The document discusses entrepreneurship and ideas for small businesses. It covers identifying opportunities, developing business ideas, and assessing feasibility. Key aspects include recognizing opportunities through experience or trends, using techniques like SCAMPER to spark creativity, screening ideas through business model canvases or feasibility studies, and testing concepts through online pilots or financial projections. The goal is to start with many ideas and narrow them down to the most viable business opportunities.

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Chapter Four
Entrepreneurs and Ideas:
The Basis of Small Business
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Education.

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Ideas, Opportunities, and Business
Opportunity recognition and entrepreneurial alertness help identify
good opportunities.
The opportunity identification process assesses whether the situation is
traditional or unexpected.
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Source: Adapted from C. M. Gaglio and J. A. Katz, “The Psychological Basis of Opportunity Identification: Entrepreneurial Alertness,” Small Business Economics 16, no. 2,
(March 2001), p. 99.

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Ideas, Opportunities, and Business - Strategies
Doing the same thing as
others, is pursuing an
imitative strategy.
An incremental strategy
offers a slightly better way to
do something.
A radical innovation
strategy presents a
different way to do things.

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Two Ways to Think About Opportunity and Business Creation
Effectuation model.
• Feel.
Recognize you want to start a
business
• Check.
Assess resources to determine
your product and customers.
• Plan.
Offer your product and see if it
sells.
• Do.
If you get sales, keep going – if
not, go back to the Check step.
Causal model of entrepreneurship.
• Feel.
Decide you have a great idea and
want to start a business.
• Check.
Assess resources, get help if needed,
then assess feasibility.
• Plan.
If feasible and there is interest, keep
going, if not – go back to Check.
• Do.
Make product and the company to
sell it and get it into the market.

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Figure 4.2: The Screening Process in the Causal Model of
Entrepreneurship
The goal is to start
with lots of ideas
and narrow them
down to a few.
Test ideas with an
IDEO screen, a
business model
canvas, or a
feasibility plan.
Develop a
business plan for
the most promising
ideas.
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Effectual and Causal Approaches - PSED
In the nationwide Panel Study of Entrepreneurial Dynamics (PSED),
entrepreneurs were asked whether the decision to start some kind of
business (effectuation) or the business idea came first (causal) or if they
combined the two.
Source: Original analysis using PSED 1 and PSED 2 data (covering 1998 and 2006, N = 1,767) done by Kelly Shaver, College of Charleston, for Entrepreneurial Small Business, February 2019.

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Ten Sources of Business Ideas
1. Work/personal experience.
2. A similar business.
3. Chance – retail arbitrage.
4. Family and friends.
5. Education or expertise.
6. Magazines.
7. Idea sites.
8. Side gigs.
9. Make and sell, locally or online.
10. Going online to spot trends.

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One Last Powerful Source of Ideas
Universities and government agencies develop new technologies and
offer them free to small businesses to develop.
• Federal Labs is a centralized location for over 700 federal programs.
• If a university is near you, contact the technology transfer office.
These organizations will offer a licensing arrangement.
• A license is a legal agreement granting you rights to use a particular
piece of intellectual property.
• In return, you (the licensee) are required to pay the owner of the
license (the licensor).
• Can be an up-front payment, an annual fee, or a royalty per item sold.

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From Ideas to Opportunities through Creativity - SCAMPER
A pioneer in the field of creativity, who first coined
the word brainstorming, invented SCAMPER.
• What opportunities result from substituting or
replacing something that already exists?
• What separate products, services, or businesses
can you combine to create a distinct business?
• What could you adapt from other industries?
• What could you make more noticeable or
different in some way from competitors?
• What other uses might there be?
• What could you get rid of that would eliminate
something the customer has to do?
• What can you rearrange in the way your product
or service appears, or the way businesses in your
industry usually look or are decorated or located?
Source: Michael Michalko, Thinkertoys: A Handbook of Business Creativity (Berkeley, CA: Ten Speed Press, 1991).

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From Ideas to Opportunities through Creativity
Thinking of other ways to be creative.
• Creative business owners question and challenge the way things
appear, to see if they can find a new way of doing things.
One process for organizing creative thinking consists of four steps.
• Preparation – explore problem/opportunity from all directions.
• Incubation – think about it in a “not-conscious” way.
• Illumination – bring ideas together to spark new insights.
• Verification – test the idea and reduce it to its most exact form.
Another variant is to use painstorming and ask people for pains or
aggravations they face in a situation you choose.

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Avoid Pitfalls
Identifying the wrong problem.
Judging ideas too quickly.
Stopping with the first good idea.
Failing to act.
Obeying rules that do not exist.

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Screen Ideas
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The IDEO screen hails from the
creators of design thinking.
• Do people really want the
solution being offered?
• Can the solution really solve
the problem, and can we
make it?
• Can we make the solution
and make money doing it?

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Make Sure an Idea is Feasible
After screening, move to the “next-stage” issues, like financing.
• In general, the next step is to test feasibility.
• The extent your idea is viable and realistic.
• The extent you are aware of internal and external forces.
Business models are ways to identify and organize key information on
organizations and how they achieve their goals.

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The Business Model Canvas Approach
1. Customer
segment.
2. Problem – pain
and gain.
3. Solution.
4. Value
proposition.
5. Channels.
6. Customer
relationships.
7. Revenues –
freemium.
8. Key resources.
9. Key activities.
10. Key partners.
11. Costs.
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Figure 4.7: Pet Élan’s Business Model Canvas
To analyze, we
compare the fit by
customer segment to
the value proposition,
problem, and
solution.
The four should
strongly reflect one
another and reflect
something the
customer will buy.
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Feasibility – Online Pilot Testing
A low-cost, low-risk approach to testing feasibility is an online pilot test.
• Deploy an information website and start advertising.
• Track the number of visits, get their demographics, and those who
provide an email for more information is your conversion rate.
• Typically two or more versions are running – called A/B testing.
• Make changes according to feedback.

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The Classic Feasibility Study – Overview
The feasibility study consists of investigating five primary areas: the
overall business idea, the product/service, the industry and market,
financial projections, and the plan for future action.
• Within each area, examine the strengths and weaknesses of your
business opportunity.
Traditional problems facing new products or services:
• The idea cannot be economically made into a product/service.
• The resulting product/service works, but lacks a large market appeal.
• The product/service works, has a market, and could be profitable, but
you need to get additional people, funding, or other resources.

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The Classic Feasibility Study Narrative – Part One
The Business Idea.
Description of your business.
• Describe your product/service concisely, with attention to the
characteristics you think it brings to the customer experience.
Your customers.
• Get demographics, but use creativity to learn as much as you can
about potential customers.
• If more than one target market, do this for each market segment.
Trends related to the product or service.
• How will you stay relevant?
• What trends in product use are in the future?

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The Classic Feasibility Study Narrative – Part Two
The Product/Service.
Product/service description.
• Describe your product/service very simply, using photos or drawings.
The competition.
• Consider both direct competitors and indirect competitors who may
sell a substitute.
Competitive advantage.
• Consider what they are, why they exist, and how they will help you
succeed.
Market penetration.
• Describe all the ways you will reach your customers, don’t forget the
costs involved.

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The Classic Feasibility Study Narrative – Part Three
The Business.
Description of the entrepreneur, or entrepreneurial team.
• Developed from the technical feasibility and business validity sections
of the IDEO screen.
Stage of development.
• Where are you in the process and what is the time frame?
Legal issues.
• List any patents, copyrights, trademarks, licenses, or domain names.
• List any franchise agreements or applicable government regulations.
Insurance requirements.
• Research the liability involved and protect adequately.

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The Classic Feasibility Study Narrative – Part Four
Future Action Plan.
Summary feasibility evaluation.
• Likely outcomes: confirming your idea, holding off until you learn more,
or realizing the idea is not feasible in its current form.
Next steps.
• This depends on the previous step: if feasible, start working on a
business plan and if there are questions, address them.
Start-up capital.
• List money needed, including cost of goods sold, marketing and
administrative expenses, and additional costs like rent and utilities.
Sources of start-up capital.
• Consider all sources – personal savings, family and friends, bank
loans, investors, and so on.

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The Classic Feasibility Study Narrative – Part Five
The Financial Projections.
Assumptions.
• List all the assumptions on which you are basing your financials.
Summary financial table.
• Develop a basic three-year summary including: revenues, cost of
goods sold, gross margin, operating expenses, net profit (or loss).
Three-year detailed financials.
• Details of the above step – typically you give monthly numbers for the
first year and cumulative numbers for years two and three.
Start-up budget.
• Provide a list of all costs, including legal costs and other professional
fees, initial inventory or manufacturing costs, building and fixture
costs, and technology costs.

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Ways to Keep On Being Creative
Keep yourself in an innovative state of mind.
• Read magazines or trade journals outside your area.
• Invite someone new to a meeting where you are solving a problem or
searching for a new opportunity – try a supplier or a friend.
• Have a “scan the environment” day to discuss trends.
• Try a mini-internship, spending a day with a colleague at their work.
• Put yourself in the customer’s shoes to see what frustrates them.
• Redesign your work environment to give you a new outlook.

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