BBUSS 2403 BUSINESS PLANNING CHAPTER 2 Developing Screening

BBUSS 2403 • BUSINESS PLANNING CHAPTER 2 Developing & Screening Business Ideas

Chapter Two Developing and screening business ideas – Three most common sources of new business ideas – Techniques for generating ideas – First screen 2 -2

Introduction • Many businesses fail because the idea wasn’t a good one to begin with • Techniques can be used to explore the most common sources for new business ideas • First Screen provides entrepreneurs with multiple business ideas 2 -3

Three Most Common Sources of Business Ideas • The first step in creating an effective business plan is selecting an idea that fills a need and provides unique value to the customer • It is difficult to get people to change habits and behaviors to try a new product even if the new product is better or less expensive 2 -4

Figure 2. 2 Three sources of new business ideas Changing environmental trends 2 -5 Unsolved problems Gaps in the marketplace

Three Most Common Sources of Business Ideas • Changing environmental trends – Economic trends – Social trends – Technological advances – Political and Regulatory changes • Unsolved problems • Gaps in the marketplace 2 -6

Changing Environmental Trends Economic trends – When the economy is strong, customers are more willing to purchase discretionary products and services – Need to evaluate who has the money to spend – Identify areas to avoid 2 -7

Changing Environmental Trends Social trends – Impact the way people live their lives and the products and services they need – Products often do more to satisfy a social need than the actual need the product fills 2 -8

Changing Environmental Trends Technological advances – Ongoing source of new business ideas – Technologies can be used to satisfy basic or changing human needs – Once a technology is created, products emerge to advance it 2 -9

Changing Environmental Trends Political and regulatory changes – New laws create opportunities for entrepreneurs – Changes in government regulations motivate entrepreneurs to differentiate themselves by exceeding the regulation – Political change can encourage the emergence of new business ideas 2 -10

Unsolved Problems • Many companies have been started by people who by trying to solve a problem create a business idea • Entrepreneurs can capitalize by modifying products created by advances in technology 2 -11

Gaps in the Marketplace • Key large retailers compete on price and target the mainstream customer, leaving gaps in the marketplace • New business ideas can be formed by taking an existing product and targeting a new market or geographic area 2 -12

Techniques for Generating Ideas • Casual observation, intuition, serendipity, or luck • Three sources of business ideas – Brainstorming – Focus groups – Library and Internet research 2 -13

Brainstorming A brainstorming session is targeted to a specific topic about which a group of people are instructed to come up with ideas Participants share their ideas and react to others in a lively, freewheeling manner 2 -14

Focus Groups A focus group is a gathering a 5 to 10 people who are selected because of their relationship to the issues being discussed 2 -15

Focus Groups • Works best as a follow-up to brainstorming • Conducted by trained moderators to keep the group focused 2 -16

Focus Group College drop in A hybrid type of focus group in which college students are provided food and a snack budget to hold videotaped interviews about specific market issues or business ideas 2 -17

Library and Internet Research • The best business ideas include extensive library and Internet research • Discuss your area of interest with a reference librarian • Use search engines and alerts for Internet research 2 -18

First Screen • The First Screen is an entrepreneur’s first pass at assessing the feasibility of a business idea • There are 5 main parts in a First Screen 2 -19

First Screen • Part One: Strength of the business idea • Part Two: Industry-related issues • Part Three: Market- and customerrelated issues • Part Four: Founder-related issues • Part Five: Financial issues 2 -20

Part One: Strength of the Business Idea The strength of the business idea is based on – – Its timeliness in market introduction An open window of opportunity The added value for the buyer The successfulness of replacing an existing product that consumers are satisfied with – The likelihood that product will cause consumers to make meaningful changes in behavior 2 -21

Part Two: Industryrelated Issues Industry-related issues account for 8 to 30% in firm profitability – Number of competitors – Current life cycle stage of industry – Growth rate of industry – Relative importance of product to customers – Average operating margins 2 -22

Part Three: Market- and Customer-related Issues Market and Customer-related Issues include • Identification of the target market A target market is a place within a larger industry or market segment that represents a narrower group of customers with similar interests 2 -23

Part Three: Market and Customer-related Issues Barriers to entry A condition that creates a disincentive for another firm to enter the company’s niche market • Economies of scale • Product differentiation • Unique access to distribution channels • Intellectual property protection 2 -24

Part Three: Market- and Customer-related Issues Additional market and customerrelated issues include – Purchasing power of potential customers – The ease of making customers aware of the new product – Growth potential of a firm’s target market 2 -25

Part Four: Founderrelated Issues Attributes of a strong founding team – Experience in the industry – Skills related to the new product – Social and professional networks – Personal goals and aspiration – Likelihood the team can grow and launch the new venture 2 -26

Part Five: Financial Issues Initial capital investment with growth estimates • Average small business is started for about $10, 000 from owners’ personal savings – Number of revenue drivers – Time needed to break even or recoup initial investment – Assess financial performance of similar firms – Fund initial product development and start-up expenses 2 -27

Key Words Barriers to entry A condition that creates a disincentive for another firm to enter the company’s niche market 2 -28