Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Chapter Two Developing and Screening Business Ideas Dr. Bruce Barringer University of Central Florida Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Chapter Two Developing and screening business ideas Three most common sources of new business ideas Techniques for generating ideas First screen Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

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

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

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Figure 2.2 Three sources of new business ideas Changing Unsolved Gaps in the environmental problems marketplace trends Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

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

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

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

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

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

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

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

Techniques for Generating Ideas Casual observation, intuition, serendipity, or luck Three sources of business ideas Brainstorming Focus groups Library and Internet research Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

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

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

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Focus Groups Works best as a follow-up to brainstorming Conducted by trained moderators to keep the group focused Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

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

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

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

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

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

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

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

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

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

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

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

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Key Words Barriers to entry A condition that creates a disincentive for another firm to enter the company’s niche market Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

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