Chapter 19 Identifiying Business Ideas IDEAS FOR BUSINESS

Chapter 19: Identifiying Business Ideas

IDEAS FOR BUSINESS • Every new business begins with an idea.

Internal Sources of Business Ideas for Entrepreneurs Interests and hobbies • The entrepreneur looks at what they enjoy doing. They might be able to turn their hobby into a successful business. Unexpected events • The eureka moment – a thought or event provokes an idea for a good or service. Frustration • An entrepreneur may be frustrated about the lack of a product on the market. Skills and knowledge • An entrepreneur may have particular skills or knowledge that can be turned into a business.

Internal Sources of Business Ideas for Existing Firms Brainstorming Intrapreneurship Research and development • People from different areas of the business come together to think of as many ideas as possible. • Intrapreneurship means that ideas come from employees, through suggestion schemes or boxes. • A specialised department in the business that develops new goods or services and new ideas for existing products.

External Sources of Business Ideas For Entrepreneurs Family and friends Ideas for new products can come from family members, friends and colleagues. Networking Meeting with people to build relationships and share business ideas and information.

External Sources of Business Ideas For Existing Businesses Competitors A business might copy or adapt a competitor’s goods or services. Customer feedback This gives the business insight into products that consumers would like to buy.

External Sources of Business Ideas For Entrepreneurs and Existing Businesses Media Market trends • Ideas for products can come from the media, e. g. television, newspapers and social media. • A business keeps an eye on market trends to identify new goods and services to satisfy consumer needs. State agencies Import substitution • State agencies such as Enterprise Ireland provide information on worldwide markets and growth statistics. • When an Irish business or entrepreneur makes a product that is currently imported.

MARKET RESEARCH FOR BUSINESS IDEAS • The process of collecting and analysing information about the target market. It is used by the business to identify trends and marketing decisions.

Reasons for Conducting Market Research 1 2 3 4 • To find out the size of the market • To identify competitors • To find out consumer needs and wants • To identify trends

Stages in Market Research When a business decides to engage in market research it must decide: What information will be researched? How will the data be collected? Who will collect the information? How long will it take to complete? How much will it cost?

Stages in Market Research Once a business has made these decisions, the next stage is to: Gather • The information must be gathered and compiled. Analyse • The information must be studied in detail to identify trends and statistics. Report • A report is compiled and given to the appropriate decision-makers.

Types of Market Research 1. Observation 4. Mystery shoppers Primary (field) Research 3. Surveys 2. Focus groups

Types of Market Research PRIMARY RESEARCH Advantages 1 Specific Information The business can obtain very specific market information relevant to its own products. 2 Better Analysis The information collected can be examined analysed by the business according to its own needs. 3 Timing The information collected is recent, which makes it more accurate. 4 Confidentiality The information gathered is owned by the business and is not shared with other businesses. This gives the firm an advantage over its competitors.

Types of Market Research PRIMARY RESEARCH Disadvantages 1 Time-consuming It can take a long time to plan, conduct and analyse primary research data. 2 Cost It is more expensive than secondary research because the business is involved in all stages of the process from design to analysis. 3 Inaccurate Feedback Responses can be untrue or biased and can therefore provide the business with inaccurate information. 4 Business Resources Many of the firm’s resources are tied up in data collection and analysis. This can take business resources away from other important areas.

Types of Market Research 1. Business Reports 5. Media 4. Commercial Research Agencies Secondary (Desk) Research 2. Government publications 3. Internet

Types of Market Research SECONDARY RESEARCH Advantages 1 Cheaper than Primary Research Large amounts of information can be accessed free of charge. 2 Faster than Primary Research The information already exists so it can be faster for the business to find and process the information. 3 Large Volume of Information The information available is extensive and covers a wide range of topics. 4 Accurate Many sources are available online, which means that results can be crosschecked for accuracy.

Types of Market Research SECONDARY RESEARCH Disadvantages 1 Non-specific A lot of information is available, but it may not be exactly what the user needs. 2 Outdated Information that has not been collected recently may have become outdated and therefore be inaccurate. 3 Copyright Some secondary sources may be subject to copyright; and reproducing data without permission can lead to costs and possible legal consequences. 4 Information Overload If there is too much information it needs to be filtered for the business’s needs, which can take time.

Benefits of Market Research 1. Identify the target market • The people at whom the product is aimed. 2. Reduce costs • Save time and money by avoiding making items consumers won’t buy. 3. Evaluate an advertising campaign • Was the firm’s advertising campaign effective? 4. Forecast future trends • Market research helps to identify future trends. 5. Identify problems • It enables the business to take action before the issues damages their reputation.

DEVELOPMENT PROCESS OF A NEW PRODUCT

Development Process of a New Product: Summary Stage 1 Idea generation 2 Product screening 3 Concept development Explanation →Ideas found through brainstorming, market research, staff, suggestions and customer feedback. →Ideas are vetted. Impractical/unworkable ideas are dropped and the best ones are chosen. →The idea is turned into an actual product.

Development Process of a New Product: Summary Stage 4 Feasibility study Explanation →Identifies whether the product is technically and commercially viable. 5 Prototype development 6 Test marketing 7 Product launch →The first working model is made and tested. →A small launch to get consumers’ initial feedback. →Product launched to the entire market and full-scale production begins.

When the income earned from sales is the same as the cost of the product. Margin of Safety The amount changes directly with the level of production. Break-Even Point Costs that do not change with the level of production. Variable Costs Fixed Costs BREAK-EVEN ANALYSIS The difference between forecast output (sales) and its breakeven point.

Break-Even Analysis Break-Even Point (units) = Fixed costs Contribution per unit* *Contribution per Unit = Selling Price per Unit – Variable Costs per Unit Margin of Safety = Forecast Output (Sales) – Break-Even Point

Break-Even Chart Sample Question Jack is planning to set up a business manufacturing coffee machines. He wants to find out how many machines he needs to sell per week in order to break even. Jack prepares the following information: Fixed costs € 200, 000 Variable Cost per unit € 55 Selling Price per unit € 80 Forecast Output (Sales) 10, 000 units

Limitations of Break-Even Analysis Sales • It assumes that all products manufactured will be sold. Selling price • It assumes that selling price per unit remains the same for all items sold. Faulty products • It assumes that there is always 100% quality 100% of the time. Classification of costs Changes in selling price • It assumes that the business knows all its costs and can categorise them into fixed and variable costs. • It does not take into account the effect a change in price may have on sales.

Key Terms • • • • internal sources of business ideas brainstorming research and development (R&D) external sources of business ideas networking import substitution market research primary (field) research observation consumer panels survey mystery shopper secondary (desk) research commercial research agencies • • • • development process of a new products idea generation product screening concept development feasibility study prototype development test marketing product launch unique selling point (USP) break-even chart break-even point fixed costs variable costs margin of safety

CREDIT SLIDE • Shutterstock • i. Stockphoto. com • Central Statistics Office