Chapter 2

Idea Generation
And Evaluation

Prof. Andres
 Identify and evaluate new ideas
Avoid the wrong ideas

Some interesting trends and ideas

Brainstorming to generate ideas

Sources of New Business Ideas
Forces, trends and mega-trends tech,
macro, social, political
Changing market structures and needs
Market inefficiencies
Products in the market
Personal experience, hobbies and pastimes,
personal passions
Cross regional, discipline or industry
 Characteristics of Successful
New Business Ideas

Not necessarily a new invention

Not necessarily a new idea
Notion that is poised to be taken
seriously in the market place
Idea that is a tiny push away from
general acceptance
 Evaluating New Ideas

Original?
Feasible?
Marketable?
Profitable?
Assessing Feasibility of a
New Venture
 Analyze Strengths and Weaknesses

1. Is the venture proprietary?

2. Are the initial production costs realistic?
3. Are the initial marketing costs realistic?
4. Does the product have potential for high
margins?
5. Is the time required to get to the market
and to reach the break-even point
realistic?
 Look at Both Internal and
External Factors

Is the potential market large?

Is the product the first of a growing
family?
Does an initial customer exist?
Are the development costs and calendar
times realistic?
Is this a growing industry?
Can the product and the need for it be
understood by the financial community?
Evaluate Technical Feasibility

Functional design and attractiveness

Flexibility, durability, reliability
Product safety
Ease and low cost of maintenance
Ease of processing and manufacturing
User friendliness
 Evaluate Marketability

Investigate the full market potential and

identifying customers
Analyzing the extent to which the
potential market can be exploited
Determine opportunities and risks
Information sources include
- General economic trends
- Market data
- Pricing data
- Competitive data
 Use an Idea Checklist
Basic Feasibility
- Will it work? Is it legal?
Competitive Advantage
- Advantages, competitors
Buyer Decisions
- Who are the likely
customers?
- How will they be
serviced?
Marketing of Goods &
Services
- How much budget for
advertising and selling?
Pricing? Distribution?
Production of Goods &
Services
Make or buy or both? QA?
Staffing Decisions
Who, when and
competence?
Financing
How much is needed,
where will it come from,
ROE, exit strategy?
 Do you Have These
Critical Success Factors?
Uniqueness
Amount of innovation
required during pre-start-up
Length of time a non-routine
venture remain non-routine
Investment
Capital investment varies
from industries
Extent and timing of funds
needed
Sales Growth
Growth pattern anticipated
for new-venture sales and
profits
Product Availability
Product and service still in
development?
Products released too soon be
have to be recalled for further
modifications, affecting
companys image
Customer Availability
Critical consideration to
determine who the customers
are and what their buying
habits are.
 Ask the Right 10 Questions
About Your Idea
1. Is the product or service
idea new?
2. What are its weak points?
3. What reaction has it
received from the public?
4. Is it easily understood?
5. Can the product penetrate
different market segments?
6. Has market research been
conducted?
7. What sales and distribution
methods will be used?
8. How will the product be
made?
9. Will the business concept be
developed and licensed to
others or sold away?
10. Can the company get or
does it already have the
necessary skills to operate?
 Avoiding the Wrong Idea:
Pitfalls in Selecting New Ventures

Pitfalls Ways to avoid

Lack of objective evaluation Subject all ideas to rigorous

study and investigation
No real insight into the Project the life cycle of the
market
product; timing is critical

Inadequate understanding of Study the project thoroughly

technical requirements before initiating it
 Avoiding the Wrong Idea:
More Pitfalls in Selecting New Ventures
Pitfalls
Poor financial understanding
Lack of venture uniqueness
Ignorance of legal issues
Ways to avoid
Do not underestimate
development costs
Ensure customer awareness
of product superiority
through product
differentiation
Patents, trademarks and
copyrights to protect ones
inventions
 Some Big-Name New Venture Ideas
That Failed

RCAs Videodisc
Superior image quality, but lack
of recording capability lost out
to videotape. Loss: $500
million

IBMs PC Jr
The awkward Chiclet keyboard,
slow microprocessor,
unattractive price and a late
launch cost IBM $40 million
Why Do New Ventures Fail?
Product / Market Problems
Poor timing, product design problems,
inappropriate distribution strategy
Unclear business definition, over-reliance
on one customer
Financial Difficulties
Initial under-capitalization, assuming debt
too early, VC relationship problems
Managerial problems
Concept of a team approach
HR problems
Internal Problems Experienced by
Entrepreneurs
External Problems Experienced by
Entrepreneurs
Determinants of New Venture Failures
 Some Interesting Trends and Ideas:
Past and Present Trends and Mega-Trends

Pre-industrial Industrial New Economy

Labor Production of primary Production of Production of

products manufactured goods information and
and services services
Technical efficiency Low Higher Much higher
Societal organization Rural Urban Global
Location of Families or manors Firms and enterprises Anywhere
production
Transportation 5 mph 60 mph 186M/miles/sec
speed
Social class Birth Ownership of Knowledge and skills
determined by production
National wealth Abundance of natural Accumulation of Intellectual capital;
determined by resources and capital and labor knowledge and skills
conquest
 Some Interesting Trends and Ideas:
Past and Present Trends and Mega-Trends
Pre-industrial Industrial New Economy

Quality of life Illiterate, no books, no Literate, books, Access to all of human

schooling, no travel schools, travel knowledge, virtual
travel
Work Back-breaking work in Factory or office work Tedious or dangerous
the fields work performed by
machines; humans
focus on creativity
Entertainment None TV, Radio, Movies Interactive multi-
media, virtual reality
Health Widespread hunger, Hunger and disease Hunger and genetic
debilitating disease reduced by machines diseases virtually
and medicine eliminated through
nanotechnology
Life expectancy Avg life expectancy 30 Avg life expectancy 70 100+ year life
years; high levels of years expectancy; end of
child mortality aging through genetic
engineering
 Examples of Current Tech Trends
and Megatrends

Technology will become ubiquitous

Broadband and wireless broadband

Convergence, Integration and interoperability
Worldwide, instant, always-on connectivity with no
external devices
Mobile computing, PC no longer sole computing
device, speech and voice recognition
Experience-based transactions (VR) Automation
 Examples of Current Tech Trends
and Megatrends

Computers will move beyond silicon chips

20-ghz nano-silicon chips with 1 billion

transistors
3-dimensional chips
Optical computers
DNA computers
Nanotube computers
Quantum computing
 Examples of Current Tech Trends
and Megatrends

Technology and biology will merge

Micro-machines and Nano-technology

Biometric security
Bio-informatics
Exponential growth of machine intelligence leads to
intelligent, conscious (?) machines
Neural implants to extend human intellectual capability
Merging of human and machine intelligence creates
substrate-independent minds
Using Brainstorming to Generate Ideas
Brainstorming - No Criticism

Designed to produce as many ideas as

possible
Key ground rule: Postpone all criticism
and evaluation of ideas
Invent ideas with no fear of looking
foolish
Wild ideas are explicitly encouraged
 Before Brainstorming

Define your purpose

Choose the right number of participants
Change the environment
Design an informal atmosphere
Choose a facilitator
 During Brainstorming

Seat the participants side by side facing

the problem
Clarify the ground rules, especially the
no-criticism rule
Brainstorm
Record the ideas in full view
 After Brainstorming

Star the most promising ideas

Invent improvements for promising
ideas
Set up a time to evaluate ideas and
decide
 Brainstorming Tips
Allow enough time to get below the surface of
your thinking
20-30 participants are ideal. Large but not too
large group
Divide the group into teams of four to six
people for more diverse thought and to dilute
the impact of those who know all the answers
Invite a wide variety of people to participate
and go outside the core group
Do a warm-up mental exercise to break the
ice
Brainstorm in bursts
 Brainstorming Tips

Have everyone write their own ideas on

sticky notes
People should stand while ideating
Push for quantity and you will get quality
Distill the output periodically
Thank You

Kingsoft Office
Make Presentation much more fun