Creating and Starting the Venture

Creativity and the Business Idea

SOURCES OF NEW IDEAS

consumers, existing products and services, distribution channels, the federal government, and research and development. 1. Consumers
attention to potential customers. informally monitoring potential ideas opportunity to express their opinions.
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SOURCES OF NEW IDEAS

2. Existing Products and Services
method for monitoring and evaluating competitive products and services on the market. a new product or service that has more market appeal.

3. Distribution Channels
their familiarity with the needs of the market. suggestions for completely new products,

4. Federal Government
the files of the Patent Office contain numerous new product possibilities., available for license or sale..

5. Research and Development

The largest source of new ideas is his own research and development, .
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METHODS OF GENERATING IDEAS

Focus groups, brainstorming, and problem inventory analysis. 1. Focus Groups
Group of people providing idea in a structured manner. A moderator leads a group of people through an open, in-depth discussion rather than simply asking questions to solicit participant response. group of 8 to14 participants motivated by comments from other group members Creatively conceptualizing and developing a new product idea to fulfill a market need.. excellent method for initially screening ideas and concepts.

METHODS OF GENERATING IDEAS

2. Brain Storming
A group method for obtaining new ideas and solutions stimulated to greater creativity by meeting with others and participating in organized group experiences.. focuses on a specific product or market area. should be fun, with no one dominating or inhibiting the discussion four rules should be followed: I. No criticism is allowed by anyone in the groupno negative comments. 2. Freewheeling is encouragedthe wilder the idea, the better. 3. Quantity of ideas is desiredthe greater the number of ideas, the greater the likelihood of the emergence of useful ideas. 4. Combinations and improvements of ideas are encouraged; ideas of others can be used to produce still another new idea.

METHODS OF GENERATING IDEAS

3. problem Inventory analysis
A method for obtaining new ideas and solutions by focusing on problems uses individuals in a manner that is analogous to focus groups to generate new product ideas. instead of generating new ideas themselves, consumers are provided with a list of problems in a general product category. used to test a new product idea.

problem Inventory analysis

CREATIVE PROBLEM SOLVING

Brainstorming Reverse brainstorming Brainwriting Gordon method Checklist method Forced relationships Collective notebook method Attribute listing method Big-dream approach Parameter analysis. Free association
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CREATIVE PROBLEM SOLVING

1. Brainstorming
used for both creative problem solving and idea generation. solving, generating ideas about a problem within a limited timeframe, the spontaneous contributions of participants. All ideas, no matter how illogical, recorded, with participants prohibited from criticizing or evaluating during the brainstorming session.
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CREATIVE PROBLEM SOLVING

2. Reverse brainstorming
A group method for obtaining new ideas focusing on the negative criticism is allowed. the technique is based on finding fault involves the identification of everything wrong with an idea, followed by a discussion of ways to overcome these problems.

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CREATIVE PROBLEM SOLVING

3. Brainwriting
a form of written brainstorming. Bernd Rohrbach. is silent, written generation of ideas by a group of people. participants write ideas on special forms or card,circulate within the group, usually consists of six members.

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CREATIVE PROBLEM SOLVING

4. Gordon Method
Method or developing new ideas when the individuals are unaware of the problem group members not knowing the exact nature of the problem. the solution is not clouded by fixed ideas and behavioral patterns. The actual problem is then discovered, enabling the group to make suggestions for execution or modification of the final solution.

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CREATIVE PROBLEM SOLVING

5. Checklist Method
Developing a new idea through a list of related issues or suggestions use the list of questions or statements to guide the direction of developing new ideas or concentrating on specific idea areas. Put to other uses? New ways to use as is? Other uses if modified? Adapt? copy? Modify? Magnify? Stronger? Larger? Thicker?
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CREATIVE PROBLEM SOLVING

6. Free Association
Developing a new idea through a chain of word associations helpful in developing an entirely new slant to a problem. a word or phrase related to the problem is written down, 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.

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CREATIVE PROBLEM SOLVING

7. Forced Relationships
Developing a new idea by looking at product combinations Process of forcing relationships among some product combinations. a technique that asks questions about objects or ideas in an effort to develop a new idea.
1. Isolate the elements of the problem. 2. Find the relationships between these elements. 3. Record the relationships in an orderly form. 4. Analyze the resulting relationships to find ideas or patterns. 5. Develop new ideas from these patterns.

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CREATIVE PROBLEM SOLVING

8. Collective Notebook Method
a new idea by group members regularly recording ideas a small notebook that easily fits in a pocketcontain a statement of the problem,.

9. Attribute Listing
Developing new idea by looking at the positives and negatives an idea-finding technique that requires to list the attributes of an item or problem and then look at each from a variety of view points.

10.Big-Dream Approach
Developing a new idea by thinking without constraints come up with a new idea requires that the entrepreneur dream about the problem and its solution, thinking big.

11.Parameter Analysis
Developing a new idea by focusing on parameter identification and creative combination
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OPPORTUNITY RECOGNITION PROCESS

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PRODUCT PLANNING AND DEVELOPMENT PROCESS

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Establishing Evaluation Criteria

At each stage of PPDP criteria for evaluation need to be established. evaluate the new idea in terms of market opportunity, competition, the marketing system, financial factors, and production factors. A market opportunity in the form of a new or current need for the product idea must exist. The determination of market demand is by far the most important criterion of a proposed new product idea. the characteristics and attitudes of consumers or industries that may buy the product, the size of potential market, the nature of the market with respect to its stage in the life cycle (growing or declining), and the share of the market the product could reasonably capture. competing producers. prices, and marketing policies should meet or overcome current and anticipated competition. The new product should have synergy with existing management capabilities and marketing strategies. The manufacturing cost per unit, the marketing expense, and the amount of capital to be determined to break-even point and the long-term profit outlook for the product. The compatibility requirements with existing plant, machinery, and personnel should also be evaluated.

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PRODUCT PLANNING AND DEVELOPMENT PROCESS

Idea Stage
new product ideas be identified and impractical ones eliminated. determine potential needs of the market in terms of timing, satisfaction, alternatives, benefits and risks, future expectations. price-versus-product performance features, market structure and size, and economic conditions.

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PRODUCT PLANNING AND DEVELOPMENT PROCESS

Concept Stage
the refined product idea is tested to determine consumer acceptance. it should be further developed and refined through interaction with consumers. Features, price, and promotion should be evaluated

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PRODUCT PLANNING AND DEVELOPMENT PROCESS

Product Development Stage
consumer reaction to the physical product is determined.

Test Marketing Stage

provides actual sales results, which indicate the acceptance level of consumers. Positive test results indicate the degree of probability of a successful product launch and company formation.
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E-COMMERCE AND BUSINESS START-UP the opportunity to be very creative and innovative. widespread use of personal computers, the adoption of internets in companies, and the acceptance of the Internet as a business communications platform.

Numerous benefitssuch as access to a broader customer base, lower information dissemination costs, lower transaction costs, and the interactive nature,

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Legal issues for the entrepreneur

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INTELLECTUAL PROPERTY
includes patents, trademarks, copyrights, and trade secrets. NEED FOR A LAWYER
business is regulated by law, the legal expertise required based on the new venture is a franchise, an independent start-up, or a buyout, produces a consumer versus an industrial product; it is nonprofit aspect of computer software, exporting, or importing.

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LEGAL ISSUES IN SETTING UP THE ORGANIZATION

issues as liability, taxes, continuity, transferability of interest, costs of setting up, attractiveness for raising capital. Legal advice for agreements
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PATENTS
A patent is a contract between the government and an inventor.
the government grants the inventor uniqueness regarding the invention for a specified amount of time. At the end of this time, the government publishes the invention and it becomes part of the public domain.

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The Patent Application

patent application must contain a complete history and description of the invention as well as claims for its usefulness. Introduction.
background and advantages of the invention the nature of problems that it overcomes. state how the invention differs from existing offerings.

Description of invention.
a brief description of the drawings that accompany it. drawings must comply with PTO requirements. detailed description of the invention, which may include engineering specifications, materials, components, vital to the actual making of the invention.

Claims.
criteria by which any infringements will be determined. to prevent others from getting around the patent.
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Patent Infringement
entrepreneur to be sensitive about whether he or she is infringing on someone elses patent. someone else already has a patent does not mean the end of any illusions of starting a business. Many businesses, inventions, or innovations are the result of improvements, or modifications of, existing products. If it is impossible to copy and improve the product to avoid patent infringement, the entrepreneur may try to license the product from the patent holder.

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 Seek a patent attorney having expertise in your product line design patent protect, the product design or product look Before making an external disclosure seek legal counsel Evaluate competitor insight into what they may be developing. Be sure to mark product granted a patent. Consider licensing patents.
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TRADEMARKS
may be a word, symbol, design, or some combination,a slogan or even a particular sound that identifies the source or sponsorship of certain goods or services. can last indefinitely, as long as the mark continues to perform its indicated function.

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 coined marks denote no relationship between the mark and the goods or services e.g.. Mercedes. Kodak) and afford the possibility of expansion to a wide range of products

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an arbitrary mark is one that has another meaning in language (e.g., Apple) and is applied to a product or service.

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 a suggestive mark is used to suggest certain features, qualities, ingredients, or characteristics of a product or service suggest some describable attribute of the product or services.

a descriptive mark must have become distinctive over a significant period of time and gained consumer recognition before it can be registered. The mark then is considered to have secondary meaning; that is, it is descriptive of a particular product or service (e.g., Ruberoid as applied to roofing materials that contain rubber).
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Registering a trademark
Exclusive rights to the use of the mark sue in federal court for trademark infringement (profits, damages and costs). Incontestable rights for commercial use of the mark. prevent importation of goods with a similar mark. entitles you to use the notice of registration Provides for filing application in foreign countries.

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COPYRIGHTS
A copyright protects original works of authorship. the tremendous growth of the use of the Internet, especially to download music, literary work, pictures, and videos computer software, books, scripts, articles, poems, songs, sculptures, models, maps, blueprints, collages, printed material on board games, data, and music.
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TRADE SECRETS
maintain an idea or process as confidential and to sell or license it as a trade secret. will have a life as long as the idea or process remains a secret. not covered by any federal law recognized under a governing body of common laws in each state.

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LICENSING
an arrangement between two parties, where one party proprietary rights over some information, process or technology protected by patent, trademark, or copyright. requires the licensee to pay a royalty or some other specified sum for permission to copy the patent, trademark, or copyright.
involves a franchising agreement. agrees to pay a fixed sum for use of the trademark, pay a royalty based on sales volume, buy supplies from the franchisor

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PRODUCT SAFETY AND LIABILITY

Responsibility of a company to meet any legal specifications regarding a new product by the Consumer Product Safety Act

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Insurance
Property
Fire insurance explosion, riot, vehicle damage, windstorm hail, and smoke Burglary and robbery Business interruption

Casualty
bodily injury or property damage Automobile liability

Life
Life insurance

Workers compensation
work-related injury

Bonding
in case of employee theft of funds or protects contractor if subcontractor fails to complete a job

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CONTRACTS
Consideration. competent and/or have the right to negotiate Contract legal Voluntary acceptance of offer. oral or written voluntary acceptance of offer is given.

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THE BUSINESS PLAN

CREATING AND STARTING THE VENTURE

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WHAT IS THE BUSINESS PLAN

a written document prepared by the entrepreneur that describes all the relevant external and internal elements involved in starting a new venture. an integration of functional plans such as marketing, finance, manufacturing, human resources.

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SCOPE AND VALUE OF THE BUSINESS PLAN

The business plan may be read by employees, investors, bankers, venture capitalists, suppliers, customers, advisors, and consultants. three perspectives considered in preparing the plan. 1. perspective of the entrepreneur
articulate what the venture is all about.

2. the marketing perspective.

must try to view their business through the eyes of their customer.

3. the entrepreneur should try to view his or her business through the eyes of the investor.

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EVALUATE THE BUSINESS PLAN?

suppliers, Customers suppliers of capital lenders or investors banks

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PRESENTING THE PLAN

The entrepreneurs are expected to sell their business concept in this short time period with the audience given the opportunity to ask difficult and penetrating questions. the benefit is that they are presenting in one place, to a number of firms or individuals who could immediately decide they like the plan and request further negotiation, leading to a final investment decision. Some investors describe these plans as the elevator plan. Its analogous to a situation where an entrepreneur would get on an elevator with one or more investors and try to persuade them that he or she is a good investment before the elevator reaches its final destination. It is also likely that a venture capitalist or angel group would ask the entrepreneur to present to their partners before making a final decision on whether to invest. In all these instances the entrepreneur must decide what to say in this short time frame. focus is on why this is a good opportunity, an overview of the marketing program (addresses how the opportunity will convert to reality), and the results of this effort (sales and profits). remarks might reflect the recognized risks and how the entrepreneur plans to address them. Remember, effort is really designed to sell the investors on why this would be a good investment for them.
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INFORMATION NEEDS FOR BUSINESS PLAN

information, obtainable from many sources, should focus on marketing, finance, and production. goals and objectives also provide a framework for the business plan, marketing plan, aid financial plan.

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Market Information
to build a strong marketing plan with reasonable and measurable market goals and objectives the entrepreneur will need to gather information on the industry and market.

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the process by evaluating general environmental trends. include household income trends, population shifts, food consumption habits and trends, travel, employment trends.

assessment of trends in the national food service industry look for data on total food sales and commercial restaurant sales by type of restaurant.

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Operations Information Needs

Location. The companys location, accessibility to customers, suppliers, and distributors need to be determined. Manufacturing operations. Basic machine, assembly operations, subcontracted and by whom. Raw materials. raw materials, suppliers names, addresses, and costs Equipment. The equipment, cost, purchased or leased. Labor skills. unique skill needed, the number of personnel in each skill, pay rate,an assessment of where and how these skills will be obtained should be determined. Space. The total amount of space needed space will be owned or leased. Overhead. support manufacturing-such as tools, supplies, utilities, and salaries
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FINANCIAL INFORMATION NEEDS

prepare a budget ,all possible expenditures , a list of all revenue sources including sales and any external available funds. capital expenditures, direct operating expenses, and cash expenditures for non expense items. The revenues from sales must be forecast from market data identify benchmarks in the industry to prepare the final pro forma statements in the financial plan.

USING THE INTERNET AS A RESOURCE TOOL

access information, business activities efficiently, expediently, and at very little cost. business intelligence resource, provides opportunities for marketing strategy which through its website, information on the company, its products and services, and its ordering instructions. information about the market, competition, and customers as well as to distribute, advertise, and sell company products and services. Compared with alternative sources the entrepreneur need only make a small investment in hardware and software to be ready to use these online services.

With the continuous improvements and modifications in the Internet, the opportunities for the entrepreneur in planning the start-up or the growth of a venture will be invaluable.

WRITING THE BUSINESS PLAN

could take hundreds of hours to prepare depending on the experience knowledge purpose it is intended to serve. comprehensive enough a complete picture understanding of the new venture clarify his or her thinking about the business.

1.

Introductory Page

BUSINESS PLAN

Name and address of business Name(s) and address(es) of principal(s) Nature of business Statement of financing needed Statement of confidentiality of report

2. Executive

Summary Three to four pages summarizing the complete business plan 3.. Industry Analysis
Future outlook and trends Analysis of competitors Market segmentation Industry and market forecasts

4.

Description of Venture
Product's Service's Size of business Office equipment and personnel Background of entrepreneurs

5.Production Plan
Manufacturing process ( subcontracted) Physical plant Machinery and equipment Names of suppliers of raw materials

BUSINESS PLAN
6. Operational Plan
Description of company's operation flow of orders for goods and/or services Technology utilization

10. Contingency plans

Financial Plan Pro forma income statement Cash flow projections Pro forma balance sheet Break-even analysis Sources and applications of funds

7. Marketing Plan
Pricing Distribution Promotion Product forecasts Controls

8 Organizational Plan
Form of ownership Identification of partners or principal shareholders Authority of principals Management-team background Roles and responsibilities of members of organization

11.Appendix (contains backup material)

Letters Market research data Leases or contracts Price Lists from suppliers

9. Assessment

of Risk

Evaluate weakness of business New technologies Contingency plans

Measuring Plan Progress

Inventory control.
. The faster the firm gets back its investment in raw materials and finished goods, the faster that capital can be reinvested to meet additional customer needs.

Production control.
control machine time, worker hours, process time, delay time, and downtime cost.

Quality control.
the product performs satisfactorily.

Sales control.
Information on units, dollars, specific products sold, price of sales, meeting of delivery dates, and credit terms is useful to get a good perspective of the sales of the new venture.

Disbursements.
The new venture should also control the amount of money paid out.

WHY SOME BUSINESS PLANS FAIL

Goals set are unreasonable. Goals are not measurable. not made a total commitment to the business or to the family. has no experience in the planned business. has no sense of potential threats or weaknesses to the business, No customer need was established for the proposed product or service.

THEMARKETING PLAN

MARKETING RESEARCH FOR THE NEW VENTURE

the gathering of data in order to determine such information as who will buy the product or service size of the potential market, price that should be charged, the most appropriate distribution channel, most effective promotion strategy

Marketing Research Step One

Defining the Purpose or Objectives
a list of the information that will be needed to prepare the marketing plan. ask people what they think of the product or service background demographics and attitudes of these individuals. potential customers willing to pay for the product or service. potential customers prefer to purchase the product or service. customer to expect to hear about or learn about such a product or service.

Step Two
Gathering Data from Secondary Sources
Secondary sources - gathering information for the industry analysis section of the business plan. trade magazines, newspaper articles, libraries, government agencies, and the Internet provide information on industry market and competitors. Commercial data may also be available,

Step Three
Gathering Information from Primary Sources
observation, networking. interviewing, focus groups, or experimentation data collection instrument, such as a questionnaire. competitors, the customer, and the industry, using networking, trade associations, recent publications. Focus groups - gathering in-depth information. issues in an informal, open format.

Step Four
Analyzing and Interpreting the Results
Depending on the size of the sample, the results can hand-tabulate or entered on a computer. the results evaluated and interpreted in response to the research objectives specified in the first step of the research process. data cross-tabulated to provide more focused results.

UNDERSTANDING THE MARKETING PLAN

Situation analysis
Background of venture Strengths and weaknesses of venture Market opportunities and threats Competitor analysis

Marketing objectives and goals Marketing strategy and action programs Budgets Controls

Characteristics - MARKETING PLAN

To provide a strategy for accomplishing the company mission or goal. based on facts and valid assumptions. Allocation of all equipment, financial resources ,human resources must be described. provide for continuity, successfully meeting longer-term goals and objectives. should be simple and short. success of the plan may depend on its flexibility. specify performance criteria that will be monitored and controlled.

Marketing Mix
Combination of product,
Quality of components or materials, style, features, options, brand name, packaging, sizes, service availability and Warranties

Price,
Quality image, list price, quantity, discounts, allowances for quick payment credit terms, and payment period

Promotion
Media alternatives, message, media budget, role of personal selling, sales promotion (displays, coupon) Media interest in publicity

Distribution
wholesaler & length of channel, geographic coverage, inventory. and transportation

Other marketing activities

STEPS IN PREPARING THE MARKETING PLAN

Situation analysis
Tells about past and presents business achievements of new venture

Target Market
Specific Group of potential customers towards venture aims its marketing plan

Market segmentation
Process of dividing a market into definable and measurable groups for purposes of targeting marketing strategy

WHY SOME PLANS FAIL

Lack of a real plan
The marketing plan is superficial and lacks detail and substance, ly regarding goals and objectives.

Lack of an adequate situation analysis

It is invaluable to know where you are and where you have been, before deciding where you want to go.

Unrealistic goals
lack of understanding of the situation.

Unanticipated competitive moves, product deficiencies, and acts of Gods

THE ORGANIZATIONAL PLAN

LEGAL FORMS OF BUSINESS

three basic legal forms of business formation (1) proprietorship, (2) partnership, (3) corporation

TAX ATTRIBUTES OF FORMS OF BUSINESS

TAX ATTRIBUTES OF FORMS OF BUSINESS

 Organization structure.
defines members jobs and communication and relationship these jobs have with each other. relationships are depicted in an organization chart.

Planning, measurement, and evaluation schemes.

activities should reflect the goals and objectives that underlie the ventures existence. will be achieved (plans), measured and evaluated.

Rewards
In the form of promotions, bonuses, praise

Selection criteria.
to determine a set of guidelines for selecting individuals for each position.

Training.
Training, on or off the job, must be specified. form of formal education or learning skills.

 important considerations and strategies in recruiting and assembling an effective team and creating an effective and positive organization culture.

First, the entrepreneurs desired culture must match the business strategy outlined in the business plan. Second, the leader(s) of the organization must lead and be role models for their employees. Third, the entrepreneurs should be flexible enough to try different things. Fourth, it is necessary to spend extra time in the hiring process. Leadership needs to establish core values and provide the appropriate tools so that employees can effectively complete their jobs. Finding the most effective team and creating a positive organization culture is a challenge is just as critical as having an innovative, marketable product.

The Financial Plan

OPERATING AND CAPITAL BUDGETS

Capital budgets - to provide a basis for evaluating expenditures that will impact the business for more than one year. To project expenditures for new equipment, vehicles, computers, or even a new facility. evaluating the costs of make or buy decisions in manufacturing or a comparison of leasing, buying used, or buying new equipment.

 Pro-forma income statement

Projected net profit calculated from projected revenues minus projected costs and expenses

PRO FORMA CASH FLOW

Projected cash available calculated form projected cash accumulation minus projected cash disbursement help justify

pro forma balance sheet

reflects the position of the business at the end of the first year. summarizes the assets, liabilities, and net worth

 BREAK-EVEN ANALYSIS
volume of sales at which the business will neither make a profit nor incur a loss. break-even sales point the volume of sales needed to cover total variable and fixed expenses.

proforma sources & applications of funds

Summarizes projected sources of funds available to the venture and how these funds will he disbursed

 planning tools is designed to provide clear picture of where funds come from, how they are disbursed, the amount of cash available,the general financial well-being of the new venture. The pro forma income statement provides a sales estimate in the first year (monthly basis) and projects operating expenses each month. Cash flow is not the same as profit. It reflects the difference between cash actually received and cash disbursements. Many new ventures have failed because of a lack of cash, even when the venture is profitable. The pro forma balance sheet reflects the condition of the business at the end of a particular period. It summarizes the assets, liabilities, and net worth of the firm. The break-even point can be determined from projected income. measures the point where total revenue equals total cost. The pro forma sources and applications of funds statement understand how the net income for the year was disposed of and the effect of the movement of cash through the business. emphasizes the interrelationship of assets, liabilities, and stockholders equity to working capital.