copyright © 2009 pearson education, inc. publishing as prentice hall2-1 chapter two developing and...
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Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 2-1
Chapter Two
Developing and
Screening BusinessIdeas
Dr. Bruce BarringerUniversity of Central Florida
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Chapter TwoDeveloping and screening business
ideas
Three most common sources of new business ideas
Techniques for generating ideas First screen
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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
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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
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Figure 2.2
Three sources of new business ideas
Changing Unsolved Gaps in theenvironmental problems marketplacetrends
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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
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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
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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
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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
Changing Environmental Trends
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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
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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
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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
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Techniques for Generating Ideas
Casual observation, intuition, serendipity, or luck
Three sources of business ideas Brainstorming Focus groups Library and Internet research
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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
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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
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Focus Groups
Works best as a follow-up to brainstorming
Conducted by trained moderators to keep the group focused
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Focus Group
College drop inA 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
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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
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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
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First Screen
Part One: Strength of the business idea
Part Two: Industry-related issues Part Three: Market- and customer-
related issues Part Four: Founder-related issues Part Five: Financial issues
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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
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Part Two: Industry-related 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
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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
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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
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Part Three: Market- and Customer-related Issues
Additional market and customer-related 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
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Part Four: Founder-related 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
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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
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Key WordsBarriers to entry
A condition that creates a disincentive for another firm to enter the company’s niche market
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