is a partnership between Globe telco-backed Kickstart
Ventures and web engineering firm Proudcloud. Each startup is called “garageheads” which is
offered a five-month incubation.
5. UP Enterprise Center for Technopreneurship – The University of the Philippines, a state
university and owned by the government has also its incubation program. It offers its Diliman
campus as a working space for its six months incubation period. The center also serves as a
connection to other incubators especially with technology leaders such as Ideaspace, Plug and
Play Tech Center and Narra Venture Capital.
6. DOST-PEZA Open Technology Business Incubator (OpenTBI) – Department of Science
and Technology and the Philippine Economic Zone Authority created a partnership to sharpen
tech-inclined entrepreneurs This would help the nation grow IT and ICT-based startup
companies with its legal, marketing, and technological assistance to startups.
An accelerator is another business place that offers a program with a fixed term
which includes mentorship and educational components and usually ends in public
pitch event. The objective of an accelerator is to assist in the rapid growth of business
and help in successful product launch.

Here are some distinguished accelerators in the Philippines

1. The Founder Institute- Based in Manila, this global idea-stage accelerator offers
aspiring entrepreneurs with a structure, mentorship, and robust network needed to
win the challenges of their startup journey. The program here is very tough and
only 30% of accepted founders are able to reach to the finish line.

2. A space’s _PASSPORT – As an accelerator, participants are provided with

flexible workshops, class materials and introductions to investors by the end of
the program. The main focus of this accelerator is to help founders build a
network. Participants need to pay in order to join, or apply they have the options
for a scholarship.
Networking to Build the Founding Team

Networking is also very important in building a founding team for startup businesses.
Actually, there are few research result which would prove that a good founding team offers a
good chance for the success of a startup.

Here are some of the traits that needs to be possessed by the members of the founding team
to increase the chance of being becoming successful according to Schoner.

1. The Prima Donna Genius –Since expertise is required as a skill for a founding team, it
needs to have a brainy person. He is the one who would challenge the members about
the things that they are not certain could be possibly done.

2. The Superstar – This is the person who always gets things done and complete task. He is
often strange boring yet charismatic in nature. He takes care of almost everything from
making orders of office supplies to maintaining the operation of the office.
3. The Leader – Any company needs a person who can make hard decisions although a
democratic process is always implemented in the office. A new business requires a clear leader.
This person not essentially the chief executive officer (CEO), not the person who was the
biggest salary, not the person with the highest equity. He is the kind of individual that every
person looks up to and people are willing to follow him particular when there is conflict and
controversial decisions to be formed.
4. The Industry Veteran – For a startup, it pays to have someone in the team who is well-versed
about the ins and outs of the industry. He has seen and has been immersed in the competitive
landscape of the industry.
5. The Sales Animal – Brilliant ideas need someone to sell them. A strong salesperson in the
founding team shall lessen the risk in a startup business. With a very experienced salesperson,
they startup could beat competition.
6. The Financial Suit – a professional controller is necessary for this startup to handle financial
risk it is vital for a team to include someone who shall oversee the finance function.
Characteristics of a Great Founding Team

1. Hungry for knowledge, even when plans change – There is no such thing as a fix plan.
The original will most likely change with multiple pivots. Members of the founding
should be able to quickly make changes in order to attain long-term growth. They must
be eager to challenge the rest of the team to identify the best and innovative solutions to
problems
2. Admit mistakes – Admittance of mistakes should start from the founders, so that
employees will follow. Everyone in the company should understand that leaders are not
perfect which need to be accepted.
3. Failing is not defeat – Being brave should be the kind of determination that founders
must possess. Being able to admit failure is important to build a strong founding team.
4. All members are obsessed – Members of the founding team must all be hyperactive.
Solving problems equipped with healthy obsession makes founders take a big leap of
faith to begin with the start up. It is vital that all founding members should share the
obsession to build a strong team.
 Chapter 7
Revenue Models and
Financing
Learning Objectives:

The learners should be able to:

• Illustrate a revenue model;

• Design a revenue model;
• Consider revenue and cost drivers;
• Develop pricing strategies;
• Formulate ways to calculate prices;
• Adapt bootstrapping in the startup;
• Integrate crowdsourcing in a startup; and
• Choose the best equity financing in a startup;
• Construct financial statements for a startup;
 What is a Revenue Model
A revenue model is a conceptual structure that explains how a business generates money. It
includes where the revenue comes from and the resources needed for every aspect of the
revenue generation strategy of the business. Sources surprising you can be in the form of
commission, markup, arbitrage rent, bids and other types of payments.

Different Types of Revenue Models

Commercial and Retail

In this revenue model physical products are sold in the market either through business to business (B2B)
or business to consumer (B2C). Retail sales entails setting up a traditional department store or retail store
that offers physical goods to customers.
Subcsription and Usage Fees

This category entails offering customers a specific product or service that customers can pay for over a
longer period of time, usually month to month, or even year to year. Here are the revenue models under
this category.

1. Subscription – This model provides as a specified service for a pre-determined periodic charge.
Users are charged a recurrent fee (monthly or on one) for using their services. These days, Netflix,
Spotify, YouTube and LivePlan use this model in the software, online movies in mobile carriers.

2. Usage fees – Utilities such as Meralco for electricity, Manila waters and Maynilad for water in
Coverage providing Internet are good examples of companies using this revenue model. Mobile
phone carriers also used this model to charge for minutes of outbound calls and quantities of SMS
text messages.

3. Rental – Rental as a revenue model commonly makes use of a physical asset. The income comes
from periodic basis such as monthly or annual rental.
Licensing

This model is common among investors, creators, and intellectual property owners which grant a license
to use their name, products or services at a predetermined or recurring cost. Here are some models under
this type.

1. License of usage – The revenue model is common among many software companies such as SPSS.
This is also used for legally protected intellectual property like patents, trademarks, copyrights
owners which grant a license limited by time, territory, distribution and volume to anyone who
fulfills the requirement and pays for it.

2. Certifications – This is slightly different from the use of license. A good example here are the
various anti-virus programs that requires certifications to make full use of them such as MacAfee,
Avast and Kaspersky.
Auctions and Bids

Commonly auction happens when a seller offers an item or items for sale in expects the highest price. In
a specific place, the products are exhibited and participants try to outbid one another by placing higher
bids.

Advertising

Advertising us a revenue model makes money by charging the advertiser first size of the space offered in
print, the length of the video in television or the duration of the commercial in radio. Today, I've read this
meant have become more complex and creative. With the Internet, pay-per-views and paper clicks have
been added to the list revenue models.

Databases

The reality of every Business Today is that it needs data to flourish. A company using this revenue
model collects data and then sell them directly to consumer or business customer. A number of
companies use this revenue model such as Bloomberg, Reuters, Standard & Poor’s, Thomson Financial,
D&B Corporation in the most popular market research company which is Nielsen.
Transaction and Intermediation

Revenue in this model comes from transactions that involve the main profit-making activity of a business.
Transactions include the sale of goods among the manufacturer produces or the sale of items or re-seller
buys and then sells. Intermediation who 1st to bringing together two or more parties involved in transaction.

1. Brokerage – In order to facilitate a transaction, a brokerage company serves as a middleman that

connects buyers and sellers. Once the transaction has been completed, the company normally receives
a Commission.
2. Transaction enablers – Other entities makes possible the transaction between two parties. PayPal is a
good example, which makes possible the transaction between the sellers and buyers.
3. Affiliate – Commonly found internet marketing, affiliate revenue model allows a Blogger to make
money online. This model works once the affiliate promotes links to relevant products. If the products
get sold there is an affiliate commission that can be collected which can range in percentage depending
on the company.
4. Creating a platform – The Internet makes possible the opportunity to connect sellers with consumers
effortlessly. Here, a proper manager is in-charge of maintaining and upgrading the online marketplace.
He takes cares of customers service, payment collection, mediation and even insurance if available. A
good example is Airbnb that provides breakfast and bed to those tourists who are not interested in
hotels.
 Revenue and Cost Drivers

Revenue drivers

All businesses must generate money in order to have revenue. How business usually produce money out of its
various business activities. The more products and/or services being sold; the more money a business can
produce which provide higher level of revenue.

There are several factors to consider when maximizing revenue which are:

1. Revenue channels – Here are the sources of entrepreneur’s revenue which may come from online sales and
e-commerce, through retail sales in bricks and mortar stores, or through whole sales to other businesses.
2. Revenue streams – The total revenue may be composed with various streams. For instance, a small coffee
shop could have the coffee sales, cake and pastry sales in lunch sales as it streams.
3. Product and service split – An entrepreneur ought to identify the most profitable products and/or services
of his business. These products and/or services should be strong enough to compete despite market
changes, be able to have stable revenue and adapt to changes.
4. Products value versus volume – The question here involves the choice of selling big quantity of
products/services at low margin or small quantity at the high margin. The business then can generate a more
attractive price point and no value for customers.
Cost drivers

A cost driver is the direct cause of a cost and its effect on the total cost incurred. If costs exceed revenue, there is
a high probability of discontinuity. If the cost or less than revenue, there is profit and big a probability of
expansion. If the cost equals revenue, it will defend or the decision of the entrepreneur whether to close or
continue based on other variables besides cost.

Example of a Cost Allocation Based on Cost Drivers

The following information is for the three lines of production of Serrano Company, which uses Activity-Based
Costing:

Activity Cost Cost Drivers

Machine set-up Php 50,000 Number of set-ups

Machine Maintenance 100,000 Machine hours

Customers served 50,000 Number of customers

 Cost Drivers Product X Product Y Product Z Total

Number of set-ups 10 20 20 50

Machine hours 400 800 800 200

Number of customers 50 50 100 200

Serrano Company would like to produce 50 units of Product X, 200 of Product Y and 200 of Product Z. Here is
the computation of cost per unit of each product.

Cost per set-up

In accordance to the number of set-ups as the basis of distributing set-up cost to products, the cost per set-up
will be:

1. Total set-up cost = Php 50,000

2. Total number of set-ups = 50
3. Cost per set-up = 50,000/50=Php 1000
4. Set-up cost associated with product X = Php 1000 x 10 = Php 10,000
5. Set-up cost associated with product Y = Php 1000 x 20 = Php 20,000
6. Set-up cost associated with product Z = Php 1000 x 20 = Php 20,000
Cost per machine hour

1. Total cost associated with machine maintenance = Php 100,000

2. Total number of machine hours = (400+ 800+ 800) = 200 hours
3. Cost of each hour of machine maintenance = 100,000/20 = Php 500
4. Machine maintenance cost associated with product X = 400x Php 500 = Php 20,000
5. Machine maintenance cost associated with product Y = 800x Php 500 = Php 40,000
6. Machine maintenance cost associated with product Z = 800x Php 500 = Php 40,000

Cost associated with each customer served

1. Total cost associated with the number of customers served = Php 50,000
2. Total number of customers served = 200
3. Cost per each customer served = Php 50,000/200 = Php 200
4. Customer service cost associated with product X =50 x Php 250 = Php 12,500
5. Customer service cost associated with product Y =50 x Php 250 = Php 12,500
6. Customer service cost associated with product Z =100 x Php 250 = Php 25,500
Considering the cost drivers discussed, the cost of the company per product are as follows:

For Product X

Set-up + Machine Maintenance + Customer Service.

Php 10,000 + Php 20,000 + Php 12,500 = Php 42,500

For Product Y

Set-up + Machine Maintenance + Customer Service.

Php 20,000 + Php 40,000 + Php 12,500 = Php 72,500

For Product Z

Set-up + Machine Maintenance + Customer Service.

Php 40,000 + Php 40,000 + Php 25,500 = Php 85,500
Hence using the computation of Set-up + Machine Maintenance + Customer Service.
Service to get the total cost drivers for each product, the associated for each product is computed as
follows:

Cost per unit of Product X = Total Cost/Number of Units

Php 42,500/50 = Php 850
Cost per unit of Product Y = Php 72,500/200 = Php 362.50
Cost per unit of Product Z = Php 85,000/200 = Php 425
Pricing Strategies

Price is a significant element of the marketing mix. This is the company's complete source of
earning. It does not only include the cost of production but the profit margin as well. The three most
essential influencers of pricing our cost, consumer demand and competition.

For a start-up, there are three common pricing strategies being used by entrepreneurs which are:

1. Maximization (Revenue Growth) – Start-ups use maximization when they make pricing
produce the greatest revenue for the business. Maximizing revenue growth in the short term is
done by estimating both the fixed and variable costs and then discover how to cut this cost.

2. Penetration (Market Share) – This is setting a low price in a competitive market to win
dominant market share and raising it later. Penetration gives importance to market share. It is
common for entrepreneurs to use this method at the start.

3. Skimming (Profit Maximization) – This is setting a high price and systematically broaden the
product offering to address more of the customer base at lower prices as the market progresses.
The advantage here is that a business obtains high profits at its startup, when it needs the cash
the most, and creates an impression of high quality and elitism in its industry at lunch.
Calculating Price

Pricing is one of the most essential aspects of a market his strategy, that includes promotion,
distribution and people. The consideration of pricing is based on the target customers. The objective
of pricing is to encourage customers to buy the product and/or service being offered.

Cost-led Pricing

Cost plus pricing method is a pricing strategy wherein the company adds all expenses which have
been used in producing a product which include direct material costs, direct labor cost, and overhead
costs then it adds some fraction of a desired profit margin on top and arrive at a price for a product
and/or service.
Here are some advantages and disadvantages of cost-plus pricing:

Advantages Disadvantages

1. Few sources are needed – The method does 1. Disregards competition – The cost plus
not require researches. Easy to derive the formula may end up pricing too high or too
product price by just summing up the low compared to competition.
expenses and then allocate markup
percentage. 2. Product cost overruns – The department in-
2. Justifiable – When there is price increase, a charge of production simply designs what the
business may just point to suppliers as the target market wants and willing to pay.
reason for the increase. 3. Contract cost returns – The supplier has no
3. Complete coverage of cost and a steady rate opportunity to limit its expenses but still can
of return – As long as the computation of include all costs for reimbursement.
cost is correct, allowing the mark-up ensures 4. Disregard replacement costs – cost is based
a positive rate of return. from past data, hence if there would be
4. Beneficial against incomplete knowledge – changes the recent replacement cost would
this method is especially helpful when there no longer be a representative of the real cost.
is no information about the customer's 5. Inefficient – the guarantee open target rate
willingness to pay and no idea about direct operator creates little incentive for cutting
competitions in the marketplace. costs or for increasing profitability through
price differentiation.
Table 15 Advantages and Disadvantages of Cost-Plus Pricing
Target-return pricing

The target-return pricing is a method wherein business prices its product and/or service based on a
target rate of return on the investment or what the company anticipates from the investing in the
business. In this method, the company estimates the money please in the operations of the business
and then calculate the return it's expects by assuming a specific quantity of the product that can be
sold.

Value-based pricing

Value-based pricing is a method that uses the perception of the customers on the worth of value of
a product and/or service for pricing. The best example of an industry that heavily makes use of
value-based pricing in the fashion industry. Normally branded and designer items cost for higher
prices because of image concern. Mostly, a designer promotes its products using celebrities for
value association to command expensive price. Branded pharmaceuticals, cosmetics, and personal
care also used this type of pricing method.
 Advantages Disadvantages

1. Higher profit margins – It leads to higher 1. Niche market – An entrepreneur can target
profit margins for the company because only a restricted number of customers who
customers purchase products according to can afford a product and/or service with high
value perceived by them. prices
2. Greater brand loyalty – By creating the best 2. Difficult to expand the business – This
quality product, the business will not only strategy works for smaller companies and
get customers loyalty and repeated business sells highly specialized products so not
but will also get referral business from loyal feasible on a larger audience.
customers. 3. Competition in the market – When a
3. Low competition – Consumers are buying the company charge high prices, then
product due to perceived value rather than entrepreneur leaves scope for competitors to
looking at price or substitute products the produce and sell the same product at lower
question of competition does not arise. prices.
4. Supply and demand balance –An 4. Higher production costs – It cost more to
entrepreneur will know the approximate produce a specialized products and need
number of customers who can pay for a highly skilled employees to provide the best
product and/or service and are willing to pay quality products
high prices to buy them.
Table 15 Advantages and Disadvantages of Value-based Pricing
 Bootstrapping

Bootstrapping or self-funding is starting a company with

little or no capital, thus an entrepreneurrelies on money
excluding outside investment. Here, an entrepreneur makes
use of his personal savings, sweat equity, lean operations,
quick inventory, turnover, and a cash runway to start his
business.
Here are some advantages and disadvantages of bootstrapping:

Advantages Disadvantages
1. The entrepreneur gets a wealth of experience while 1. It is challenging if demands goes beyond the
risking his own money only. capability of the entrepreneur to deliver the product
2. The “bootstrapper” reserves the right to all and/or service to customers.
developments. 2. The entrepreneur shoulders almost all financial risk.
3. The lack of initial funding makes entrepreneur’s 3. Fully implementing the entrepreneur’s idea could be
innovative and creative in thinking. difficult due to limited capital and lack of
4. An entrepreneur can make all the decisions investment.
independently and remain autonomous from the 4. It is it's stressful to entrepreneur’s to handle
investors’ instructions. problems especially when something unexpected
5. Bootstrapping allows an entrepreneur to fully focus happens.
on the key aspects of the business because he does
not have to attract external funding.
6. Investors are much more confident and attracted in
financing a business whose owner had created the
financial foundation of his startup business.
7. Business founded on bootstrapping really has
delivered a particular value with its product and/or
service.

Table 15 Advantages and Disadvantages of Bootstrapping

 Crowdsourcing

Crowdsourcing refers to getting work, information, or opinions from a big group of people who
give their idea via the Internet, Social media and smartphone apps. Mostly, freelancers are
involved in crowdsourcing because they perform task voluntarily.

Here are some of the notable and best crowdsourcing sites today:

1. Designhill – It provides creative design concepts for logos, business cards, stationary
design, leaflets and websites.
2. Flickr – Flickr platform allows for the access to millions of high-quality images, such as
that of celebrities, historical figures, places, footballers, symbols and icons.
3. RedesignMe – It is a platform that focuses on overhauling web design and packaging
redesign experience as for consumers.
4. Utest – Website design, gaming, mobile app design, or services are usability testing that its
developers will conduct in a professional way.
5. Chaordix – This one-stop marketplace is ideal for organizations or professionals and
amateurs people who love to participate in giving suggestions and thoughts about solutions
to business problems.
6. Namethis – It is a useful site to source out for a new name for entrepreneur’s small business or
startup from huge community which come with a nominal fee to the best three name ideas chosen by the
business.
7. Ponoko – This site is composed of dozens of product designers who can make recommendation
about new ideas for product designs.
8. Amazon’s Mechanical Turk – This platform has more than 50,000 “human intelligence tasks”
readily available for freelancers who look jobs such as writing a review on anything or making a
video or a merchandise design.
9. Trendwatching – This site provides expert advises to customers about new trends on business and
market for the creation of new strategies for marketing and branding.
10. Quri – This platform keeps close monitoring of retail stores to provide analytics insights and
guidelines to the retailers for use in the solution on any problems and improvements of their
respective stores.
 Equity Financing

Equity financing is the process of generating capital through

the sale of shares. Most companies raise money for reasons
such as to pay bills or for long term investment. There are
several sources of funds in equity financing like
entrepreneur’s friends and family, investors, or an initial
public operating (IPO).
Individual Private Investors

Seeking assistance from individual investors is one way to raise money for
the business such individual investors may include the entrepreneur’s
friends, family and other colleagues.

Venture capitalist

Venture capitalist or VCs are investors who provide money for the business
only after the company has been operating successfully for some years and
they feel that it is already an established one. VCs can be individual persons
or large companies that possess big sum of money intended for investment.
Angel Investors

Angel investors are those individuals or larger group that make available financial
backing at an early phase of the business at advantageous terms and do not typically
participate in the management of the venture.

Here are the five Angel investor types, namely:

1. The Family Investor – The family investor is not actually a classic angel investor
at all, but the supportive family member who knows the entrepreneur well. They
are interested in backing up a family member or friend and trust very well the
owner.
2. The Relationship Investor – The relationship investor is a colleague of the owner
from his previous employment who happened to know his well. He has a good
working relationship with entrepreneur but do not necessarily understand the new
company.
3. The Idea Investor –The idea investor is a person who can confirm the soundness
of the entrepreneur’s idea being very familiar with the business. He has little
emotion but big concern on the idea of the startup.
4. The Once Removed Investor – The Once Removed Investor could probably have a
personal or professional connection with either the relationship investor or the idea
investor. He does not know really the entrepreneur; hence the owner does not have
any clue on the soundness of his idea. He trusted someone to lead him into a
successful investment prospects.

5. The “Archangel” Investor – An Archangel could be a relationship investor or idea

investor has been successful in making other angels and non-angels generate money.
He has his own company in the same industry or have strong connections with other
angel investors. He can influence the once remove investor to return.
Crowdfunding

Crowdfunding is raising money for an individual or company by collecting donations from a large number of
individuals to fund a startup business. Through using social media and crowdfunding websites, investors and
entrepreneurs are placed in one place.

In the Philippines, there are four types of crowdfunding based from the Security and Exchange Commission (SEC)
approved rules:

1. Donation – based is where individuals group together their resources to back up a benevolent cause. This is the
most famous crowdfunding type in the Philippines.
2. Rewards – based is where individuals provide money to a company in exchange for a reward or something in
return usually a product made by the company. The Spark Project is definitely the best example of this kind of
crowdfunding.
3. Lending – based is where individuals loan money to a company and accept the companies legally-binding
commitment to pay back the loan at predetermined time intervals and interest rate.
4. Equity – based is where individuals finances shares sold by a company and obtain a part of the profits in the
form of a dividend or distribution, based on the company's decision. A good example of this type of crowd
funding is Cropital which help farm owners with sustaining their main source of income at the same time have
an option for supporters to earn money online.
 Initial Public Offering

A well-established company can generate more funds through initial

public offering or IPO. In this type of fundraising, a company can
source out funds by operating shares of the company to the public.
Typically, rich individuals and institutional investors with huge
amounts of fund invest in this type of fundraising activity.
 Financial Statements

Financial statements represent a formal record of the financial activities of an entity. These are
written records that quantify the financial strength, performance and liquidity of a company.
Financial statements reflect the financial effects of business transactions in events on the entity.

The following are the important financial statements in a startup business that are needed for
financial projections:

Income statement

Also known as a Profit and Loss Statement, the income statement is a summary of the
company's total revenue and its operating expenses for a given. Such as per month, per quarter
of a year or for one year.
Here are the barges individual components of an income statement as explained briefly:

1. Sales – This number represents the total amount of revenue produced by the business. The
figure recorded here is the total sales less any product returns or sales discounts.
2. Cost of Goods Sold – Known also as Cost of Sales this number includes all of the costs and
expenses directly related to the production of goods and/or services. This amount includes
the cost of the material and labor directly used to create the good. The formula for
computing the COGS is:

COGS = Beginning Inventory + P – Ending Inventory

Where:
P = Purchases during the period

3. Gross Profit – This number is the profit of the company after subtracting the expenses
related to manufacturing and selling its products, or the costs associated with providing its
services. Here the cost of goods sold (COGS) is deducted from sales (Revenue).
4. Operating Expenses – These include the expenses incurred every day in the operation of a
business. Often expenses are divided into two categories which are selling in marketing and
general/administrative expenses. Selling and marketing expenses are directly related to the
selling a product or service. While general/administrative expenses are not directly related
to the selling of a product or service but necessary in operating the business.
5. Total Expense– This is a sum of all expenses acquired in business, without yet the taxes or
interest expense on interest income, if there is any.
6. Net Income Before Taxes – This figure is the amount of income earned by a business before
paying income taxes by deducting total operating expenses from gross profit.
7. Taxes – this is the amount of income taxes that an entrepreneur is indebted to the
government both local and national.
8. Net Income – out of money but business has produced after paying income taxes.
Balance Sheet

The Balance Sheet also known as Statement of Financial Position, present the financial position
upon organization at a specified date. It is composed of the following three accounts:

1. Assets – An assets is something that an entity owns or controls so that a company can
produce economic benefits in its usage. Assets could be grouped into current and non-
current assets. Current assets are those expected to be realized in the span of one year from
the reporting date. Non-current assets on the other hand, are those that can provide
economic benefits to the company of over than a year. Assets are also categorized in the
balance sheet on the following basis:

a) Tangible and Intangible – Tangible assets include property, plant and equipment, while
intangible assets are those without physical substance like goodwill.
b) Inventors balance – This includes goods that are held for sale in the ordinary course of the
business such as raw materials, finished goods and works in progress.
c) Trade receivables – This includes the amounts that are payable from customers upon credit
sales.
d) Cash and cash equivalents- This include cash in hand together with any short term
investments that are easily convertible into cash.
2. Liabilities – A liability is an obligation that a business owes to someone and its payment
could be in cash or other resources. The liabilities are classified in the Balance Sheet as current
or non-current based on the timeline the company can resolve the liability. Liabilities are also
classified as follows:

a) Trade and other payables - This mainly include liabilities payable to suppliers and
contractors for credit purchases.
b) Short term borrowings – This usually include bank over drops and short-term bank loans
with repayment timeable of under 12 months.
c) Long-term borrowings – This include loans which are to be settled up for more than one
year.
d) Current Tax Payable – This is usually presented as a separate line item in the Balance Sheet
because of the importance of this amount.
3. Equity – Equity is primarily what the business owes to its owners. This represents the
remainder amount of capital in the business after its assets are utilized to settle its outstanding
liabilities.
Equity is usually presented in the balance sheet under the following types:

a) Share capital – It represents the amount invested by the owners in the company.
b) Retained Earnings – It comprises the total net profit or loss retained in the business once the
dividends are distributed to the owners.
Cash Flow Statement

A cash flow statement is a financial report that describes the sources of a company's cash and
how that cash was expended over a specified time. Its advantageous for determining the short-
term sustainability of a company, specifically its ability to provide payment for bills.

A cash flow statement is distributed into sections by these same three functional areas within the
business:

1. Cash flow from operating activities – This is cash produced from the daily business
operations.
2. Cash flow from investing activities – This cash is used for investing in assets, as well as the
proceeds from the sale of other businesses, equipment, or other long-term assets.
3. Cash flow pump enhancing activities – This cash is paid or received from issuing and
borrowing of funds.
4. Net increase or decrease in cash – The increases in cash from previous year will be written
typically, in decreases in cash are usually written in (brackets).
 Chapter 8
Planning and Failures for
Entrepreneurs
Learning Objectives:

The learners should be able to:

• Express the importance of planning in entrepreneurship;

• Prepare several types of plans included in the TRIM
framework; and,
• Justify failure in entrepreneurship
 Importance of Planning

In any business venture, planning serves a great purpose. A plan offer

success in cases if uncertainties and provides less room to make
mistakes and fail. The focus of the entrepreneur here is on the
implementation of the plan, meaning on how to get the product and/or
service to the marketplace in the shortest time possible in order to
begin earning profits.
Here are some advantages of creating a plan for a business venture whether big or small ones:

1. A plan is necessary to concentrate on goals – Specific goals measures the progress with
what has been planned. A good plan discusses on strategies and definite steps that are vital
in the achievement of the identified goals.
2. Planning helps keep track of finances – A good plan gives a detailed picture of the budget
that is required for every activity in the business operation. Having no plan, the budget may
go out of order and the entrepreneur may overspend his finances.
3. Planning helps to keep track of the business progress – A good plan can easily identify how
many activities have been completed and how many are still undone. It provides a way to
determine the priority activities that must be given attention closely.
4. Planning conveys a risk of what to expect in advance – In the early stage of any venture,
government clearances are necessary. If planning is done, there would be enough time to get
these government clearances beforehand.
5. Planning helps to understand the deviations and failure –Often times do not work as
expected or worst they fail. Having a well-designed plan makes an entrepreneur realize alter
why a certain portion of his plan fails.
 The TRIM Framework

The TRIM framework is basically an acronym for team, resources,

idea and market. It is a planning tool that pinpoints the kinds of
people essential to form the founding team, the resources at hand
and required, the fine points of the idea and the possible market for
the product or service. No there are several types of plans included
in the TRIM framework which consists of the back of a napkin,
sketches on a page, the business model canvas, the business brief,
the feasibility study, the pitch deck, and the business plan.
Back of the Envelope/Napkin

The back of the envelope/napkin plan is a quick and rob estimation for business or product idea
that is written on any accessible scrap of paper such as envelope or napkin.

Business Model Canvas

Business model canvas is a visual chart with elements describing a business or products value
proposition, infrastructure, customers, and finances.

The Business Brief

A business brief is a document that offers the explanation on the reason why a particular model
leads to success in a given scenario. It is used to endorse goods and services to customers,
increase profits, offer solutions to industry problems or intensify consumer awareness of business
activities.
Feasibility Study

A feasibility study is an assessment the viability of a proposed project or system. It takes into
account all of a project significant factors such as economic, technical, legal, and scheduling
concerns. The objective in rational of a feasibility study is to point out the strengths and
weaknesses of an existing business or proposed venture.

Here at the home and elements in the possibility study:

1. Executive Summary – The most important page/s of the study is a brief narrative describing
details of the project, product, service, plan, or business which stakeholders read with interest.
It is always presented on the first two to three pages of report that contained the summary of
what has been found with the rest of the items in the study.

2. Clear Project Description – A outline of the project as it is defined for the study can provide
stakeholders the answer to their questions and help them know the result.
3. Competitive Landscape – Basically, this is a review of the strengths, weaknesses, opportunities,
and threats encountered by the bench or under study. The review will give important details
necessary for decision making.
4. Operating Requirements – Here the entrepreneurs can use this point in the report to remain
distinct, concentrated, and balance about a venture’s real needs.

a) Material Requirements – This section includes parts and supplies needed to produce a product
and the suppliers.
b) Labor Requirements – A business cannot operate without manpower. Usually, labor will be
one of the business biggest small business expenses if not the biggest.
c) Transportation and Shipping Requirements – Smaller items can be shipped by a local carriers
such as LBC, Lalamove, JT & T, Speedy and the rest. However, heavy or bulk items must be
transported by a freight or trucking company.
d) Marketing requirements – describe it in detail how to reach the customers and let them know
the business offerings. The entrepreneur should know exactly what type of promotional
campaign he plans to launch.
e. Physical Location – The location of the business is strategic in nature and beneficial to its
success. An entrepreneur may opt to have an office space inside his home, rent or buy a place for
business purpose.
f. Technology Requirements – Every business needs at least some kind of technology to run
smoothly. The technology component of a feasibility study should include details about telephone
answering systems, computer hardware and software, and inventory management.
g. Target dates – Certainly investors would want to know the important dates in the study.
Every single activity must be covered. Here a GANTT chart would be a useful tool to create.
The beats must be practical and reasonable.

5. Financial Projections – Most investors are interested over the financials in a feasibility study to
make certain that venture can generate the kind of ascendable profits that merit their approval.

6. Recommendations and Findings – This is the summary of all the previous feasibility study
elements. The recommendations and findings can outline the result of a business proposal. This
section provides an opportunity to enhance adventure by pointing out areas of our business
prospects.
The Pitch Deck

A pitch deck, known also as an investor pitch deck or a startup pitch deck is the first
communication instrument that provides an overview of the business in order to raise funds. It
usually created using PowerPoint, keynote or Prezi to give audience brief idea about the business
venture.
Here is all the inclusion in a pitch deck:

1. Elevator pitch – An elevator pitch is a quick sypnosis of the idea, background, and
experience. It always starts with an introductory text which provides an overview of the entire
business strategy and the rest of the pitch deck. This slides should be able to express” who
you are, what do you do, and what you want to do”
2. Problem – The second slide states the problem the target audience faces. This makes it clear
to the investors that a clear opportunity has been found by the entrepreneur and he has ready
to capitalize on it.
3. Opportunity – A problem leads to an opportunity which can be capitalized on. The
entrepreneur may use charts, graphs and numbers to validate his statement.
4. Solution –This slide should discuss the likely solutions to the identified problem and should
move on to the specific solution and the main reason for planning to choose it. This part is an
assurance that the audience will clearly understand and will accept the solution.
5. The Product – This slide showcases the product and its numerous highlights. This highlights
can be presented into several slides. The entrepreneur should ensure that he explains
comprehensively the key highlights of the product.
6. Business model – A business model is a theoretical structure that supports the feasibility of a
product or company. The model includes the purpose and goals of the company and how it
proposes to realize them.
7. Competition – This is a section where the entrepreneur convinces his investors that he has
done his homework and knows about his competitors. This slide should contain the least
competitors and include their positioning his strengths, weaknesses, and opportunities which
are left unattended for the entrepreneur to tap into.
8. The key highlight – This section is where the entrepreneur compares himself with the
competition and prove how he is better than them. There must be an explanation about the
value proposition and the USP which will give a valid reason to the investors to buy the
proposal.
9. Marketing and Sales – This section includes the list of all the marketing and sales strategies
to obtain overcome and to serve the existing and prospective customers of the product. This
slide must describe the marketing mix, and the various sales channel the entrepreneur is using
and is planning to use.
10. Management team – This is one of the major section in which the investors are truly
interested in is the management team section. Here the details of the management team are
presented in terms of qualification, experiences, ambition and how far are these individuals
are planning to go with the entrepreneur.
11. Key Metrics, Current Status and Future Projections – This is where the entrepreneur boast
his current standings and provide a three-to-five-year forecast of his business. In this section
he states his plans for future expenses, investments, and routes.

The Business Plan

Most business experts value the time and effort being spent in writing a business plan. Although
some regard the plan as difficult, time consuming, and based on unproven assumptions. A
business plan is necessary and relevant to the new entrepreneur.
Here for some of the importance of a business plan when starting a business:

1. Helps in getting finances – Money is important to start or operate business. For a new
business the entrepreneur savings and personal plans may not be enough to start his business.
In order for an entrepreneur to seek funds for his business by approaching investors he needs
a well-written business plan.
2. Helps anticipate possible problem – A well-written business plan helps in making forecasts
through trends that may impact the business positively and negatively.
3. Helps remain on track – Writing a business plan includes planning for the future also. Targets
set by the entrepreneur must be monitored objectively.
4. Helps in good management of the business – A well-written business plan makes a business
much easier and better to handle. It is manageable in knowing what goes where and who is
responsible for different duties.
5. Budgeting is easier – Finances is vital and necessary for any business through survival and
growth. A well-written business plan provides the best allocation for plans to various aspects
of the business.
6. Helps in the start or continue the business decision – The decision to start a business at all or
continue with a business or shut it down is very important. A well-written business plan
allows the entrepreneur to decide when a business is not doing well.
Failure and Entrepreneurship

Entrepreneur often succeed because of their strong will. They continue to try
repeatedly when others usually would give up. They are not easily depressed or
frustrated when things do not go based on plans. When things go well, easy for them to
take personal credit. However, when poor business decisions result in failure, it is
really more difficult. Really successful entrepreneur are ready to take responsibility for
their mistakes

Truths about Failure in Entrepreneurship

Failure is frightening, that no would be entrepreneurs would like to hear this word. The reality
though is that no entrepreneurial journey can be complete without it. At one point or another,
most successful entrepreneurs failed at some kind of business encounter.
Here are some truths about failure among entrepreneurs:

1. No success without failure – The road to recovery is long and painful when someone failed.
Although, when heartbroken, entrepreneurs turn to understand and appreciate more what
happened.
2. Failure and success are similar – Without failing occasionally, an entrepreneur cannot
completely understand what success really looks like.
3. Failure arises from curiosity – Usually an limitless thirst for knowledge and longing to reach
their full potential is the reason why numerous entrepreneurs venture out. The curiosity
provides entrepreneurs answers to their questions in mind but need to take a lot of risk.
4. Failure is an asset – Undeniably, failure is a recognition that something has been tried. The
important thing or the learnings taken from the trials and for intervenors this is better than not
having tried.
5. Nobody wants to fail – Besides one's own pride, friends, family and relatives of an
entrepreneur do not want him to fail in his very attempt. In business, all stakeholders have
their respective interest in the business and to its success. An intrapreneur needs to develop a
strong relationship with his business partners.
6. Failure does not mean quitting – Quiting is very different with failure. Failure is a barrier,
quitting is not. Quitting is when the entrepreneur stops trying.
7. Each failure gets easier – For an individual being heartbroken several times, makes
acceptance easier than getting over is much simpler. Holistically the more disappointment a
person experienced makes him better and is able to manage smoothly the process in general.

Reasons for Failure

Reading from the biography of any successful entrepreneur, anyone would be amazed on how
they advantageously embrace failure. In the entrepreneurial journey, acceptence of failure is the
best option and the best strategy to succeed. Everyone knows that failures are the stepping stones
to attainment of one’s goal. There are however, some reason for an entrepreneur’s failure which
could be because of:

1. Lack of right vision – Passion is the very most recent of establishing a business. However, not
all entrepreneurs understand that the most indispensable thing when opening a business is the
vision. Vision is somehow the entrepreneur sees himself in his business say after five to ten
years since he started.
2. Proper selection of a business – Proper selection of business is vital to prevent entrepreneurs
failing. It is really very complicated for entrepreneur to decide which business to build.
However, an entrepreneur must know and identify which one is really appropriate for him.
3. Lack of appropriate planning – Incorrect planning is another common cause why
entrepreneurs fail. Having a well-written business plan especially for first-timers is an
essential component of starting a new business which entrepreneurs disregard.
4. Having inadequate capital – It is basically suicidal to start a business with insufficient
capital. Entrepreneurs particularly new ones must know the significance of cash flow. They
must not miscalculate the value of money it will require them to run their startup venture
efficiently.
5. Poor execution of the plan – A well-written business plan is worthless without proper
implementation. The most critical reason behind the failure of implementation is ineffective
leadership.
6. The hiring of wrong people – Hiring the right employee is essential to the success of any
entrepreneur in his business. Hiring a wrong individual is a waste of resources besides
creating a negative work environment. A negative work environment is not good for any
business.
7. Failure in marketing – The success of every business also depends on its marketing.
Marketing is significant in attracting many potential buyers for the services or products being
offered by the business. Promotion is very reliable process that can meaningfully and highly
contribute to any business success.
8. Expanding too soon – Certainly, every entrepreneur wants to expand and grow. However,
making it too soon or very early can lead to the business into demise. An entrepreneur should
extensively and carefully review and analyze first all aspect of his business before deciding
on an expansion.
9. Miscalculating competition – Underestimating competitors is risky to undertake by any
entrepreneur. Competition must be identified before taking a portion of the market. To stay
safe in his business position, an entrepreneur should keep a keen eye on his competitor’s
strengths and weaknesses.
10. Giving up too soon – It is commonly a cause of failure of every entrepreneur to quit and give
up his business. Although it is really very difficult to get up from considerable obstructions,
but quitting is not a solution. The truth is there is no success without failure.
 Chapter 9
Legal and Intellectual
Property Issues
Learning Objectives:

The learners should be able to:

• Consider legal consideration in startups;

• Choose the best type of legal structure for a startup;
• Assess legal mistakes made by startups;
• Distinguish from various types of Intellectual Property (IP); and,
• Formulate rules in hiring employees for startups;
Legal Considerations

Enterprise By Asset Size No. of No . %

(in peso) Employees Enterprises
Micro Up to 3 1-9 820.795 89.63%
million employees
Small Between 3 & 10 - 99 86.955 9.50%
15 million employees
Medium Between 15 & 100 - 199 4.018 0.44%
100 million employees

Large Above 100 Above 199 3.958 0.43%

million employees
Choose a Business Structure

Any business requires to obtain the necessary licenses and certificate of registration before it can be
completely operational. The requirements differ fie every business structure. In the Philippines the trace if
a business structure depends on the size and resources of a business, which would be a:

1. Sole proprietorship – This is the simplest form of business entity where one person is responsible for
other company’s profits and debts. Proprietorship cost depends on which market a business is part of.
Here are some of the advantages of this business structure.

a. Easy set up – A sole proprietorship is the simplest legal structure to create. There is very little
paperwork to accomplish with no partners or executive boards to answer to.
b. Low cost – The only peace related with a proprietorship are license fees and business taxes.
c. Tax deduction – Since the business is a single entity, the owner may be eligible for certain
business tax deductions, like a heart insurance deduction.
d. Easy exit – Creating the proprietorship is easy and so is going out. The owner can close the
business of any time with no official paperwork needed.
2. Partnership – This entity is owned by two or more individuals. There are two types.

a. a general partnership, where all is shared in the same way; and

b. a limited partnership, where only one partner has control of its operation while the other person (or
persons) contributes to and receives part of the profits.

Partnerships carry a double status as a sole proprietorship or limited liability partnership (LLP),
based on the entities funding and liability structure. A limited liability company (LLC) is a hybrid
structure that permits owners, partners or shareholders to please boundary under personal liabilities while
enjoying the tax and flexibility well affairs of a partnership.

3. Corporation – The law considers a corporation as an entity separate from its owners. It has its
identifiable legal rights, independent of its owners, hence it can sue, be sued, own and sell property,
and sell the rights of ownership in the form of stocks. There are several types of corporations,
including:

a. C corporations – it is owned by shareholders and are taxed as separate entities. JP. Morgan Chase &
Co. Is a multinational investment bank and financial services holding company that listed as a C
corporation.
b. S corporations – They are designed for small businesses and escape double taxation, much like
partnerships of LLCs. The corporation can choose not to distribute the company's proceeds, in paper
of putting the money back into the business.
c. B corporations – Also known as benefit corporations, they are poor profit entities is structured to
make a positive impact on society.
d. Closed corporations – Typically run by a few shareholders, they are not publicly traded and benefit
from limited liability protection. Closed corporations, known also as privately held companies, have
more flexibility compared to publicly traded companies. A family corporation is an example where
the stocks are not publicly traded but allocated to family members.
e. Open corporations – They are available for trade on the public market. Many well-known
companies, such as Microsoft and Ford Motors, are open corporations.
f. Nonprofit corporations – They exists to help others in some way and are rewarded by tax exemption.
An example of a nonprofit is the Philippine Red Cross. This types of business structure has one sole
purpose which is focusing on something other than turning a profit.

4. Cooperatives – the business must register with the Cooperative Development Authority (CDA).
Cooperatives may be eligible for government grants that help them get started. Cooperatives can leverage
their business size, Thus obtaining discounts on products and services for their members.
Business Registration

As mentioned earlier, before any local and boring companies are permitted to do business in the
Philippines. These businesses are required to register with several government agencies and get business
permits from the local government unit where they prepare their business to be situated. Here are the ways
to register the different business structure:

Single Proprietorship

The business should apply for a business name and get registered with the Department of Trade and
industry. (DTI).

1. A copy of government issued ID

2. A duplicate proposed business name registration form
3. Payment of registration fees fixed on territorial beast with documentary stamp tax.
4. Complete employee data form
5. Copy of Municipality permission lette
6. Community tax certificate
7. Location and Barangay clearance
8. Fire safety and electrical inspections certificates
9. Occupancy certificate and building permit
10. Contract of lease, if any
Partnership or Corporations

The is specific list of SEC registration requirements be first based on the type of business entity to register
in addition to the nature of activities and type of enterprise to undertake.

Homeowner’s Clearance/Barangay Clearance

Homeowner’s clearance is obligatory if the business will function within the village or subdivision.

The business must obtain a Barangay clearance and get a community tax certificate (CTC). The clearance
must be taken from the Barangay hall where the business is located. The fee for barangay clearance
ranges between PHP 300 – PHP 1000.
Business License/Mayor’s Permit

Before anyone can start operating a business in the Philippines, the owner needs to secure a Mayor’s
Permit or Business Permit from the Local Government Unit (LGU) where the company or pieces to
created. Here is the list of requirements for getting a majors permit in the Philippines:

1. Application form
2. Certificate of Registration from Securities and Exchange Commission (SEC) for
Corporations/Partnerships; Department of Trade and Industry (DTI) for Sole Proprietorships; for
Cooperative Development Authority (CDA) for Cooperatives
3. Barangay business clearance
4. Community Tax Certificate (CTC or Cedula)
5. Contract of Lease (if leased)/Transfer Certificate of Title (if owned)
6. Sketch/pictures of the business location (3 copies)
7. Public Liability Insurance (For Restaurants, Cinemas, Malls, Etc./Exempted: Sari-sari Stores,
Carinderias)
8. Locational/Zoning Clearance
9. Certificate of Occupancy (Building and Unit)
10. Building Permit and Electrical Inspection Certificate
11. Sanitary Permit
12. Fire Safety Inspection Permit
Business Tax Payer Identification Number (TIN)

A business tax payer identification number (TIN) from the Bureau of Internal Revenue (BIR) must be
obtained along with an SSS number (for the business and employees). Now that you have registered your
company with the SEC, you must now complete the following process:

1. Company name verification slip

2. Articles of incorporation (notarized)
3. Treasurer’s affidavit (notarized)
4. Statement of assets and liabilities
5. Registration datasheet with particulars on directors, officers, stockholders, and so forth
6. Written undertaking to comply with SEC reporting requirements (notarized)
7. Written undertaking to change corporate name (notarized)
Other Requirements

Any new venture must also apply for registration in other government entities. The business should also
register with the following

Bureau of Internal Revenue (BIR)

The Bureau of Internal Revenue (BIR) is the taxing authority in the Philippines in authority for regulating
taxation and collecting Internal Revenue taxes. It requires resident citizens in the Philippines who are
receiving income from sources within or outside the country to pay their personal income taxes in file
income tax returns.

PhilHealth

Under Republic of No. 7875, all employees both public and private are instructed to apply for
membership and pay monthly contributions to the medical insurance company in the Philippines also
known as the Philippine Health Insurance Corporation (PHIC). This government agency is more
commonly known as PhilHealth.
PhilHealth makes available health and hospitalization subsidies to its members should they or their
dependants be hospitalized. It gives employees with a proper call means of paying for sufficient medical
care in the Philippines.

1. For employees – Each new employee needs to fill-up and sign up a PhilHealth Member Registration
Form (PMRF) regardless if he/she is already a PhilHealth member or not.

2. For employers – Employers are required to submit a PhilHealth form ER2. This form should have the
list of new employees and be submitted to the PhilHealth office where the company is registered.

Monthly Basics Salary x Monthly Premium Personal Share Employer Share

2.75%

Php 10,000 and below Php 275.00 Php 137.50 Php 137.50

Php 10,000-Php39,999.99 Php 275.00-Php 1,099.99 Php 137.50- Php 137.50-Php549.99

Php549.99

Php 40,000 and above Php 1,100 Php 550 Php 550

Table 20 : PhilHealth Premium Contribution 2018

Home Development Mutual Fund (Pag-IBIG Fund)

Republic Act 7835 orders employers to contribute to the Home Development Mutual Fund (HDMF). This
is otherwise known as the Pag-IBIG Fund. It is a provident saving system that provides housing loans to
public and private employees, and also to self-employed persons who apply for membership.
1. For employees – New employee are mandated to undertake the HDMF Online Membership
Registration to become members of the Pag-IBIG Fund. Employees must be registered with the SSS
first before they can register with the Pag-IBIG Fund.

2. For employers – Employers can submit the list of their new employees by filling up the Member’s
Contribution Remittance Form MCRF. Employers need to mark the new employees as NH (newly
hired) when manually filling the monthly Pag-IBIG Fund contributions or accomplishing it online
through the Fund’s online web portal.

Monthly Compensation Percentage of Monthly Percentage of Monthly

Compensation Employee Share Compensation Employer Share
Php 1,500 below 1% 2%

Over Php 1,500 2% 2%

Table 20 : PhilHealth Fund Contribution 2018

Social Security System (SSS)

Given under Republic Act No. 8282, all employees employed by private companies are obligatory to
apply for membership with the Social Security system (SSS). This system offers private employees and
their families security against disability, sickness, old age, that or other such cases that could make they
unable or continuing their employment. The Government Service Insurance System (GSIS) is its
equivalent system for public employees in the Philippines

1. For new employees without SSS number – Employers must require a new employee to register in the
SSS office where the company is registered and the employee must provide his number to the
employer after the SSS number is allotted to them.

2. For new employees with existing SSS number – Those who are already members of the SSS must
submit their current number to their employers
Legal Mistakes made by Startups

When beginning a new start up, the owner can be confronted with substantial business and legal
challenges. The following are some of the more common and challenging legal mistakes experienced
by small and growing companies.

1. Not making the deal clear with co-founders – An entrepreneur should agree early on with co-
founders about the details of the business relationship. Without this details the business may later
on face legal problems such as scandalous litigation between Zuckerberg and Winklevoss of
Facebook.

2. Not beginning the business as a corporation or LLC – The legal form to operate a business is one
of the very first decisions founders must take. Often, businesses start with no lawyer consultation
hence they suffer from higher taxes and big amount of liabilities.

3. Selecting a company name that has trademark issues, domain name problems, or other issues – It
is better to do research first before selecting a company name. This way trademark infringement
or domain name problems can be avoided. This also ensures that the name chosen is actually
open to use.
4. Not confronting with securities laws when allotting stock to angels, family, or friends – Failure to
obey with applicable securities laws requirements can result in considerable business advantages
for the founders and the startup company.
5. Not sufficiently considering important tax considerations – Startups are required to pay attention
to numerous key tax issues connected to their businesses. Without good planning, founders can
be implicated or there is startups accountable for inadvertent and unforeseen taxes, fines, and
penalties.
6. Not having the right legal counsel – Often, start-up businesses employ inexperienced legal
counsel who could be their friends or relatives to save on expenses. This is misguided effort
which denies the founder the advice of experienced legal counsel who can help escape numerous
legal problem.
7. Not keeping correct corporate and HR documentation – Companies are often messy in
maintaining suitable corporate and employee/HR-related records. This can become challenging
when the company trucks financing or is involved in claims or lawsuit with an employee or
regulatory agency.
8. Not prudently considering intellectual property issues – If the owner has developed a unique
product, technology, or service, he needs to study the applicable steps to safeguard the
intellectual property he has developed.
9. Not coming up with well-written contract – Most startup companies should have standard form
contracts for dealing with customers or other stakeholders. Obviously, every contract can be
costum-made to be more advantageous to one side or the other.
10 Not having a good terms of use agreement and privacy policy for the company’s website – A
terms of use agreement sets forth the terms and conditions for people using a website. A privacy
policy is a legal statement on a website setting or what the owner will do with the personal data
taken from users and customers of the site, and how such data may be used, sold, or shared third
parties.
11 Not using a good form of employment agreement or offer letter when hiring employees – Often
oral arrangements lead to misinterpretations. If an owner plans to employ a potential employee,
he should use a cautiously written offer letter.
12 Not demanding all employees to sign a confidentiality and invention assignment – Companies
compensate employees to come up with ideas, work products, inventions that may be beneficial
to the business.
13 Asking interview questions that are banned by law – The laws forbid employers from making
hiring decisions based on protected categories such as age, religion, medical conditions, arrested
or convicted of a crime, disabilities, illness, political affiliation and others should be avoided.
14 Not asking the correct steps before firing an employee – Ending the service of an employee, even
an “at will” employee, involves legal risk if not accurately controlled and properly documented.
Types of Intellectual Property (IP)

Intellectual property or simply IP is a type of property that comes from the products or mental effort and
usually compose of copyrights, trademarks, patents, and trade secret.

Here are the types of “intellectual property rights” protected by Philippines law:

Trademarks and Service Marks

A mark is an invisible sign to differentiate goods (trademark) and services (service mark). A trademark may
be a word, a group of words, signs and symbols, logos, or a mixture of all of this mentioned. The primary
source of original products and services as one entity differing from the rest can be seen in the trademark. The
symbol “TM” means that the mark has a pending application; while, the symbol “®” means that the mark is
registered.

Geographic Indications

A geographic indication can either be a name or a sign used by and for a product from a specific geographical
location. This may serve as a guarantee or a right that a certain product has a direct qualitative link to its
geographical origin for the reason of the soil, topography, climate, human is skills or traditions of the place of
origin. In the Philippines some famous products that are being considered for GI are Bonoan bangus
(milkfish), Bicol pili nut, Bongolan banana, Batangas Barako coffee and Kalinga (Abrica) coffee.
Industrial Designs

Industrial designs could either be three-dimensional features (with shapes and surfaces) or two-dimensional
ones (with patterns, lines, or color). Essentially, the scope of industrial designs ranges from passion to
industrial goods such as handicraft, vehicle, jewelry, fashion pieces, appliances, and a whole lot more.

Patents

A patent is an exclusive right granted to investors, which provides a new product or a new way of doing
something or offers a new technical solution to a problem. Inventions can be electrical, mechanical, or
chemical in nature.

There are three different kinds of patents namely:

1. Utility patents – this most common patents are accorded to new machines, chemicals, and processes
2. Design patterns – awarded to care for the distinctive look or shape of invented objects, such as the surface
ornamentation or overall design of the object.
3. Plant patents – Given for the invention and asexual reproduction of new and distinct plant types, such as
hybrids (asexual reproduction means the plant is reproduced by means other than from seeds, like
grafting or rooting of cuttings).
Lay-out Designs or Topographies of Integrated Circuits

This types of designs are usually three-dimensional elements or forms intended for manufacturing. Owners of
this invention or idea are granted rights in preventing other parties from using the registered item or device for
commercial purposes.

1. An industrial design – It is an arrangement of lines or colours or any three-dimensional form, weather

related lines are colours. The design must be a structure or form which gives a unique appearance and can
provide as a blueprint for an industrial product or handicraft.
2. Integrated circuit – This means “ a product, in its final form or intermediate form, in which at least one of
the elements is an active one, in some or all of the interconnections are inherently formed in and/or on a
piece of material.
3. Layout-Design – Synonymous topography means the three-dimensional disposition. “Among the
elements, at least one of which is an active element, end up some or all of the interconnections of an
integrated circuit, or such a three-dimensional disposition planned for an integrated circuit meant for
manufacture”.

Protection of Undisclosed Information

One of the most important if not the most important among the types of intellectual properties that needs to be
safeguarded by law is the undisclosed information. This undisclosed information is considered vital either
bringing benefits or is scare to the country.
Common Mistakes to Avoid with Intellectual Property
Intellectual property has abundance of benefits for his startups and getting it sorted out will have a business to
achieve. However, I looked up the startup fail to utilize IP to their advantages. Here are some of mistakes
committed against IP which needs to be avoided:

1. Assuming IP is unimportant – One of the biggest mistakes entrepreneur might do is to think that IP is not
vital. Before a business start its IP rights must be in place. The process is long but is impossible to
accomplish once the business is already operating. It is also costly especially when faced with legal
issues.
2. Not doing sufficient research – Research is essential to protect the intellectual property of entrepreneur
against other businesspeople. IP is a guarantee that the business idea would not be copied or stolen for a
long period of time.
3. Hurrying through the process – Many startups put up their businesses in a hurry that less attention is paid
to the whole process the process of starting a business together with the IP process cannot be completed
overnight. The IP process can be expensive and difficult.
4. Waiting very long – On the other contrary, an intrapreneur cannot think about the IP issues for a long time
especially when the business has started. Protecting the IP must be done immediately as soon as the
business idea is ready.
5. Using DIY approach – Legal proceedings in the process in putting up a business is available in the
Internet. Making use of these online information may save money, but the do-it-yourself is not applicable
when it comes to IP.
Hiring Employees
The right people must be chosen when starting a business. Talented pool of employees is needed to grow and
keep the business running. Choose candidates who can think outside of the box in show the creativity upon
which startups succeed.

Here are some of the most usually recommended first hires for a startup business:

1. CEO and COO – The CEO (Chief Executive Officer) is normally the big-picture person who controls the
company’s mission, vision and culture. The COO ( Chief Operating Officer) is chiefly concentrated on
the daily operations to keep the business running.
2. Product manager – The product manager will be the one who handles all things associated to products.
This team member manages the product strategy, vision and development.
3. Chief technology officer (CTO) –A team member who focuses in technology and development is crucial
to a business’ success, especially for technology-based startups.
4. Chief marketing officer (CMO) – This team member will attend to the customers and focus on how they
perceive the product or service.
5. Sales manager – This team member will concentrate on making new leads and giving in money for the
company. Hiring an expert with excellent marketing and promotional skills is necessary to make certain
the vision reaches a broad audience.
6. Chief financial officer (CFO) – Experts propose that startups outsource their accounting and finance
roles. However, if they have the capability to hire a CFO, it can be extremely useful for any business.
THANK YOU