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Chapter Two

Developing and

Screening BusinessIdeas

Dr. Bruce BarringerUniversity of Central Florida

Chapter Two

Developing and screening business ideas

– Three most common sources of new business ideas

– Techniques for generating ideas– First screen


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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


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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


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Figure 2.2


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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


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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


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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


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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


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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


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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


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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


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Techniques for Generating Ideas

• Casual observation, intuition, serendipity, or luck

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


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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


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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


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Focus Groups

• Works best as a follow-up to brainstorming

• Conducted by trained moderators to keep the group focused


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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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


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Key WordsBarriers to entry

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


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Risky business (higher than average failure) rates:•Computer stores•Laundries and dry cleaners•Florists•Used car dealerships•Gas stations•Local trucking firms•Restaurants•Infant clothing firms

Pg.23. How to write business plan: Tenth edition. 2010. Nolo

oBakeriesoMachine shopsoCar washesoE-commerceoGrocery and meat

stores


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Printed in the United States of America.

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


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