Module 07: Principles, Tools, and Techniques in Creating a Business

I. LEARNING COMPETENCIES
1. Identify different principles, tools, and techniques in creating a business.
2. Analyze different principles, tools, and techniques in creating a business.
3. Create a SWOT, TOWS and Five Forces Analysis for a business.

II. LESSON PRESENTATION

A business is just a small position of an industry. It is an undertaking by a person or a
group of persons who are partners, or of stockholders who own a juridical entity known as
corporation. Its main objective is to earn more profit to the owner.
Types of Business Organization
1. Sole Proprietorship
- This is generally the simplest way to set up a business. A sole proprietorship is owned by a
single individual who is singly responsible for running the business and is accountable for all
debts and obligations related to the business.
2. Partnership
- A partnership is an agreement in which two or more persons combine their resources in a
business with a view to making profit.
There are two types of partnership:
a. General Partnership
All owners share the management of the business and each is personally responsible for and
must assume the consequences of the actions of the other partners.
b. Limited partnership
Some members are general partners who control and manage the business and may be
entitled to a greater share of the profit while other partners are limited and contribute only
capital, take no part in control or management, and are liable for debts to a specific extent
only.
3. Corporation
- Is a legal entity that is separate from its owners, the shareholders. No shareholder is
personally liable for the debts, obligations, or acts of the corporation.
- It can exist for a life of 50 years, which renewable for another 50 years. Owners have limited
liabilities. However, corporations are burdened by heavy taxes.
- Director and Officers – can bear liability for their involvement with the corporation.
4. Cooperative
- Is an entity organized by people with similar needs to provide themselves with goods or
services or to jointly use available resources to improve their income.
- Cooperative members have an equal say in decision making with one vote per member
regardless of number of shares held, there is open and voluntary membership and surplus
earning is returned to the members according to the amount of their patronage.
Small, Medium, and Large Scales Businesses
It is also important to study the classification of businesses as to the size based on the
worth of the business assets.in the Philippines, total assets for micro business are worth below
1,500,001. For the small business, total assets are from 1,500,001 to 15,000,000. Medium
business has total assets from 15,000,001 to 60,000,000. Any business with assets is excess of
60,000,000 is considered large scale.
For any form of business organization, the business must be registered with the
appropriate government agencies. In the case of sole proprietorships and partnerships, 100%
must be owned and capitalized by Filipinos. For corporations, at least 60% of the outstanding
capital stocks must be owned by Filipino citizens. Business activity conducted may be within
major sectors of industry, services, practice of profession, or operation of tourism- related
businesses and agri-business.
The choice of which form of business organization may be a personal preference of the
owner, based on his objectives, his available resources, and the scope of operations.

Tools in Evaluating a Business

According to a guide developed by North Carolina’s Business and Technology Development
Center, the key factors that must be considered in analyzing the industry are the following:
1. The geographic location is where your business will cater to. It is limited to local areas? Or
will it cover a region, the entire country, or even the international market?
2. The size and outlook of the industry. What trends can be identified?
3. Description of the product.
4. The buyers have to be identified. Who are your target costumers?
5. The regulatory environment. Are the local, national laws that will restrict the business? One
needs to identify government regulations specific to the chosen industry.
6. The need to identify the leading businesses in the industry, and to provide company
information on the most successful businesses that you will be rip against.
7. Factors that will affect the growth of the business.

The SWOT Analysis

The SWOT analysis was created in the 1960s by business gurus, Edmund P. Learned, C.
Roland Christensen , Kenneth Andrews , and William D. Book in their book, Business Policy, Text
and Cases ( Irwin 1969).
SWOT, analysis which stands for Strengths, Weaknesses, Opportunity, and Threats, is an
analytical framework that can help a company meet its challenges and identify new markets.
The Framework can help identify the business's risks and rewards, it is also means of
identifying the internal and the external forces that may affect the business, it is very helpful in
assessing new ventures. The usually included as internal factors are:
1. Financial Resources
2. Physical Resources
3. Human Resources
4. Access to Natural Resources
5. Current Processes
 When we speak to external forces, these are those that affect a company, an
organization, an individual, and those outside their control.
These may include:
•Economic Trends
•Market Trends
•National and Local Laws and statues as well as Political, Environmental and Economic
Regulations;
•Demographic Characteristics of the Target Market
•Relationships with Supplier and Co-Owners
•Competitive Threats

Image 7.1. SWOT Analysis Table (Source: https://www.scribd.com/)

Image 7.2. SWOT Analysis Template (Source: https://www.scribd.com/)

TOWS Analysis
A TOWS Analysis is an extension of the SWOT Analysis framework that identifies your
Strengths, Weaknesses, Opportunities and Threats but then goes further in looking to match up
the Strengths with Opportunities and the Threats with Weaknesses. It’s a great next step after
completing your SWOT and allows for you to take action from the analysis.
 Image 7.3. TOWS Matrix (Source: https://getlucidity.com/strategy-resources/an-introduction-to-tows-analysis/)
Adding the relationship between the internal and external factors makes TOWS a much
more useful matrix than a standalone SWOT and an obvious next step. The main purpose of a
TOWS Analysis is to:
- Reduce threats
- Take advantage of opportunities
- Exploit strengths
- Remove weaknesses
Strengths to Opportunities:
The S-O focuses around how you can exploit your strengths in order to respond to the potential
opportunities in the market.
Strengths to Threats:
The S-T examines how strengths can be used to mitigate or remove the threats to the
business, and in some cases look at how threats can be transformed to opportunities.
Weaknesses to Opportunities:
The W-O can be the hardest consideration, as it doesn’t always come naturally. Consider
how your opportunities can remove your weaknesses.
Weaknesses to Threats:
The W-T highlights how weaknesses can play into, develop or enhance the threats of the
business.
A well thought out TOWS can not only provide you with detail of your SWOT, but also
some data to make a decision about your overall direction.

Porter’s Five Forces of Competitive Position Analysis

Porter's Five Forces was developed in 1979 by Michael E. Porter of Harvard Business
School. He identifies five forces that determine the competitiveness and attractiveness of a
market and which seek to locate the power in a business situation, its current competitive
position, and the strength of a position that an organization may enter into. This five forces help
in identifying if new products or services are potentially profitable. Once the area where the
power lies is identified, then areas of strength can be pinpointed and exploited, solutions to
weaknesses may be proposed, and possible mistakes avoided.

Image 7.4. Porter’s Five Forces of Competitive Position Analysis (Source: https://www.scribd.com/))

The Five Forces of Competitive Position

1. Supplier Power - it is important to assess how much power the supplier has in his ability to
drive up prices. A supplier enjoys his power if there are a few suppliers of an essential input and
they therefore control the supply of that input. Another source of power Is how unique the
product or services is. The more unique the product, the easier it is for the supplier to drive up
the price. In the same manner, a supplier who has a relatively bigger size and strength in the
market enjoys the power of driving up prices. The magnitude of the cost of switching from one
supplier to another is likewise a factor such that when cost of switching is high, buyers of
suppliers would prefer to stick it out with one supplier, thus, giving the supplier the power of
raising prices.
2. Buyer Power - If a supplier can enjoy the power to drive prices up, it is also possible for a
buyer to drive prices down. An assessment needs to be made on of how easy it for buyers to
drive prices down. The smaller the number of buyer in the market, the greater is the power
enjoyed by the buyer. Likewise, the more important an individual buyer is to the organization,
the greater his power is. The buyer's cost of switching from one supplier to another is also a
determinant of the extent of the buyer's power to bring prices down. If cost is minimal, then it
will be easy for the buyer to switch to another supplier and bargain on lower prices of the
input.
3. Number of Competitors - the number and capability of competitors in the market will also
impact on the attractiveness of the market. If competitors are numerous and offer basically
similar products and services, the market will be less attractive. Low capability of competitors
to meet the market's current needs will serve as an attractive opportunity for the firm.
4. Possibility of Substitution - when it is easy to substitute products in a market, it is expected
that the buyers will switch to alternatives in case of price increases. The suppliers will enjoy less
power to drive prices up and the market will be less attractive.
5. Possibility of New Entrants - when investors see that a market is profitable, they will desire
to join the bandwagon and get a share of the profits. But when new investors enter a market,
the share of the participants in the market will be divided among more people and will
therefore decline, thus, eroding profits. However, if barriers to entry prevent new participants
from entering the market, profits will be maintained among the existing participants.
The Porter's Five Forces Analysis is a significant tool for organization to understand the
factor affecting profitability in a specific industry and can help to form decisions on whether or
not to enter a specific industry, whether or not to increase capacity in a specific industry and
also for developing copositive strategies. Under this theory, a business more attractive, the
greater the supplier's power to drive prices up, the less the buyers power to drive prices down,
the less the number of competitors in the market, the more differentiated the product or
service is the less the substitutability of the products for similar goods, and the more difficult it
is for new entrants to participate in the market (Charted Global Management Accountant
2015).

Identification of Business Opportunities

Managerial Competence
Before the actual start of production, there is a need to study the market with respect
to demand, target customers, when and where the products are to be sold. Production has no
value unless the produced goods are sold. Hence, knowledge of anticipated market for a
product becomes an important aspect in every business. Demand forecasting is one such
method of knowing the anticipated market. The various methods of estimating the demand for
a product are:
- Opinion pool.
- Market survey.
- Life cycle analysis.
- Desk survey.
- Dealers opinion etc.
Business opportunities can be obtained from various magazines, trade journals, financial
institutions, government, commercial organizations, friends, relatives, competitors etc.
Choosing of best business opportunity from the information collected requires ingenuity, skill
and foresight of entrepreneur. An entrepreneur has to identify and select the most rewarding
opportunity from the available ones. For this one has to evaluate the following areas and
understand the gap between demand and supply.
- Study of government rules and regulations regarding the different business
opportunities.
- Extensive and in depth study of promising investment opportunity.
- SWOT analysis of the business opportunities.
- Market feasibility study.
 - Technical feasibility study.
- Financial feasibility study and
- Social feasibility study.
An opportunity can be defined as an attractive and excellent project idea which an
entrepreneur searches for and accepts such idea as a basis for his investment decision. A good
business opportunity must be capable of being converted into feasible project. Two major
characteristics of business opportunity are: good and wide market scope and an attractive,
acceptable and reliable return on investment.
Sources of Business Ideas
1. Unfulfilled demand; An Unfulfilled demand will open doors to new products
2. Own idea: One own creative idea can result in a business opportunity.
3. Social and economic trends: Social and economic trends necessitate demand for new
products.
4. Magazines/Journals/ Research publications: Magazines/ Journals/ Research
publications form a major role of ideas.
5. Government: Government also identifies and proposes ideas and give support for
business opportunities.
6. Emerging new technology and scientific know how: commercial exploitation of
indigenous and imported technologies and know-how is another source of
opportunities.
7. Charges in consumer needs: the needs of consumers charge giving rise to
requirement of new business opportunities.
8. Trade fairs/Exhibitions: Trade fairs and technical exhibitions also offer wide scope for
business opportunities.
9. Banks and government agencies: Commercial banks and government agencies
encourage entrepreneurs by providing business opportunities, ideas subsidies, loan etc.
Technical Feasibility
While making project appraisal, the technical feasibility of project is made. Technical
feasibility means the adequacy of the proposed plant and equipment to produce the product at
proposed technology. It should be ensured that know-how is available within the entrepreneur
or should be obtained from outside in the form of either collaboration or purchase or franchise.
Market Feasibility Study
Feasibility study is a detailed work of collection of data analysis and concludes the
feasibility of that operation. Market feasibility study involves the study and analysis of the
following aspects. Market feasibility study will assess whether the product has good market.
This needs to study the following:
Nature of Market: The nature of market in terms of monopolistic or perfect competition
is to be studied.
Cost of Production: It is essential to study and control cost of production. Cost of
production decides the selling price.
Selling Price and Profit: Selling price plays a vital role in profit. In price sensitive goods
like cosmetics, one should be careful in fixing the price.
Demand: Present demand and demand forecast are prepared and studied. This will
decide the facility planning.
 Market Share: Estimated market share is to be made. Comparison is made with share of
similar products.
Target Market: Study is made with regard to the target market and market
segmentation.
Technical Feasibility Study
In technical feasibility study, the following points are studied.
Location of the Project: The data regarding the location of project is very important. It
may be located in rural, urban or semi-urban areas.
Construction of Factory, Building and its Size: The construction details, the nature/type
of building and its size for the project are to be analyzed.
Availability of Raw Materials: The study of availability of raw materials, sources of
supply, alternate sources, its quality and specifications cost etc., are to be studied.
Selection of Machinery: The selection of machinery required to produce the intended
product is to be carried out. The specifications are capacity, cost sources of supply,
technology evaluation of various makes of the machine. Their good and bad etc., are
studied.
Utilities: The details about availability of utilities like water, gas electricity, petrol, diesel
etc. are to be studied.
Production Capacity: Establishment off production capacity and utilization of production
capacity are analysed.
Staff Requirement: Study and analysis of requirement of workers, technical staff and
officers etc. is to be made.
Technical Viability: The technical viability of the opportunity is to be studied.
Financial Feasibility Study
Financial feasibility is the most important aspect of a business opportunity. Some of the
aspects involved in financial feasibility study are:
Total Capital Cost of Project: It is very essential to study the total cost of project. This
includes fixed capital, working capital and interest factor.
Sources of Capital: The study of main sources of capital is to be made. If capital is
borrowed, interest burden is to be studied in detail.
Subsidiary Sources for Additional Finance: After study of main sources of capital,
subsidiary sources of capital are to be identified and studied.
Financial for Future Development of Business: Financial requirement for future
development of business are to be studied. Working capital requirement for at least
three months running of enterprise are to be estimated.
Break Even Analysis (BEA): BEA is to be carried out to see at what level of
production/sales will make the organization no loss/no profit situation. BEA is very
useful to identify the level of production that makes profit.
Estimation of Cash and Fund Flow: It is very essential to make a study of estimation of
cash and fund flow in the business.
Return on Investment (ROI): ROI is to be calculated to see the amount of return on
investment for the investors/shareholders and how much they get.
Proposed Balance Sheet: Proposed balance sheet is made showing liabilities and assets,
depreciation, interest burden, profits expected etc.
 Cost of Labor and Technology: The cost of employees is to be estimated and studied. If
technology is not available then it has to be purchased from any R & D institution or by
way of foreign collaboration.
Social Feasibility Study
Social feasibility study is important in the social environment.
Location: The location is in such a place that it should not have objection from the
neighbors.
Social Problem: The enterprise should not create any nuisance to the public.
Pollution: There should not have any sort of noise or other pollution objectionable
society. Suitable measures are to be taken for controlling pollution.
Other Problem: Any other problems related to the society and people are to be studied.

III. SUMMARY OF LESSON

 Sole proprietorship is owned by a single individual who is singly responsible for running the
business and is accountable for all debts and obligations related to the business.
 Partnership is an agreement in which two or more persons combine their resources in a
business with a view to making profit.
 Corporation is a legal entity that is separate from its owners, the shareholders. No
shareholder is personally liable for the debts, obligations, or acts of the corporation.
 Cooperative is an entity organized by people with similar needs to provide themselves with
goods or services or to jointly use available resources to improve their income.
 Micro business are worth below 1,500,001.
 Medium business has total assets from 15,000,001 to 60,000,000.
 Large scale business is with assets excess of 60,000,000.
 SWOT Analysis which stands for Strengths, Weaknesses, Opportunity, and Threats, is an
analytical framework that can help a company meet its challenges and identify new
markets.
 TOWS Analysis is an extension of the SWOT Analysis framework that identifies your
Strengths, Weaknesses, Opportunities and Threats but then goes further in looking to
match up the Strengths with Opportunities and the Threats with Weaknesses.
 Porter’s Five Forces of Competitive Position Analysis identifies five forces that determine
the competitiveness and attractiveness of a market and which seek to locate the power in a
business situation, its current competitive position, and the strength of a position that an
organization may enter into.

IV. ENGAGEMENT ACTIVITY

SWOT Analysis
Direction: Using the business/enterprise you have thought of from Module 06, make a SWOT
Analysis for it. Use a SWOT Analysis Template. Use a separate sheet for it. (20 pts.; Correctness
of Ideas - 8, Overall Sense - 7, Visuality - 5)
V. ENRICHMENT
TOWS Analysis
Direction: From your SWOT Analysis above, make a TOWS Analysis for it. Use a TOWS Analysis
Template. Use a separate sheet for it. (20 pts.; Correctness of Ideas - 8, Overall Sense - 7,
Visuality - 5)

VI. EVALUATION
A. Multiple Choice
Direction: Choose the letter of the best answer. Answer on a separate sheet. (2 pts. each)
1. SWOT stands for?
a. Strengths, Wellbeing, Opportunities, Threat
b. Sudden Weaknesses, Outstanding Threats
c. Social Ways of Overcoming Threats
d. Strengths Weakness Opportunities Threats
2. Which of the following is a major contribution of the SWOT analysis?
a. Determining the information flows
b. Understanding the political environment
c. Understanding the opportunities of a business
d. Carrying out intensive business process analysis
3. If you wanted to look at factors out of control of the business which may affect it you would
look at:
a. Strengths and Weaknesses
b. Outsiders or Threats
c. Strengths and Threats
d. Opportunities and Threats
4. Looking at the following sentences can you identify which is a Strength?
a. Loyal customer base
b. New market opened up
c. Poor staff training
d. New competition
5. Which of the following is false regarding why a SWOT Analysis is used?
a. To build on the strengths of a business
b. To minimize the weaknesses of a business
c. To reduce opportunities available to a business
d. To counteract threats to a business
6. Which of the following could be a strength?
a. Weather
b. A new international market
c. A price that is too high
d. The location of a business
7. What is the main purpose of Porter’s Five Forces Model?
a. Inform investment appraisal decisions
b. Decide which products to launch
c. Manage product portfolios
 d. Analyse competition in a market
8. When buyers are able to join together to put pressure on a supplier, this is which of Porter's
Five Forces?
a. Competitive rivalry
b. Threat of new entrants
c. Bargaining power of customers
d. Threat of substitute products
9. Can you identify which of the following forces does not form part of Porter’s Competitive
Position Analysis?
a. Buyer power
b. Supplier power
c. Threat of new entry
d. Risk of losses
10. When suppliers are limited or inputs are scarce, which of Porter's Five Forces are at play?
a. Competitive rivalry
b. Threat of new entrants
c. Bargaining power of suppliers
d. Threat of substitute products

B. Porter’s Five Forces of Competitive Position Analysis

Direction: Using the business/enterprise you have created a SWOT and TOWS Analysis, make a
Five Forces Position Analysis for it. Use Five Forces Analysis Template. Use a separate sheet for
it. (20 pts.; Correctness of Ideas - 8, Overall Sense - 7, Visuality - 5)

VII. RESOURCES
https://www.scribd.com/
https://getlucidity.com/strategy-resources/an-introduction-to-tows-analysis/
https://study.com/academy/practice/quiz-worksheet-business-analysis-tools-techniques.html
https://quizizz.com/admin/quiz/5c6f9200f90731001bef1cad/swot-analysis
https://veinternational.org/wp-content/uploads/2016/06/Brenda-Bechtol-Student-PDs-SWOT-Analysis-Quiz-
Key.pdf
https://www.fm-magazine.com/news/2016/jan/quiz-porters-five-forces.html
https://study.com/academy/practice/quiz-worksheet-porter-s-five-forces.html