CHAPTER TWO

BUSINESS IDEAS AND OPPORTUNITIES

Introduction

 Starting a new venture entails looking for brand new product or existing product

with improved performance, price, distribution, quality or service.

 What major ways are available to start a new business?

1) Creating new venture from scratch

 Generative new business ideas through creativity techniques

 Identification of business opportunities

2) Acquisition of the existing business

 Buying existing business fully or partially

3) Franchising and purchase of business models, concepts, patents.

A franchise is a way to buy a business in the name of another company. This legal agreement
gives the franchisee, or franchise buyer, the right to sell the company’s products or
services in a particular location and for a specified length of time. The franchise seller is
called a franchisor.

WHAT IS BASIC BUSINESS IDEA?

 Business Idea: is a concept that can be used for financial gain that is usually centered on
a product or service that can be offered for money.

2.1. WHAT ARE THE SOURCES OF NEW BUSINESS IDEAS?

 Some of the major/ broader sources of business ideas

 Personal interest and hobbies

 Entrepreneur's work experiences, knowledge and skills

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  Assessing the existing product and market gaps

 Consumers

Potential entrepreneurs should pay close attention to the final focal point of the idea for
anew product or service the potential consumer. This attention can take the form of
informally monitoring potential ideas and needs or formally arranging for consumers to
have an opportunity to express their opinions. Care needs to be taken to ensure that the
idea or need represents a large enough market to support a new venture.

 Existing companies

Potential entrepreneurs and intrapreneur should also establish a formal method for
monitoring and evaluating competitive products and services on the market. Frequently,
this analysis uncovers ways to improve on these offerings that may result in a new product
that has more market appeal.

 Distribution channels

Members of the distribution channels are also excellent sources for new ideas because of
their familiarly with the needs of the market. Not only do channel members frequently have
suggestions for completely new product, but they can also help in marketing the
entrepreneur’s newly developed products. One entrepreneur found out salesclerks that the
reason his history was not selling was due to its color. By heeding the suggestion and
making the appropriate color changes, his company became the leading supplier of non
brand hosiery in that region.

 Assessments of larger business environment

 Research and development

The largest source of new ideas is the entrepreneur’s own “research and development,”
efforts that may endeavor connected with one’s current employment or an informal lab in
the basement or garage. A more formal research and development department is often
better equipped and enables the entrepreneur to conceptualize and develop successful new
product ideas.

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  Federal Government:

The federal government can be a source of new product ideas in two ways. First, the files of
the Patent Office contain numerous new product possibilities. Although the patents
themselves may not be feasible new product introductions, they can frequently suggest
other more marketable product ideas. Several government agencies and publications are
helpful in monitoring patent applications. Second, new product ideas can come in response
to government regulations. For example, the Occupational Safety and Health Act (OSHA),
aimed at eliminating unsafe working conditions in industry.

Starting business from scratch involves developing new business from idea through

applying creativity techniques.

Creativity –Recombination of experiences and information in order to create new

products and services (from an economical point if view)

Remark

 In entrepreneurship what is important is not unique idea generation …

 What is important is developing idea, implementing it, and building successful

business.

 What is the prospective customer of your idea? (very specific)

 The idea should match the market

 Make sure that the customers get better values for their money than the

existing business do.

2.2. THE CRITERIA TO EVALUATE THE IDEA

 Easiness to implement

 Originality (mere imitation vs. improved…

 User-friendliness

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  Customer acceptance

 Easiness to finance the idea

 Profit potential (5% to 15%)

 Patent protection possibility ( if innovation, brand, …)

2.3. METHODS OF GENERATING IDEAS

Even with a wide variety of sources available, coming up with an idea to serve as the basis
for a new venture can still be a difficult problem. The entrepreneur can use several
methods to help generate and test new ideas, including focus groups, brain storming, and
problem inventory analysis.
 Focus Groups: Focus groups have been used for a variety of purposes since the
1950s. A moderator leads a group of people through an open, in-depth
discussion rather than simply asking questions to solicit participant response.
For a new product area, the moderator focuses the discussion of the group in
either a directive or a nondirective manner.
The group of 8 to 14 participants is stimulated by comments from other group
members in creatively conceptualizing and developing a new product idea to
fulfill a market need. One company interested in the women’s slipper market
received its new product concept for: a “warm and comfortable slipper that fits
like an old shoe” from a focus group of 12 women from various socioeconomic
backgrounds. The concept was developed into a new product that was a market
success. The basis of the advertising message was formed by comments of focus
group members.

In addition to generating new ideas, the focus group is an excellent method for
initially screening ideas and concepts. Using one of several procedures available,
the results can be analyzed more quantitatively, making the focus group a useful
method for generating new product ideas. Focus group is groups of individuals
providing information in a structured format.
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  Brainstorming: The brainstorming method for generating new product ideas is
based on the fact that people can be stimulated to greater creativity by meeting
with others and participating in organized group experiences. Although most of
the ideas generated from the group have no basis for further development, often
a good idea emerges. This has a greater frequency of occurrence when the
brainstorming effort focuses on a specific product or market area. When using
this method, the following rules should be followed:
 No criticism is allowed by anyone in the group-no negative comments.
 Freewheeling is encouraged-the wilder the idea the better
 Quantity of ideas is desired-the greater the number of ideas, the greater the
likelihood of the emergence of useful ideas.
 Combinations and improvements of ideas are encouraged; ideas of others can be
used to produce still another new idea. The brainstorming session should be fun,
with no one dominating or inhibiting the discussion.
A large commercial bank successfully used brainstorming to develop a journal that
would provide quality information to its industrial clients. The brainstorming among
executives focused on the characteristics of the market, the information content, the
frequency of issue, and the promotional value of the journal for the bank. Brainstorming
is a group method for obtaining new ideas and solutions.
 Reverse Brainstorming -Reverse brainstorming is similar to brainstorming,
except that criticism is allowed. In fact, the technique is based on finding fault by
asking the question, “In how many ways can this idea fail?” Since the focus is on
the negative, care must be taken to maintain the group’s morale. Reverse
brainstorming can be effectively used before other creative techniques to
stimulate innovative thinking. The process most often involves the identification
of everything wrong with an idea, followed by a discussion of ways to overcome
these problems; reverse brainstorming is a group method for obtaining new
ideas focusing on the negative.
 Problem Inventory Analysis: Problem inventory analysis uses individuals in a
manner that is analogous to focus groups to generate new product ideas.

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 However, instead of generating new ideas themselves, consumers are provided
with a list of problems in a general product category. They are then asked to
identify and discuss products in this category that have the particular problem.
This method is often effective since it is easier to relate known products to
suggested problems and arrive at a new product idea than to generate an
entirely new product idea by itself problem inventory analysis can also be used
to test a new product idea. Results from product inventory analysis must be
carefully evaluated as they may not actually reflect a new business opportunity.
Problem inventory analysis is a method for obtaining new ideas and solutions by
focusing on problems.
 Creative problem solving: Creative problem solving is a method for obtaining
new ideas focusing on the parameters. Creativity is an important attribute of a
successful entrepreneur. Unfortunately, creativity tends to decline with age,
education, and lack of use. Creativity declines in stages, beginning when a person
starts school. It continues to deteriorate through the teens and continues to
progressively lessen through ages 30, 40, and 50. Also, the latent creative
potential of an individual can be stifled by perceptual, cultural, emotional, and
organizational factors. Creativity can be unlocked and creative ideas and
innovations generated by using any of the creative problem solving techniques
such as:
 Gordon Method -The Gordon method, unlike many other creative problem-
solving techniques, begins with group members not knowing the exact nature of
the problem. This ensures that the solution is not clouded by preconceived ideas
and behavioral patterns. The entrepreneur starts by mentioning a general
concept associated with the problem. The group responds by expressing a
number of ideas. Then a concept is developed followed by related concepts,
through guidance by the entrepreneur. The actual problem is then revealed,
enabling the group to make suggestions for implementation or refinement of the
final solution. Gordon method is a method for developing new ideas when the
individuals are unaware of the problem.

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 Free Association- One of the simplest yet most effective methods that
entrepreneurs can use to generate new ideas is free association. This technique
is helpful in developing an entirely new slant to problem. First, a word or phrase
related to the problem is written down then another and another, with each new
word attempting to add something new to the ongoing thought processes,
thereby creating a chain of ideas ending with a new product idea emerging. Free
association is the method of developing a new idea through a chain of word
associations.
 Collective Notebook Method -In the collective notebook method, a small
notebook that easily fits in a pocket containing a statement of the problem, blank
pages, and any pertinent solutions, recording ideas at least once, but preferably
three times, a day. At the end of a month, a list of the best ideas is developed,
along with any suggestions. This technique can also be used with a group of
individuals who record their ideas, giving their notebooks to a central
coordinator who summarizes all the material. The summary becomes the topic
of a final creative focus group discussion by the group participants. Collective
notebook method is developing a new idea by group members regularly
recoding ideas.
 Heuristics -This method relies on the entrepreneur’s ability to discover through
a progression of thoughts, insights, and learning. The technique is probably used
more than imagined, because entrepreneurs frequently must settle for an
estimated outcome of a decision rather than certainty one specific heuristic
approach is called the Heuristic Ideation Technique (HIT). The technique
involves locating all relevant concepts that could be associated with a given
product area and generating a set of all possible combinations of ideas.
Heuristics involves developing a new idea through a thought process
progression.
 Scientific Method -The scientific method, widely used in various fields of
inquiry, consists of principles and processes, conduction observations and
experiments, and validating the hypothesis. The approach involves the
entrepreneur defining the problem, analyzing the problem, gathering and
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 analyzing data, developing and testing potential solutions, and choosing the best
solution. Scientific method is developing a new idea through inquiry and testing.
 Value Analysis -The value analysis technique develops methods for maximizing
value to the entrepreneur and the new venture. To maximize value, the
entrepreneur asks such questions as, “Can this part be of lesser quality, since it
isn’t a critical are for problems?” In a value analysis procedure, regularly
scheduled times are established to develop, evaluate and refine ideas. Value
analysis is developing new ideas by evaluating the worth of aspects of ideas.
 Attribute Listing -This method is an idea-finding technique that requires the
entrepreneur to list the attributes of an item or problem and then look at each
from a variety of viewpoints. Through this process, originally unrelated objects
can be brought together to form a new combination and possible new uses that
better satisfy a need. Attribute listing is developing a new idea by looking at the
positive and negative.
 Big Dream Approach- The big-dream approach to coming up with a new idea
requires that the entrepreneur dream about the problem and its solution, in
other words, thinking big. Every possibility should be recorded and investigated
without regard to all the negatives involved or the resources required. Ideas
should be conceptualized without any constraints until an idea is developed into
a workable form. Big-dream approach is developing a new idea by thinking
about constraints.
 Parameter Analysis – Involves two aspects: parameter identification and
creative synthesis. Step one (parameter identification) involves analyzing
variables in the situation to determine their relative importance. These variables
become the focus of the investigation, with other variables being set aside. After
the primary issues have been identified, the relationships between parameters
that describe the underlying issues are examined. Through an evaluation of the
parameters and relationships, a solution(s) is developed; this solution
development is called creative synthesis.

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 2.4. IDENTIFICATION OF OPPORTUNITY
An opportunity is a favorable set of circumstances that creates a need for a new
product, service or business.

Usually you start a business because you see an opportunity. A business

opportunity is a consumer need or want that can potentially be met by a new

business. In economics, a need is defined as something that people must have

to survive, such as water, food, clothing, or shelter. A want is a product or

service that people desire.

Reflection

 What favorable trends you observe in your country, in your region or in your

profession which have potential for business?

 What urgent problems that have business potential you might think need to be

solved?

 What significant market gap you might observe?

2.5. SUGGESTED WAYS TO IDENTIFY OPPORTUNITY:

I. Observing trends : it is imperative to check the trends in the following:

a. Economic trends ( state of the economy; level of disposable income;

consumer spending pattern

b. Social forces (social and cultural trends; demographic change and the like )

c. Technological force / trends (new technology; new use of old technologies ….)

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 d. Political and regulatory change (where are the government priorities ,

incentives …)

1. Solving problems

 Greater opportunities resides in solving greater and perplexing problems

through offering innovative solutions.

2. Finding gaps in the market place

 It is always imperative to look for gaps in the market (what is lacking ,

what is not sufficiently met in the market …)

Qualities of an opportunity

Attractive Timely

Opportunity
(Rather than an idea)

Anchored in a product

Durable or business that creates

or adds value for its
buyer/ end-user

The process by which an entrepreneur comes up with the opportunity for new venture

includes the following:

 Opportunity assessment. Which opportunity is better?

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  Creation and length of opportunity

 Real and perceived value of opportunity

 Opportunity Vs. personal skill and goals

 Competitive environment

2.6. EVALUATION OF BUSINESS OPPORTUNITY

Evaluation of business opportunity may covers:

 Market size should be greater than supply

 Market growth potential

 Distribution with high margin potential

While entrepreneurs are by nature optimistic, you are better facing up to the reality

early if you see enough evidence that the business idea is not viable:

Hints for evaluation (Covering marketing and technical aspects)

 Is the potential market large?

 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?

 Functional design and attractiveness

 Flexibility, durability, reliability

 Product safety

 Ease and low cost of maintenance

 Ease of processing and manufacturing

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  User friendliness

2.7. FEASIBILITY ANALYSIS

 It is the process of determining whether the business idea/ opportunity is

feasible. It requires asking; is the proposed business venture worth

spending (time, resource, and efforts…).

Components of feasibility analysis:

i. Product or service feasibility

Guiding questions

 Is the product desirable and serve a need in the marketplace?

 Does the product solve the persisting problem / gap?

 Is that good time to introduce the product to the market?

 Is the product technically and design wise feasible?

Concept statement

 An idea / opportunity should pass the concept test stage.

 Concept statement shows a preliminary description of a product or service.

Concept statement helps to solicit feedback from prospective customers;

industry expects other technical expertise …

It is usually one page statement containing the following:

a) A brief description of the product or service (features of the product/ service

including the sketch)

b) Intended target market

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 Who is expected to buy the proposed product/ service? Give lists of prospective

customer?

c) The benefit of the product or service (how the proposed product add value or

what problem it might solve)

d) A description of how the product/service will be positioned related to

competitors (how the product is situated related to competitors product or

services)

e) A brief description of the company’s management teams

ii. Industry / target market Feasibility analysis

 Industry is a group of firms producing similar product or service

 It is an assessment of the overall appeal of the industry and the target market

for the proposed product / service

iii. Organizational feasibility analysis

It is whether the proposed business has:

 Sufficient management expertise

 The necessary organizational competence

 Resources to successfully launch its product/service

iv. Financial feasibility analysis

The most important considerations at this stage:

 Total start up cash needed

 Examination of financial performance of similar business.

 The overall financial attractiveness of the proposed venture.

In determining financial attractiveness comparison of rate of return should be weighed

against:

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  The amount of capital invested

 The risk assumed in launching the business

 The existing alternatives for the money being invested

 The existing alternatives for the entrepreneurs’ time and efforts

SUPPLEMENTARY READING

MODELS USED TO EVALUATE BUSINESS OPPORTUNITY

Some of the models used to evaluate business opportunity

A. The general approaches to evaluation

B. VIQ model (Venture Intelligence Quotient model )

VIQ System/Model
VIQ process and techniques are based upon the latest developments in entrepreneurship
theory and practice. VIQ was developed as a research-based system for venture
evaluation and planning. By increasing the efficiency and effectiveness of the venture
evaluation component of the resource allocation process, VIQ has the potential to

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provide significant benefits to the private equity industry, the economy and the
community at large. VIQ as a business process for new venture planning and assessment
is currently being taught in entrepreneurship programs in business schools in Canada,
Italy and Australia.
How It Works
VIQ process and techniques are based upon the latest developments in entrepreneurship
theory and practice. Professor Kevin Hindle has adapted and extended the practices of
actuarial modeling from the insurance industry. In insuring a life, a weighted algorithm is
used to consider age, gender, blood pressure and occupation as inputs to statistically
determine the life expectancy of an individual. In evaluating a new venture, the VIQ
system examines researched venture attributes known to cause business success and
failure. These attributes are combined in a weighted algorithm – operable through a
user-friendly software program – to provide a dispassionate, professional evaluation of a
new venture.

VIQ software interacts with a database that comprises 15 questions that directly relate
to the researched venture attributes known to cause business success and failure, with a
score from 1 to 9.

Each of the 15 questions in Module I, II and III in some case classified in two modules)(
(Module I & II) have three areas: question and rating; analysis, and action
(recommendation for the user to choose the rating range based on his or her analysis).
The analysis is programmed into the set of actions.

Process

Module I: Idea Assessment. Nine questions examine the key elements affecting the durability,
viability and credibility of the new venture that intrinsically define the opportunity:

1. Is there product or process innovation?

2. Can the venture’s intellectual property be legally protected?
3. Are customers receptive to the new offering?
4. Is the industry attractive?
5. Does the new venture’s mission fit with the entrepreneurs’ personal aspirations
and willingness to take risks and give up control?
6. Is the entrepreneurial team well connected up, down and across the value chain?
7. Does the venture’s revenue model entail customer’s repeat sales or recurring
revenue?
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 8. Are the gross/operating margins sufficient given the typical industry cost
structure?
9. Are operating and cash cycles optimized?

Module II: Idea Enhancement. Six questions examine the key elements affecting the
durability, viability and credibility of the new venture that intrinsically define the
positioning and ability of the venture to take advantage of the opportunity.

10. Does the venture deliver tangible benefits to the customers?

11. Is the target market well defined?
12. Has the venture secured exclusive access to rare resources, substantial guaranteed
sales contracts, or ‘big league’ industry alliances?
13. Can the venture team execute on the critical success factors?
14. Is break-even sufficiently low when analyzed against the expected volume of sales?
15. Is the cash break-even point expected to occur within a reasonable time period?

Outputs

All fifteen attributes are combined in a weighted algorithm to provide a comprehensive,

dispassionate, professional evaluation of a new venture. A useful way of bringing
together the VIQ analysis is in visual form using VIQ profile matrix. This analysis focuses
on the three basic questions of the Venture Intelligence Quotient. The X-axis score
measures the venture’s VIABILITY- the ability to generate revenue and profit, the Y-
axis score measures the venture’s DURABILIY- the ability to survive over time and the
size of the circle measures the venture’s CREDIBILITY – the team’s ability to mitigate
risk and effectively exploit the opportunity (see profile matrix below).

After users rate all 15 questions, the VIQ CoreSmart software plots the viability,
durability and credibility visually on a graph called the profile matrix so one can easily
see the venture’s success potential and its ability to survive the risks of the
marketplace. The profile also shows how the venture under analysis stacks up against
seven prototypical businesses. Once users understand the relative strengths and
weaknesses of the prototypes, and become aware of the characteristics that the
venture may share with some of those prototypes, then they can act upon that
knowledge to improve the venture’s potential for success.

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The Five Pillars and The Fifteen Principles of the VIQ

Product Pillar represents new ventureʼ s core offering, the essence of the
entrepreneurial idea. We use a term “product” to describe a product, a service, a
process, or some offering combining elements of all three.

1. Innovation
2. Intellectual property protection
3. Value Proposition1

Market Pillar refers to paying customers, which can be a group of consumers or

organizations that is interested in the product (as defined above), has resources and is
permitted by law to purchase the product.

4. Market receptiveness
5. Target Market

Industry Pillar signifies a pool of sellers that offer products that are close substitutes
for one another.

6. Industry attractiveness
7. Sustainable advantage

People Pillar collectively defines the entrepreneur and entrepreneurial team. A path to
success will require the competence and untiring drive of the management team.

8. Personal aspirations

1
Value proposition is a business/marketing concept that a company uses to summarize why a
consumer should buy a product or service.

It is a statement that points a clear picture of what your brand has to offer for prospects, it
tells us
 How your product/service solves(improves) problems?
 What benefits customers can expect?
 Why customers should buy from you over your competitors?

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 9. Social Capital
10. Ability to Execute

Money Pillar represents financial planning. Money section mergers products, markets,
industry and people to create a viable, durable, and credible entrepreneurial venture.

11. Cash Cycle

12. Margins
13. Revenue Model
14. Sales Break-Even
15. Cash Break-Even

The venture inteligence quotient model

THE VIQ FRAMEWORK

Product Market Industry People Money

Module I : Idea Development Distribution Competitor Milestones Financial plan

Assessment operations communications map Risks investment
offering

Module II : Idea Value Target market Sustainable Ability to Break-even

Enhancement proposition dynamics competitive execute turning cash
advantage

Module III : Innovation IP Market Industry Personal Revenue

Venture protection receptiveness attractiveness aspirations model,margins
Implementation connections and cash
cycle

The core topics for entrepreneurship

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 C. Porter’s five forces model

The model helps to analyze:

 Intensity of the competition

 The profitability

 Attractiveness of the industry

Suppliers
 Who will be your company's potential suppliers and how powerful are they
(i.e. business partners, suppliers of capital, employees, etc.)?
 Are there good substitute inputs?
 What are the costs of the inputs relative to the economics of the
business?
Customers
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  Who will your company's customers be and how price sensitive are they?
 How are they segmented and how powerful are they?
 What is the buyer concentration to firm concentration ratio?
Competition
 Who are and will your company's key competitors be?
 What are their value propositions?
 How diverse are the competitors? Are there economies of scale, scope or
network effects?
Barriers to entry
 What prevents other firms from entering market and competing?
 What is the degree of threat from other new entrants?
Substitution
 What are the substitutes for the products/services that your company
provides?
 How easily can customers do without your company's products/services?
 What are the switching costs to the buyer?

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