Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall2-1 Chapter Two Developing and Screening Business Ideas Dr. Bruce Barringer University

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 2-1

Chapter Two

Developing and

Screening BusinessIdeas

Dr. Bruce BarringerUniversity of Central Florida


Chapter TwoDeveloping and screening business

ideas

Three most common sources of new business ideas

Techniques for generating ideas First screen


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


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


Figure 2.2

Three sources of new business ideas

Changing Unsolved Gaps in theenvironmental problems marketplacetrends


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


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



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


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




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


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


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


Techniques for Generating Ideas

Casual observation, intuition, serendipity, or luck

Three sources of business ideas Brainstorming Focus groups Library and Internet research


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


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


Focus Groups

Works best as a follow-up to brainstorming

Conducted by trained moderators to keep the group focused


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


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


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


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


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


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


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


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


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


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


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


Key WordsBarriers to entry

A condition that creates a disincentive for another firm to enter the company’s niche market


All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

Copyright ©2009 Pearson Education, Inc. publishing as Prentice Hall

Documents

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall2-1 Chapter Two Developing and Screening Business Ideas Dr. Bruce Barringer University