CHAPTER 1testbankcollege.eu/sample/Solution-Manual-Entrepreneurs… · Web viewRECOGNIZING OPPORTUNITIES AND GENERATING IDEAS. LEARNING OBJECTIVES. 1. Explain why it’s important

Full file at http://TestbankCollege.eu/Solution-Manual-Entrepreneurship-2nd-Edition-Barringer Chapter 2: Opportunity Recognition

CHAPTER 2

RECOGNIZING OPPORTUNITIES AND GENERATING IDEAS

LEARNING OBJECTIVES

1. Explain why it’s important to start a new firm when its “window of opportunity” is open.

2. Explain the difference between an opportunity and an idea.3. Describe the three general approaches entrepreneurs use to identify opportunities.4. Identify the four environmental trends that are most instrumental in creating

business opportunities.5. List the personal characteristics that make some people better at recognizing

business opportunities than others.6. Identify the five steps in the creative process.7. Describe the purpose of brainstorming and its use as an idea generator.8. Describe how surveys are used to generate new business ideas.9. Explain the purpose of maintaining an idea bank.10. Describe three steps for protecting ideas from being lost or stolen.

CHAPTER OVERVIEW

This chapter begins by describing the difference between an opportunity and an idea. Students are reminded that many firms fail, not because the entrepreneurs involved didn’t work hard, but because there was no real opportunity to begin with. The four components of a favorable opportunity (attractive, durable, timely, and anchored in a product, service, or business that adds value) are then discussed.

The middle of the chapter focuses on the three primary ways that entrepreneurs discover opportunities: by studying environmental trends, solving a problem, or finding gaps in the marketplace. This material is followed by a discussion of the personal characteristics of entrepreneurs that heighten their ability to recognize business opportunities. The chapter then transitions to talking about techniques that can help entrepreneurs come up with new business or product ideas. The techniques introduced include brainstorming, focus groups, surveys, and an assortment of other techniques.

The chapter ends by talking about how to build an organization that encourages and protects new ideas. The section on protecting ideas from being lost or stolen is particularly interesting. CHAPTER OUTLINE

I. Identifying and Recognizing OpportunitiesA. Observing Trends

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Chapter 2: Opportunity Recognition

1. Economic Forces2. Social Forces3. Technological Advances4. Political Action and Regulatory Changes

B. Solving a ProblemC. Finding Gaps in the MarketplaceD. Personal Characteristics of the Entrepreneur

1. Prior Experience2. Cognitive Factors3. Social Networks4. Creativity a. Preparation b. Incubation c. Insight d. Evaluation e. Elaboration

II. Techniques for Generating IdeasA. BrainstormingB. Focus GroupsC. SurveysD. Other Techniques

III. Encouraging and Protecting New IdeasA. Establishing a Focal Point for IdeasB. Encouraging Creativity at the Firm LevelC. Protecting Ideas from Being Lost or Stolen

CHAPTER NOTES

I. Identifying and Recognizing Opportunities

* Material following the opening feature on BrainReactions.

1. An opportunity is a favorable set of circumstances that creates a need for anew product, service, or business.

2. An opportunity has four essential qualities: it is (1) attractive, (2) durable, (3) timely, and (4) anchored in a product, service, or business that createsvalue for its buyer or end user.

3. For an entrepreneur to capitalize on an opportunity, its window of opportunitymust be open.

a. The term “window of opportunity” is a metaphor describing the time

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period in which a firm can realistically enter a new market.

4. It is important to understand that there is a difference between an opportunityand an idea.

a. An idea is a thought, impression , or notion. It may or may not meet the criteria of an opportunity. This is a critical point because, as we noted in Chapter 1, many businesses fail not because the entrepreneurs that started them didn’t work hard, but because there was no real opportunity to begin

with.

* Now, let’s look at the three ways to identify an opportunity

A. Observing Trends – The first approach to identifying opportunities is toobserve trends and study how they create opportunities for entrepreneurs topursue.

1. Economic Forces

a. Economic forces affect consumers’ level of disposable income. Individual sectors of the economy have a direct impact on consumer

buying patterns.

b. For example, a drop in interest rates typically leads to an increase in new home construction and furniture sales.

2. Social Forces a. An understanding of the impact of social forces on trends and how they affect new product, service, and business ideas is a fundamental piece of the opportunity recognition puzzle. b. The persistent proliferation of fast-food restaurants, for example, isn’t due primarily to people’s love for fast food but rather to the fact that people are busy: the number of households with both parents working remains high.

c. Some of the recent social trends that allow for new opportunities are the following:

Family and work patterns The aging of the population The increasing diversity of the workforce The globalization of industry The increasing focus on health care and fitness The proliferation of computers and the Internet

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The continual increase in the number of cell phone users New forms of music and other types of entertainment

3. Technological Advances

a. Given the rapid pace of technological change, it is vital for entrepreneurs to remain on top of how new technologies affect current and future opportunities.

b. Once a technology is created, products emerge to advance it. For example, RealNetworks was created to add video capabilities to the Internet.

c. Advances in technology frequently dovetail with economic and social changes to create opportunities. For example, the creation of the cell phone is a technological achievement, but it was motivated by an increasingly mobile population that found many advantages to having the ability to communicate with coworkers, customers, friends, and family members from anywhere.

4. Political Action and Regulatory Changes a. Political action and regulatory changes also provide the basis for opportunities. For example, new laws create opportunities for entrepreneurs to start firms to help companies comply with these laws.

B. Solving a Problem

1. Sometimes identifying opportunities simply involves noticing a problem and finding a way to solve it.

2. These problems can be pinpointed through observing trends and through more simple means, such as intuition, serendipity, or chance.

3. Some business ideas are clearly gleaned from the recognition of problems in emerging trends. For example, Symantec Corp. created Norton antivirus software to rid computers of viruses. At other times, the process is less deliberate. An individual may set out to solve a practical problem and realize that the solution may have broader appeal. At still other times, someone may simply notice a problem that others are having and think that the solution might represent an opportunity.

a. A serendipitous discovery is a chance discovery made by someone with a prepared mind.

C. Finding Gaps in the Marketplace

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1. The third approach to identifying opportunities is to recognize a need that consumers have that is not being satisfied—by either large, established firms or entrepreneurial ventures.

2. Large retailers compete primarily on price by serving large groups of customers with similar needs. They do this by offering the most popular items targeted toward mainstream consumers. While this approach allows the large retailers to achieve economies of scale, it leaves gaps in the marketplace.

a. This is the reason that small clothing boutiques and specialty shops exist. The small boutiques, which often sell designer clothes or clothes for hard-to-fit people, are willing to carry merchandise that doesn’t sell in large enough quantities for Wal-Mart or JC Penney to carry.

3. There are also gaps in the marketplace that represent consumer needs that aren’t being met by anyone (Curves International example).

D. Personal Characteristics of the Entrepreneur – Researchers have identified

several characteristics that tend to make some people better at recognizingopportunities than others.

1. Prior Experience. Several studies show that prior experience in an industry helps entrepreneurs recognize business opportunities.

a. Once an entrepreneur starts a firm, new venture opportunities become apparent. This is called the corridor principle, which states that once an entrepreneur starts a firm, he or she begins a journey down a path where “corridors” leading to new venture opportunities become apparent.

2. Cognitive Factors – Opportunity recognition may be an innate skill or a cognitive process.

a. There are some who think that entrepreneurs have a “sixth sense” that allows them to see opportunities that others miss. This sixth sense is called entrepreneurial alertness, which is formally defined as the ability to notice things without engaging in deliberate search.

3. Social Networks – The extent and depth of an individual’s social network affects opportunity recognition.

a. People who build a substantial network of social and professional contacts will be exposed to more opportunities and ideas than people with sparse networks. This exposure can lead to new business starts.

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4. Creativity – Is the process of generating a novel or useful idea.

a. For an individual, the creative process can be broken into five stages, as shown in Figure 2.4 in the textbook. The five steps are:

i. Preparation – Is the background, experience, and knowledge that an entrepreneur brings to the opportunity recognition process.

ii. Incubation - Is the stage during which a person considers an idea or thinks about a problem; it is the “mulling things over” phase. iii. Insight – Insight is the flash of recognition – when the solution to a problem is seen or an idea is born.

iv. Evaluation – Is the stage of the creative process during which an idea is subjected to scrutiny and analyzed for its viability.

v. Elaboration – Is the stage during which the creative idea is put intoa final form. The details are worked out, and the idea is transformedinto something of value.

II. Techniques for Generating New Business Ideas

A. Brainstorming

1. Is used to generate a number of ideas quickly. It is not used for analysis or decision making.

2. A brainstorming “session” is targeted to a specific topic about which a group of people are instructed to come up with ideas.

3. The number one rule of brainstorming is that no criticism is allowed, including chuckles, raised eyebrows, or facial expressions that express skepticism or doubt. Criticism stymies creativity and inhibits the free flow of ideas.

a. There are two reasons brainstorming generates ideas that might notarise otherwise.

i. First, because no criticism is allowed, people are more likely to offer ideas than they would in a traditional setting.

ii. Second, brainstorming focuses on creativity rather than evaluation.

B. Focus Groups

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1. A focus group is a gathering of 5 to 10 people who are selected because of their relationship to the issue being discussed. Although focus groups are used for a variety of purposes, they can be used to help generate new business ideas.

2. The strength of focus groups is that they help companies uncover what’s on their customers’ minds through the give-and-take nature of a group discussion. The weakness is that because the participants do not represent a random sample, the results cannot be generalized to larger groups.

C. Surveys

1. A survey is a method of gathering information from a sample of people. The sample is usually just a fraction of the population being studied.

2. The most effective surveys sample a “random” portion of the population, meaning that the sample is not selected haphazardly or only from people who volunteer to participate.

3. The quality of survey data is determined largely by the purpose of the survey and how it is conducted.

4. Surveys generate new product, service, and business ideas because they ask specific questions and get specific answers.

D. Other Techniques

1. Customer advisory boards. Some companies set up customer advisory boards that meet regularly to discuss needs, wants, and problems that may lead to new ideas.

2. Day-in-the-life research. Other companies conduct varying forms of anthropological research, such as day-in-the-life research.

3. IDEO Method Cards. IDEO Method Cards (which look like a deck of playing cards) show 51 of the methods that IDEO uses to come up with new product and service ideas.

4. Other. Some companies attend trade shows, conferences, and gatheringsof industry personnel. They use these events as intelligence missions to learn what their competition is doing and then use the information to stimulate new product or service ideas.

III. Encouraging and Protecting New Ideas

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A. Establishing a Focal Point for Ideas

1. Some firms meet the challenge of encouraging, collecting, and evaluating ideas by designating a specific person to screen and track them.

2. Another approach is to establish an idea bank, which is a physical or digital repository for storing ideas.

a. An example of an idea bank would be a password-protected location on a firm’s intranet that is available only to qualified employees. It may have a file for ideas that are being actively contemplated and a file for inactive ideas.

B. Encouraging Creativity at the Firm Level

1. An employee may exhibit creativity in a number of ways, including solving a problem or taking an opportunity and using it to develop a new product or service idea.

2. Although creativity is typically thought of as an individual attribute, it can be encouraged or discouraged at the firm level.

3. Table 2.3 in the textbook provides a list of actions and behaviors that both encourage and discourage creativity at both the organizational level and the individual supervisor level.

C. Protecting Ideas from Being Lost or Stolen

1. Intellectual property is any product of human intellect that is tangible but has value in the marketplace. It can be protected through tools such as patents, trademarks, copyrights, and trade secrets.

2. As a rule, a mere idea or concept does not qualify for intellectual property protection; that protection comes later when the idea is translated into a more concrete form.

3. At the opportunity recognition stage, however, there are three steps that should be taken when a potentially valuable idea is generated:

a. Step 1: The idea should be put into tangible form – either entered into a physical idea logbook or saved on a computer disk.

b. Step 2: The idea, whether it is recorded in a physical idea logbook or saved in a computer file, should be secured.

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c. Step 3: Avoid making an inadvertent or voluntary disclosure of an idea in a way that forfeits your claim to its exclusive rights.

BOXED FEATURES: QUESTIONS FOR CRITICAL THINKING

What Went Wrong?Planet Hollywood: An Idea Instead of an Opportunity

1. Evaluate Planet Hollywood’s idea on all four dimensions of an opportunity. On a scale of 1-5 (5 is high), how does the idea that was launched as Planet Hollywood rate on each of the four dimensions?

Answer: The answers to this question will vary. Most students will rank Planet Hollywood a 2, 3, or 4 (on the 1-5 scale) on each of the four dimensions of an opportunity—with a rating of 2 or 3 more common than 4. Even if Planet Hollywood was able to accomplish everything it hoped to do, it’s unclear how strong the opportunity would have been.

2. If you have dined at Planet Hollywood, describe your experience. What is your reaction to the food? Did your dining experience create value for you? If you have not dined at one of these units, find a friend who has done so and ask these questions.

Answer: If you don’t have students who have dined at Planet Hollywood or know someone who has, ask them to spend some time looking at Planet Hollywood’s Web site, and imagine what dining at Planet Hollywood would be like. Also, ask them how much it would add to their dining experience if they actually saw a movie star at the restaurant. This was Planet Hollywood’s original lure, which never panned out, as explained in the feature.

3. When Planet Hollywood first started to struggle, what could the founders have done to try to revitalize the chain?

Answer: Most students will say that Planet Hollywood should have done two things: (1) improved the quality of the food, so people at least didn’t leave the restaurant thinking they had overpaid for the food they received, and (2) found a way to get celebrities to show up at the restaurants on a consistent basis.

4. Are you surprised that Planet Hollywood turned out to be more of an idea than an opportunity? What, if anything, could the founders of the firm have done to create a different outcome?

Answer: Most people are not surprised that Planet Hollywood turned out to be more of an idea than an opportunity. Themed restaurants are often over-hyped, and Planet Hollywood was no exception. In addition, it seems somewhat naive, in

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retrospect, that a large number of celebrities would show up at these restaurants. When that didn’t happen, on a consistent basis, it was hard for Planet Hollywood to deliver on its basic promise to its patrons. What the founders could have done differently, as articulated in the answer to the question above, is to (1) improve the quality of the food served in the restaurants, so people at least didn’t leave thinking they had overpaid for the food they received, and (2) find a way to get celebrities to consistently show up at the restaurants.

Savvy Entrepreneurial FirmGetting High-Quality Advice on Emerging Trends

1. What disadvantages might an entrepreneurial firm experience by relying on outside firms for understanding emerging trends? Are some of these disadvantages more relevant in the short term while others are more relevant for the long term?

Answer: Although outside firms, like Gartner and Yankee Group, do meaningful research, most of the research they do is done with large firms in mind. As a result, the data that is generated may not be as relevant for smaller entrepreneurial firms. In addition, entrepreneurial firms are often trying to do something new or trying to tap into a new market niche. Firms like Gartner are usually better equipped to study existing markets that make forecasts for emerging or new markets. The later disadvantage is more relevant in the short term than the long term. Once a market is established, research firms are very good at collecting data to try to better understand market trends.

2. What options do entrepreneurs have for finding less expensive ways to collect the type of material supplied by a firm like Forrester Research or Gartner?

Answer: There are many free or low-cost alternatives to obtaining research through a firm like Forrester Research or Gartner. Some suggestions are as follows:

Reference librarians, particularly at college, university, or large public libraries, are often very helpful in providing entrepreneurs assistance in conducting industry research;

There are many Web sites, which can be accessed for free, that provide industry related information;

Small Business Development Centers; SCORE chapters; Talking to other entrepreneurs.

3. When might it be essential for entrepreneurs to rely on material provided by an outside firm rather than their own analysis?

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Answer: It may be particularly important to utilize the services of an outside firm if the information a firm needs to make critical decisions isn’t available through the alternatives mentioned in the answer to question #2. Also, sometimes it’s necessary to have objective data, collected by a respected third party, to prove a point. For example, it’s more compelling to say that Forrester Research has determined that a neighborhood of 1,000 homes can support a coffee restaurant (for example) than to say that you determined that number yourself. Forrester Research has more of a level of legitimacy and objective detachment than an individual entrepreneur. It’s up to the entrepreneurs to decide if buying the research is cost-effective.

4. Is it possible for aspiring entrepreneurs to become overwhelmed by the rapid pace of environmental change? What advice would you offer to the person believing that change is too difficult to predict and understand?

Answer: Yes, it is possible for aspiring entrepreneurs to become overwhelmed by the rapid pace of environmental change. Although it’s easy to start believing that change is too difficult to predict and understand, these types of sentiments are typically an overreaction. An entrepreneur should study the environment surrounding his or her firm on a consistent basis, and make changes when needed or when a competitive advantage can be achieved by changing first.

Partnering for SuccessThe Growing Role of College Students in Helping Businesses Generate New Ideas

1. In what ways do you think college students are uniquely capable of helping businesses innovate and come up with new product and service ideas? If you were the CEO of a company like Bold Furniture, would you consider partnering with a university college of design to help develop a new furniture line? What, if any, factors would have a bearing on your decision?

Answer: As indicated in the BrainReactions opening profile, college students are often good at coming up with ideas because they have (1) fresh perspectives, (2) no inhibitions, (3) youthful enthusiasm, (4) an understanding of the needs and wants of young people, and (5) aren’t constrained by conventional thinking. Most students will say that if they were the CEO of a company like Bold Furniture, they would consider partnering with a university college of design to help develop a new furniture line. The factors that would make a difference to most people in making this decision is how much time the students would have to devote to their project, how involved the faculty members would become, and what the college or university wants in return for the students’ involvement.

2. Many universities have internship programs that place students in businesses for the purpose of gaining practical experience. How can businesses use their interns to help generate new product and service ideas?

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Answer: Students are effective in a brainstorming context, as illustrated in the BrainReaction feature at the beginning of the chapter.

3. Go online and find another example of a business that partners with a college or university in a similar fashion as the companies described in the feature. Describe the partnership.

Answer: This is a good question for an individual or group assignment.

4. Find out if any of the academic units in your college or university partner with business organizations. Describe the nature of the partnerships and whether they help businesses, even in part, develop new product or service ideas.

Answer: This a good question for an individual or group assignment. Many universities have extensive partnerships with business organizations, particularly in Colleges of Engineering and Arts & Sciences.

REVIEW QUESTIONS

1. What is a product opportunity gap? How can an entrepreneur tell if a product opportunity gap exists?

Answer: A product opportunity gap is the gap between what is currently on the market and the possibility for a new or significantly improved product, service, or business that results from emerging trends.

2. What is an opportunity? What are the qualities of an opportunity, and why is each quality important?

Answer: An opportunity is a favorable set of circumstances that creates a need for a new product, service, or business. An opportunity has four essential qualities: it is (1) attractive, (2) durable, (3) timely, and (4) is anchored in a product, service, or business that creates or adds value for its buyer or end user.

3. What four environmental trends are most instrumental in creating business opportunities? Provide an example of each environmental trend and the type of business opportunity that it might help create.

Answer: The four environmental trends (or factors) that are most important in creating business opportunities are: economic factors, social factors, technological advances, and political action and regulatory changes.

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Environmental Factor Business Opportunity it Might Create

Economic factor An increase in disposable income in the hands of teenagers creates opportunities to create new electronics products that appeal to teenagers.

Social factors An increase in the percentage of elderly people in the U.S. creates opportunities to create new products that help elderly people deal with everyday chores.

Technological factors An increase in the percentage of people who use cell phones creates opportunities for companies to create products and services that enhance the usefulness of cell phones.

Political Action and The passage of new environmental protection Regulatory Changes regulations creates opportunities for companies to create products to help firms comply with the regulations.

4. Explain how “solving a problem” can create a business opportunity. Provide an example, that was not mentioned in the chapter, of a business opportunity that was created in this way.

Answer: Sometimes identifying opportunities simply involves noticing a problem and finding a way to solve it. These problems can be pinpointed through observing trends and through more simple means, such as intuition, serendipity, or chance. An example of a “problem” is homeowners in coastal areas who do not have a quick and convenient way to protect their homes when they are threatened by a hurricane or tropical storm. An entrepreneur might see this problem as an opportunity, and start a firm to build custom “hurricane strength” shutters that are easy to put up when a hurricane threatens and are easy to store during clear weather. Most coastal residents currently use plywood to cover their windows when a hurricane threatens. Plywood is neither easy to put up nor is it easy to store during clear weather.

5. Explain how finding a gap in the marketplace can create a business opportunity.

Answer: A gap in the marketplace suggests that a particular clientele, like people who need plus-sized clothing or people who are hard to fit, are not being adequately serviced. Providing products or services for these people represents a business opportunity.

6. What is meant by opportunity recognition?

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Answer: Opportunity recognition refers to the process of perceiving the possibility of a profitable new business or a new product or service.

7. In what ways does prior industry experience provide an entrepreneur an advantage in recognizing business opportunities?

Answer: By working in an industry, an individual may spot a market niche that is underserved.

8. What is the corridor principle? How does this corridor principle explain why the majority of business ideas are conceived at work?

Answer: Once an entrepreneur starts a firm, new venture opportunities become apparent. This is called the corridor principle, which states that once an entrepreneur starts a firm, he or she begins a journey down a path where “corridors” leading to new venture opportunities become apparent. The insight provided by this principle is simply that once someone starts a firm and becomes immersed in an industry, it’s much easier for that person to see new opportunities in the industry than it is for someone looking in from the outside.

9. What is entrepreneurial alertness?

Answer: Opportunity recognition may be an innate skill or cognitive process. There are some who think that entrepreneurs have a “sixth sense” that allows them to see opportunities that others miss. This sixth sense is called entrepreneurial alertness, which is formally defined as the ability to notice things without engaging in a deliberate search.

10. In what ways does an extensive social network provide an entrepreneur an advantage in recognizing business opportunities?

Answer: The extent and depth of an individual’s social network affects opportunity recognition. People who build a substantial network of social and professional contacts will be exposed to more opportunities or ideas than people with sparse networks. This exposure can lead to new business starts.

11. Describe the difference between strong-tie relationships and weak-tie relationships. Is an entrepreneur more likely to get new business ideas through strong-tie or weak-tie relationships? Why?

Answer: Strong-tie relationships are characterized by frequent interaction between coworkers, friends, and spouses. Weak-tie relationships are characterized by infrequent interaction between casual acquaintances. According to research in this area, it is more likely that an entrepreneur will get a new business idea through a weak-tie than a strong-tie relationship because strong-tie relationships, which typically form between like-minded individuals, tend to reinforce insights and

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ideas the individuals already have. Weak-tie relationships, on the other hand, which form between casual acquaintances, are not as apt to be between like-minded individuals, so one person may say something to another that sparks a completely new idea.

12. Define creativity. How does creativity contribute to the opportunity recognition process?

Answer: Creativity is the process of generating a novel or useful idea. Opportunity recognition may be, at least in part, a creative process. It is easy to see the creativity involved in the formation of many products, services, and businesses.

13. Briefly describe the five stages of the creative process.

Answer: The five stages of the creative process are as follows:

Stage 1: Preparation is the background, experience, and knowledge that an entrepreneur brings to the opportunity recognition process.Stage 2: Incubation is the stage during which a person considers an idea or thinks about a problem; it is the “mulling things over” phase.Stage 3: Insight is the flash of recognition – when the solution to a problem is seen or an idea is born.Stage 4: Evaluation is the stage of the creative process during which an idea is subjected to scrutiny and analyzed for its viability.Stage 5: Elaboration is the stage during which the creative idea is put into a final form.

14. Explain the difference between an opportunity and an idea.

Answer: An opportunity has four essential qualities: it is (1) attractive, (2) durable, (3) timely, and (4) anchored in a product, service, or business that creates or adds value for its buyers or end users. An idea is a thought, impression, or notion. It may or may not meet the criteria of an opportunity.

15. Describe the brainstorming process. Why is “no criticism” the number one rule for brainstorming?

Answer: Brainstorming is used to generate a number of ideas quickly. It is not used for analysis or decision making. No criticism is allowed. Criticism stymies creativity and inhibits the free flow of ideas.

16. Describe how a focus group is set up and how it is used to generate new business ideas.

Answer: A focus group is a gathering of 5 to 10 people who are selected because

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of their relationship to the issue being discussed. Although focus groups are used for a variety of purposes, they can be used to help generate new business ideas.

Usually focus groups are conducted by trained moderators. The moderator’s primary goals are to keep the group “focused” and to generate lively discussion.

17. Describe how surveys can be used to generate new business ideas.

Answer: A survey is a method of gathering information from a sample of individuals. If administered properly, surveys can generate new product, service and business ideas because they have the capability to ask specific questions and get specific answers.

18. What is a self-selected opinion poll? Are self-selected opinion polls an effective or an ineffective way to collect data to help generate new business ideas?

Answer: A self-selected opinion poll is a poll in which the respondents decided whether to participant. For example, most call-in television surveys or magazine write-in polls are self-selected opinion polls. The results from self-selected opinion pools are highly suspect because the participants represent what’s called a self-selected sample. Most people who take the time to participate in a self-selected opinion poll do so because they have either strong positive or strong negative feelings about a particular product or service.

19. What is the purpose of an idea bank? Describe how an idea bank can be set up in a firm.

Answer: An idea bank is a physical or digital repository for storing ideas.

20. What are the three main steps to protect ideas from being lost or stolen?

Answer: The three main steps to protect ideas from being lost or stolen are as follows:

Step 1: The idea should be put into a tangible form – either entered into a physical idea logbook or saved on a computer disk.

Step 2: The idea, whether it is recorded in a physical idea logbook or saved in a computer file, should be secured.

Step 3: Avoid making an inadvertent or voluntary disclosure of an idea in a way that forfeits your claim to its exclusive rights.

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APPLICATION QUESTIONS

1. Kevin, a software engineer, plans to write a memo to his boss describing an idea he has for a new software product. Kevin wants to convince his boss that his idea represents an opportunity the firm should pursue. In your opinion, what should Kevin put in the memo?

Answer: Kevin should first make the case that the idea has the four essential qualities of an opportunity: that it is (1) attractive, (2) durable, (3) timely, and (4) is anchored in a product, service, or business that creates value for its buyer or end user. He should then make the case that the idea’s window of opportunity is open.

2. Melanie is very perceptive and believes she has identified an opportunity for a new business in the fashion industry. She wants to make sure, however, that she isn’t just following a hunch—that the opportunity is sound. What criteria can Melanie use to determine whether she has identified an attractive opportunity?

Answer: Again, Melanie should make sure that, in her own mind, the idea is (1) attractive, (2) durable, (3) timely, and that it is (4) anchored in a product, service, or business that creates value for its buyers or end users. She should also determine whether the idea’s window of opportunity is open.

3. Matrix Industries is interested in producing handheld devices similar to the products sold by Palm and Research in Motion. Jim Ryan, the founder of Matrix, remembers hearing about a concept called “window of opportunity.” He asks you to explain the concept and how he can use it to help him make his decision. What do you tell him?

Answer: The term “window of opportunity” is a metaphor describing the time period in which a firm can realistically enter a new market. Once the market for a new product is established, its window of opportunity opens. As the market grows, firms enter and try to establish a profitable position. At some point, the market matures, and the window of opportunity closes. Jim should try to determine whether the window of opportunity for handheld devices is still open, or if it is closed (or near being closed) for new entrants.

4. The “You Be the VC 1” feature focuses on Jingle Networks, a free 411 (directoryassistance) service. Does Jingle Networks meet the test of an opportunity (as opposed to an idea)? Justify your answer.

Answer: Jingle Networks meets the tests of an opportunity. Its service is attractive, timely (think of how much directory assistance calls currently cost), durable (people will always need directory assistance), and is anchored in a product, service, or business that creates or adds value for its buyer or end user (who wouldn’t want to get directory assistance for free rather than paying for it?)

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5. Kim is the founder of a small firm that produces highly specialized components for the semiconductor industry. Sales reps from both Forrester Research and Gartner have called to set up appointments with her to explain how their firms could help identify emerging opportunities that might translate into new product ideas for Kim’s company. Keeping on top of emerging trends is important to Kim, and she knows that new product ideas are the lifeblood of high-tech firms. However, her busy schedule makes her reluctant to sit through two sales pitches. Kim explains this dilemma to you and asks whether you think she should take the time to meet with the sales reps. What is your answer?

Answer: Answers will vary for this question. It is a judgment call regarding whether sitting through sales pitches from consulting firms like Forrester Research and Gartner would be a good use of Kim’s (or any entrepreneur’s) time. In general, Forrester and Gartner produce good quality research, and could probably help Kim identify emerging opportunities that might translate into new product ideas. Hiring consultants to perform this task, however, is an expensive approach. Kim will have to determine if her budget, along with her time, can afford it.

6. Marshall Hanson, the founder of Santa Fe Hitching Rail, a chain of nine steak restaurants in New Mexico, is considering expanding his menu, which is currently restricted to steak, hamburger, potatoes, and fries. He has just read a book about entrepreneurship and learned that entrepreneurs should study social trends to help identify new product opportunities. List the social trends that might help Martin choose items to add to his menu. Given the trends you list, what items do you suggest Martin add?

Answer: This is a good thought question for students. On the one hand, Marshall’s menu features food that is high in fat and cholesterol, which may prompt one to recommend to Marshall to broaden his menu to include lower fat foods, such as chicken, fish and salads. This recommendation is in sync with social trends that favor health consciousness. On the other hand, Marshall’s food, particularly the steak and hamburger, is high in protein, which is in sync with the Atkins and the South Beach diet plans. This recognition might prompt one to recommend to Marshall to keep his menu fairly intact, but offer alternatives to potatoes and fries that favor low-carbohydrate diets.

7. Make a list of the three to five most compelling “technological advances” that have occurred in the United States or the world since you entered college. Think of at least two new product ideas that have emerged from each of these advances. To what extent to you believe each of these advances will continue to spawn new product ideas?

Answer: This is a good question for a group or individual assignment. Most students will think about advances made in medicine, Internet technologies, Web 2.0 applications, organic foods, cellphone technology, and digital photography.

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8. Recognizing a problem and proposing a solution to it is one way entrepreneurs identify opportunities. Think about your current activities, as well as others in which you have an interest. Identify a problem with the activity you are considering and recommend a business to solve the problem.

Answer: This is a good thought question for students. Be sure that the opportunity that is identified meets the tests of an opportunity: it is (1) attractive, (2) durable, (3) timely, and (4) anchored in a product, service, or business that creates or adds value for its buyer or end user.

9. Provide an example of a company that was started to fill a gap in the marketplace. Explain the nature of the gap that the company identified and describe how it is filling it.

Answer: This is a good question for an individual or group assignment. Be sure that the company that is identified was started to service a market that wasn’t previously serviced or was serviced poorly.

10. Megan Jones owns a small chain of fitness centers in Kansas City. In general, her centers are successful, but she feels they are getting “stale” and could benefit from new ideas. Suggest to Megan some ways she could generate new ideas for her centers.

Answer: Brainstorming, focus groups, and surveys.

11. As mentioned in the chapter, prior experience in an industry helps entrepreneurs recognize business opportunities. This concept extends to prior experience in any aspect of life—whether it is in sports, music, or a volunteer activity. In what areas do you have a good amount of prior experience? How could this position you to start a business drawing on your experiences?

Answer: This is a good question for an individual assignment. Make sure your students directly tie their prior experience to a potential business opportunity. Some students will argue that they really don’t have any prior experience that would lend itself to a business opportunity. In these cases, challenge your students to think harder. All of us have unique experiences that might lend themselves to business opportunities.

12. Make a list of your strong-tie and weak-tie relationships (include at least five names on each list). Select two names from your list of weak-tie relationships, and speculate on the types of new business ideas that you think these individuals would be uniquely qualified to assist you with.

Answer: This is a good question for an individual assignment.

13. Tom Garrett, the manager of a midsize advertising agency, is conducting

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brainstorming sessions to identify new ideas for products and services to offer his clients. The first session is tomorrow, and Tom remembers from your résumé that you took an entrepreneurship class. He calls you to his office to ask if you know anything about how to conduct brainstorming sessions. Using materials in this chapter, prepare an answer to Tom’s question.

Answer: Tom should be told that brainstorming is used to generate a number of ideas quickly. It is not used for analysis or decision making. Instead, the ideas generated during a brainstorming session need to be filtered and analyzed, but that is done later.

A brainstorming “session” is targeted to a specific topic about which a group of people are instructed to come up with ideas. The leader of the group asks the participants to share their ideas. Once a person shares an idea, another person reacts to it, another person reacts to the reaction, and so on. A flip chart is typically used to record all the ideas.

A productive session is freewheeling and lively. The four rules of an effective brainstorming session are:

1. No criticism is allowed;2. Freewheeling is encouraged;3. The session should move quickly;4. Leapfrogging is encouraged.

14. Delores Jones owns a company that produces a fat-free peanut butter named “Best Choice Peanut Butter.” To learn of people’s feelings about her product, she stamps an invitation on each jar that reads, “If you’d like to tell me your opinion of Best Choice, send me a message at the following e-mail address.” Is this an effective way to receive quality feedback from customers? In addition, Delores wants to know what other fat-free products her customers would be interested in and is considering sending a survey to 100 of her customers. Provide Delores with advice about how to structure and administer the survey.

Answer: Delores’s idea to stamp an invitation on each jar of her peanut butter asking people to comment on the product is not an effective way to receive quality feedback from customers. This approach results in what’s called a self-selected opinion poll. Most people who take the time to participate in a self-selected opinion pool do so because they have either strong positive or strong negative feelings about a particular product or topic.

If Delores decided to send a survey to 100 of her customers, she should make sure to survey a “random” sample of the people who buy her product. A random sample must be chosen in a way that ensures that everyone in the population (of purchasers of her product) has an equal chance of being chosen, which makes the results of the survey generalizable to a larger population.

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15. Freedom Electronics is a start-up with about 20 sales representatives. The company has a solid product line but knows that to remain competitive, it must continue recognizing opportunities for new products and services. The firm has not developed a systematic way for its sales staff to report new ideas. Suggest some ways that Freedom can record and protect the idea of its sales reps.

Answer: Freedom should set up an idea bank, which is a physical or digital repository for storing ideas. An example of an idea bank would be a password-protected location on a firm’s intranet that is available to qualified employees.

To protect its ideas, Freedom should obtain intellectual property protection when possible. When an idea has not reached the point where intellectual property protection is possible or practical, it should implement the following three-step procedure:

Step 1: The idea should be put into a tangible form – either entered into a physical idea logbook or saved on a computer disk.

Step 2: The idea, whether it is recorded in a physical idea logbook or saved in a computer file, should be secured.

Step 3: Avoid making an inadvertent or voluntary disclosure of an idea in a way that forfeits your claim to its exclusive rights.

YOU BE THE VC 2.1

Company:

Jingle Networkswww.jinglenetworks.com

Business Idea:

Launch the first free national directory assistance service.

Pitch:

If you have a Verizon cell phone, it costs $1.25 to place a 411 (directory assistance) call. If you have a T-Mobile cell phone it costs $1.75. And if MCI is your carrier, you pay $3.49. Any way you cut it, directory assistance is expensive.

Not anymore. Jingle Networks, through a service aptly named 1-800-FREE-411, is pioneering the first free-to-the-consumer national directory assistance service. There are currently six billion 411 calls made every year in the U.S., which represents an $8 billion

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market. What Jingle Networks has done is taken Google’s advertising model and moved it to the telephone. The attractive thing about Google’s advertising model is that it directs ads to people at the “point-of-sale.” So, if you type the word “pizza” into the Google search engine, you’ll see text ads for pizza restaurants in your area to the right of the search results.

To demonstrate how 1-800-FREE-411 works, here’s a transcript of a 411 call you might place through the service. This short example illustrates how the service works for both the consumer and the company.

1-800-FREE-411: Welcome to 1-800-FREE-411. What city and state please?

You: Chapel Hill, North Carolina.

1-800-FREE-411: Are you looking for a business, government, or residential listing?

You: Business.

1-800-FREE-411: O.K. What listing?

You: Papa John’s Pizza.

1-800-FREE-411: While we search for your listing, I’d like to tell you about a great offer from Dominos. Connect now and you get three medium one- topping pizzas for just $5 each. To get connected to Dominos free of charge, press 1, to hear the number you originally requested, press 2.

Jingle Networks calls this short ad a “switch pitch.” In early tests, callers have taken the switch pitch offer 6.2 percent of the time. In the cases where a caller asks for the name of a business and there aren’t any 1-800-FREE-411 advertisers in the area to build a switch pitch around, the caller is put through to the business, free of charge, with a slight twist. When the call is connected, the person answering the phone hears a brief message that says, “You are receiving a call from 1-800-FREE-411.” After the call is completed, someone from Jingle Network’s telesales group calls the business to explain how the service works. In early trials, 13 percent of businesses that received a directory assistance call through the 1-800-FREE-411 service, and were then contacted by Jingle Networks, eventually become advertisers on the network.

So take a few seconds right now and program 1-800-FREE-411 into your cellphone and give the service a try. You never have to pay for directory assistance again.

Q & A:

Based on the material covered in this chapter, what questions would you ask the firm’s founders before making your funding decision? What answers would satisfy you?

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You Be the VC ScorecardJingle Networks

(www.jinglenetworks.com)

Item Score/Comments

Strength of New Venture Team

1 2 3 4 5

CEO George Garrick is a seasoned executive and the past CEO of Wine.com, Flycast Communications, and Placeware.

Founder Scott Klinger in an advertising industry veteran and the co-founder of Narrative Communications. He was instrumental in the development of the technology that made audio advertisements on the Internet possible.

Lyn Chirow Oakes, SVP of Marketing, has more than 25 years of marketing and general management experience.

Strength of the Opportunity 1 2 3 4 5

The opportunity seems exceptionally strong, given the company’s ability to offer free 411 services to individuals and given the trend towards “targeted” advertising.

Strength of the Industry 1 2 3 4 5

The company relies on two industries—telephone services and advertising. Both are tough industries, but Jingle Networks seems to be well-positioned in both. Particularly in advertising, the company is offering a “targeted” advertising solution to its clientele, somewhat similar to what Google offers through its AdWords program.

Strength of Business Model 1 2 3 4 5

The business model is appealing. The company makes money by selling “targeted” advertising associated with its “switch pitch” approach. As the service gains momentum (early reports are positive), its number of users should dramatically increase. The ultimate

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strength of the business model will be determined by how satisfied Jingle Network’s advertisers are with the return they obtain on their investment.

Average Score 4.5/5.0

Decision:

We would fund this firm. Jingle Networks may be the strongest opportunity of the 30 “You Be the VC” features included in the textbook. The company’s management team is strong, its idea is solid and adds value for both the user and the advertiser, and its early results have been promising. It also has the www.free411.com domain name and 1-800-FREE-411 phone number. This is something that no other company has access to.

YOU BE THE VC 2.2

Company:

Radar Golfwww.radargolf.com

Business Idea:

Place a tiny electronic tag inside golf balls to make them easy to find when lost.

Pitch:

What is more frustrating than losing a ball during a round of golf? Not only does a lost ball cost a player a two-stroke penalty, but looking for a ball slows down play on a golf course. Slow play is frustrating for everyone and reduces everyone’s enjoyment of the game.

Radar Golf offers a solution to these problems. The company has developed a small electronic tag that can be built into a golf ball during the manufacturing process. The tagged ball looks, feels, and performs like a regular golf ball. When a golfer hits a ball that is difficult to find, she pulls out a handheld unit (that has also been developed by Radar Golf), turns it on, and points it in the direction of interest and begins walking towards the ball. Depending on the terrain, it works from up to 100 feet away. By moving the unit from left to right, a pulsed audio tone (from the handheld unit) provides information on ball location and distance. The golfer quickly walks in the direction of her ball, allowing it to be located within seconds. The system can be adapted to any brand of golf ball. Rather than manufacturing its own balls, Radar Golf plans to license its technology to golf ball manufacturers.

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http://www.radargolf.com/


Radar Golf’s system is intended to speed up play, improve the golfer’s score, and provide an exciting new product to the $44 billion worldwide golf industry. It may also relieve a little of the frustration that most golfers experience on the golf course.

Q & A:

Based on the material covered in this chapter, what questions would you ask the firm’s founders before making your funding decision? What answers would satisfy you?

You Be the VC ScorecardRadar Golf

(www.radargolf.com)

Item Score/Comments

Strength of New Venture Team

1 2 3 4 5

CEO Steve Harari has 20 years of experience running and assisting technology companies.

Founder Chris Savarese has 12 years of experience in business development and sales in new ventures.

CTO Larry Cadarniga has 26 years of R&D experience specific to the golf industry. Radar Golf has a seven- member Board of Advisors in place.

Strength of the Opportunity 1 2 3 4 5

The opportunity solves a problem for both golfers and golf course owners. Radar Golf helps golfers find lost balls and it helps golf course owners’ speed up play (by reducing the time golfers spend looking for lost balls.) It’s unclear, however, if golfers will actually go to the expense of buying specialized golf balls and other equipment to find lost balls.

Strength of the Industry 1 2 3 4 5

Golf is a popular game not only in the U.S. but in other parts of the world. Within the last five years, the industry has grown five - 15 percent annually. Strong industry growth is expected to continue in the $44 billion worldwide golf industry.

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Strength of Business Model 1 2 3 4 5

Radar Golf will license its technology to golf ball manufacturers. It will apparently sell the handheld device needed to find balls itself. The extent of “buy-in” that Radar Golf has from golf ball manufacturers is unclear. The fact that golfers frequently lose balls creates a constant market for the sale of replacement balls. It makes one wonder if the golf ball manufacturers will really help Radar Golf solve this problem.

Average Score 3.25/5.0

Decision:

We would not fund this firm. The only thing that would change our mind is if the golf ball manufacturers embraced the product, which is highly unlikely for the reasons stated above. Although Radar Golf “solves a problem” by helping golfers find lost balls, we question whether a large number of golfers will actually use this solution. In addition, Radar Golf’s solution is only a partial solution at best—many golfers lose balls in water hazards or deep into wooded areas, areas in which Radar Golf is unlikely to help them retrieve their ball. Radar Golf may make it as a company that sells a specialty item (a former student of ours showed us an advertisement for Radar Golf in an airline magazine). However, we’re not convinced that enough people will use the product to make it an interesting company to invest in.

CASES

Case 2.1Type 1 and Type 2 Tools and Flavorx: How Solving a Personal Problem Can Trigger the Recognition of a Promising Business Opportunity

DISCUSSION QUESTIONS

1. What similarities, other than the fact that they both involved medical challenges and children, do you see between the Flavorx and the Type 1 and Type 2 Tools examples? What does each of these stories teach you about the opportunity recognition process?

Answer: The founders of both companies had competencies (or skills) that helped them start their companies. The Powells were both graphic designers, while Kenny Kramm worked in his father’s pharmacy. Kramm’s father was also a pharmacist, placing him in an ideal position to help formulate the original

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additives for Flavorx.

2. In the chapter, an opportunity is defined as having the qualities of being (1) attractive, (2) durable, (3) timely, and (4) anchored in a product or service that creates value for its buyer or end user. To what extent do Type 1 and Type 2 Tools and Flavorx meet each of these tests of an opportunity?

Answer: Most students will argue that both Type 1 and Type 2 Tools and Flavorx meet the tests of an opportunity.

3. Refer to the figure titled “Dream Dinners’ Recipe For Success: Passion, Market Opportunity, and The Skills to Make It Happen” that is pictured in Case 1.1 in the book’s first chapter. Think about the point made in that case that resulted in the drawing of the figure—namely, that new businesses typically happen when three things converge: someone is passionate about an idea, a market opportunity for the idea exists, and the person with the idea has the skills to implement it. To what extent were all three of these factors present in the founding of Type 1 and Type 2 tools and the founding of Flavorx?

Answer: Both Type 1 and Type 2 Tools and Flavorx are perfect examples of the point made by the figure shown in the Dream Dinners case. There is clear evidence in both cases (Type 1 and Type 2 Tools and Flavorx) of passion, skill, and market opportunity.

4. Why do you think that the types of products that Doug and Lisa Powell developed for Type 1 and Type 2 Tools weren’t developed years earlier by a company that sells traditional diabetes treatment supplies? Similarly, why do you think that the products developed by Kenny Kramm weren’t developed years earlier by an established drug company?

Answer: These are good questions—why weren’t these products developed earlier by incumbent companies. The most likely answer is that the people running the companies never experienced the level of passion that Doug and Lisa Powell or Kenny Kramm did, and as a result were not motivated to go the extra mile to produce the products that the Powells and Kenny Kramm did. In addition, the companies that were in a position to produce the products that the Powells and Kenny Kramm did are probably risk-averse, and weren’t willing to make the investments necessary to produce the products.


1. How could Type 1 and Type 2 Tools effectively use focus groups to develop additional diabetes-related products?

Answer: The company could construct focus groups, of people who are facing

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specific challenges or have experience in specific areas, to tap into the specific knowledge or experiences that they have. For example, a focus group might be assembled of people who have one diabetic child, two or more non-diabetic children, and live in rural areas. This group could help Type 1 and Type 2 Tools better understand the specific challenges that people that match this profile have, and the types of products that would help them. In contrast, Type 1 and Type 2 Tools could set up another focus group that consists of people who have one diabetic child, no other children, and live in an urban area.

2. Think about a challenge in your own life that might represent a business opportunity. If you don’t think of something right away, don’t give up. Think about the challenges and problems that you have. All of us encounter problems and challenges in our everyday lives that might represent the basis of a promising business opportunity. Be prepared to describe to others the challenge and the business opportunity it presents.

Answer: This is a good question for an individual assignment.

Case 2.2Intellifit: Is This an Opportunity or Just an Interesting Idea?

DISCUSSION QUESTIONS

1. According to the chapter, what are the attributes of an opportunity? Use these attributes to evaluate Intellifit. Based on your evaluation, is Intellifit an opportunity or just an interesting idea?

Answer: Answers to this question will vary. In the instances where we have used the Intellifit case in our classes, students have been fairly critical of the idea, and don’t believe it meets the attributes of an opportunity. Many students make the point the people often don’t buy clothes that perfectly fit—some people like loose fitting clothes while others like tight fitting clothes. In these cases, Intellifit’s technology would add no value. In addition, most students said they might use the Intellifit machine once, as a novelty, but don’t see themselves using it repeatedly. Most students also reported that they are fairly confident that they know their clothing size, and actually enjoy trying clothes on in stores.

2. What environmental trends are working in Intellifit’s favor? If Intellifit has uncovered a promising business opportunity, what environmental trends have made Intellifit’s system possible and potentially attractive to consumers?

Answer: There are three environmental trends that potentially work in Intellifit’s favor:

Technological trends—which may improve Intellifit’s technology and make

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people less reluctant to try a device like the Intellifit machine; Societal trends—this trend cuts both ways. In one respect, the “casual” nature

of many workplaces works against Intellifit because people don’t need to be sharply dressed and have perfectly fitted clothes. In another respect, there is an ongoing human desire to look good (which may be relative term, depending on a person’s peer group), which may work in Intellifit’s favor;

Economic trends—if Intellifit can help companies sell more clothes or better manage their inventories, those factors work in Intellifit’s favor.

3. On two previous occasions, Intellifit (as Intellifit and Made4Me) developed approaches for helping people get better-fitting clothes that didn’t work out.What is different about Intellifit’s current approach? What, if anything, gives Intellifit’s current approach a better chance of succeeding?

Answer: Intellifit’s current approach is less of a hassle for the user than the previous approaches. The downside is that some people may see the technology as intrusive, and wonder if there are any potential negative health ramifications to being exposed to Intellifit’s procedure. Intellifit’s current approach also enables the firm to measure a large number of people fairly quickly, and give them accurate and detailed fitting information.

4. Which of the three potential markets that Intellifit has identified for its device do you believe is the most promising? Which is the least promising? If Intellifit decides to place a large number of its machines in malls, how important is it that a large percentage of the retailers in the mall participate?

Answer: Most students see the specialty retail market as the most promising. It is hard for students to see the Intellifit machine being widely used in the food court of a mall or in a large store. But in a specialty store context, like a shop that sells wedding dresses or a store that sells to hard-to-fit people, it is much more plausible to believe that the device would be used.


1. Think about the scanning technology that Intellifit licensed from the Pacific Northwest National Laboratory. To what uses, other than security scanning and helping people find better fitting clothing, could this technology be applied?

Answer: This is a good question for an individual or group assignment.

2. Look at the “You Be the VC 2” feature, which focuses on Radar Golf, a company that helps people find golf balls. In your judgment, is Radar Golf a promising business opportunity? Explain the basis for your answer.

Answer: This is a good question for an individual or a group assignment. Most

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students will come to the same conclusion as we did in our evaluation of Radar Golf (see our “You Be the VC Scorecard” for Radar Golf). It’s hard to imagine that golf ball manufacturers will back Radar Golf’s product idea, given that the market for replacement balls is their bread and butter.

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CHAPTER 1testbankcollege.eu/sample/Solution-Manual-Entrepreneurs… · Web viewRECOGNIZING OPPORTUNITIES AND GENERATING IDEAS. LEARNING OBJECTIVES. 1. Explain why it’s important