Chapter 4 generating business ideas


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Chapter 4 generating business ideas

  1. 1. The search for sound business Ideas HRTM 134 Entrepreneurship & Business Planning Prepared by: Aireen Y. Clores
  2. 2. Generating Business Ideas Today you will know sources of potential business ideas. You will understand the factors that contribute to their success.
  3. 3. Generating Business Ideas… Potential sources of business ideas may include:  Brainstorming – Individually or in groups/teams  Own personal experiences – What jobs have been done in the past? Have you started businesses before? What was learnt from success and failures?  Innovation and invention – A flash of individual inspiration  Spotting flaws and errors in existing products – Can something being done already be done better?  Copying ideas from other countries - e.g. Howard Schulz Starbucks founder, copied the idea of a coffee bar from Italy  Spotting trends and anticipating their impacts on people’s lives e.g. Healthier lifestyles  Taking a scientific approach, working in a laboratory (e.g. James Dyson)  Noticing a gap in the market for something that is not currently being produced  Purchasing a franchise
  4. 4. Generating Business Ideas…  Small business with limited resources (finances, assets, land, people etc) do not have the funds for large teams of people to invent new product/business ideas.  Therefore new small business ideas often have interesting stories based on individuals own innovation and inventiveness.  Did you know???  Socorro Ramos the Matriarch of National Bookstore?
  5. 5.  “Does the idea represents a future attractive opportunity in a market which may not even have into existence yet”?  Therefore, within entrepreneurship we are dealing a forward-looking evaluation (ex-ante) rather than retrospective evaluation (ex-post).  Can idea for the basis of a cost-effective and viable organization “The entrepreneur must forecast future prices and goods and resources and use intuitive judgment to gauge market potential” (Keh et al. 2002:130)
  6. 6. Porter’s “Five Forces model”  The model originated from Michael E. Porter's 1980 book "Competitive Strategy: Techniques for Analyzing Industries and Competitors." Since then, it has become a frequently used tool for analyzing a company's industry structure and its corporate strategy.  In his book, Porter identified five competitive forces that shape every single industry and market.  These forces help us to analyze everything from the intensity of competition to the profitability and attractiveness of an industry. The model that follows shows the relationship between the different competitive forces.
  7. 7.  Threat of New Entrants - The easier it is for new companies to enter the industry, the more cutthroat competition there will be. Factors that can limit the threat of new entrants are known as barriers to entry. Some examples include:  Existing loyalty to major brands  Incentives for using a particular buyer (such as frequent shopper programs)  High fixed costs  Scarcity of resources  High costs of switching companies  Government restrictions or legislation
  8. 8.  Power of Suppliers - This is how much pressure suppliers can place on a business. If one supplier has a large enough impact to affect a company's margins and volumes, then it holds substantial power. Here are a few reasons that suppliers might have power:  There are very few suppliers of a particular product  There are no substitutes  Switching to another (competitive) product is very costly  The product is extremely important to buyers - can't do without it  The supplying industry has a higher profitability than the buying industry
  9. 9.  Power of Buyers - This is how much pressure customers can place on a business. If one customer has a large enough impact to affect a company's margins and volumes, then the customer hold substantial power. Here are a few reasons that customers might have power:  Small number of buyers  Purchases large volumes  Switching to another (competitive) product is simple  The product is not extremely important to buyers; they can do without the product for a period of time  Customers are price sensitive
  10. 10.  Availability of Substitutes - What is the likelihood that someone will switch to a competitive product or service? If the cost of switching is low, then this poses a serious threat. Here are a few factors that can affect the threat of substitutes:  The main issue is the similarity of substitutes. For example, if the price of coffee rises substantially, a coffee drinker may switch over to a beverage like tea.  If substitutes are similar, it can be viewed in the same light as a new entrant.
  11. 11.  Competitive Rivalry - This describes the intensity of competition between existing firms in an industry. Highly competitive industries generally earn low returns because the cost of competition is high. A highly competitive market might result from:  Many players of about the same size; there is no dominant firm  Little differentiation between competitors products and services  A mature industry with very little growth; companies can only grow by stealing customers away from competitors
  12. 12.  Evaluation and human factor  Business plan – why entrepreneurs need one?  (Barringer & Ireland 2006:19-20)  Thinking carefully about all aspects of the business  Setting up milestones
  13. 13. Evaluation of opportunities with great potential  Wickham (2004) points out three central criteria for evaluation of opportunities:  Scale (size of opportunity)  Scope (value)  Span (validity over time)  Hindle (2007):  Viability (possible)  Durability (potential)  Credibility (Can it be implemented?)
  14. 14. Case Studies… Case Studies: Hortaliza (beauty & body care products), Andoks (food), & Mini-foodstop (mini mart) Read the case studies based on business start ups and the source of the entrepreneur’s business ideas.
  15. 15. Case Studies: 1. What is an entrepreneur? (4 marks) 2. What characteristics did each of these entrepreneurs have that made them successful? (4 marks) 3. To what extent could you argue that the skills of the individual owners were the main factors leading to the success of a) Hortaliza (beauty & body care products) (4 marks), b) Andoks (food) (4 marks), & c) Mini-foodstop (mini mart)(4 marks) 4. How important is market research in ensuring new business ideas are successful? (6 marks) 5. Explain what external factors provided Selecta Ice Cream and Cobra (energy drink) with the opportunity to develop their successful product idea? (4 marks) 6. “Without the entrepreneurial skills demonstrated by those in the case studies, these businesses would not have succeeded.” To what extent do you agree with this statement? (10 marks) 7. Hortaliza spotted a gap/niche in the beauty and body care market. Evaluate the importance of spotting a gap for the success of a small business. (10 marks)