Chapter Two Developing and Screening Business Ideas

Dr. Bruce Barringer University of Central Florida

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Chapter Two
Developing 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 wasnt 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 environmental trends Unsolved problems Gaps in the marketplace

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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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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

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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 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

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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 entrepreneurs first pass at assessing the feasibility of a business idea There are 5 main parts in a Screen

First

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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

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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 Customerrelated 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 Customerrelated Issues

Barriers to entry
A condition that creates a disincentive for another firm to enter the companys niche market
Economies of scale Product differentiation Unique access to distribution channels Intellectual property protection

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Part Three: Market- and Customerrelated 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 firms 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 Words
Barriers to entry A condition that creates a disincentive for another firm to enter the companys niche market

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