CHAPTER 3

RESEARCHING THE VENTURES – FEASIBILITY

LEARNING OBJECTIVES

After reading this chapter, you should be able to:

1. Identify misconceptions about and realities of great ideas.

2. Describe the four main sources of ideas.

3. Describe different ways to generate ideas for entrepreneurial ventures.

4. Explain how to evaluate ideas.

5. Explain what the break-even point is and how to calculate it.

6. Define competition and describe the different ways to view competitors.

7. Discuss how to do a competitive analysis.

8. List and explain the various financing options from which entrepreneurs may

choose.

9. Explain how to evaluate the various financing options.

10. Discuss the guidelines for seeking financing.

BRIEF CHAPTER OUTLINE

Generating and evaluating business ideas
Misconceptions about and realities of great ideas
Generating ideas
Where ideas come from
Ways to generate ideas
The role of intuition
Evaluating ideas
Why is evaluation important?
How to evaluate ideas
Researching competitors and competitive advantage
What is competition?
Who are the competitors?
Getting competitor information
What type of competitive information should you look for?
Where to get competitive information?
Researching financing options
Possible financing options
Evaluating financing options
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 Guidelines for seeking financing

EXPANDED LECTURE OUTLINE

What are the start-up issues?

1. It’s important to research an entrepreneurial venture’s feasibility. Doing this entails generating

and evaluating business ideas, researching and evaluation competitors, and exploring and

evaluating the various financing options.

There are four main sources of ideas. First is personal interests or hobbies. Many entrepreneurial

ventures got their start because of an entrepreneur’s love of doing something. Another popular

source is an entrepreneur’s work experiences, skills, and abilities. The third source is to look at

products and services currently available, both familiar and unfamiliar ones. Finally,

opportunities in the external environment can be a source of potential entrepreneurial ideas.

Generating ideas is an important process, but it’s only half the work. Evaluating ideas is

important, also. Evaluating ideas revolves around personal and marketplace considerations. Two

specific evaluation techniques include the four-questions approach and a feasibility study. Once

the entrepreneur has investigated an entrepreneurial idea and has a fairly good assessment of its

strengths and weaknesses, it’s time to look at the competition. Researching the competition

through competitor intelligence activities can be a powerful tool for entrepreneurs. In assessing

the competition, it’s important to know who the competitors are, what information to get on

competitors, and how to get that information.

The final aspect of researching the venture’s feasibility is to look at the various financing

options. There are seven possible sources: the entrepreneur’s personal resources, financial

institutions, venture capitalists, angel investors, public stock offering, business development

programs, and unusual sources. Each of these sources will vary in terms of the control, risk, and

reward they offer.

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2. In this chapter, we’ll be looking at different ways to generate ideas for entrepreneurial ventures,

how to evaluate those ideas, how to research and evaluate the competition, and finally, explore

the various financing options that entrepreneurs have.

Exhibit 3-1 “New Businesses Ideas” will help validate this point.

________________________________________________________________________

________________________________________________________________________

3. Where does an entrepreneur get ideas?

Great ideas don’t just appear out of nowhere. The best idea generators tend to do so in a

structured, systematic way. Approach idea generation as a top-priority activity by devoting set

periods of time to it.

______________________________________________________________________________

______________________________________________________________________________

4. How do customers tell you what they want?

Customers will tell you what to do if you’ll only listen. Who better to have as a source of ideas

than the people who will purchase your products? The only problem with this belief is that

although customers can help identify unmet needs, there’s much more involved with making a

great idea workable.

______________________________________________________________________________

______________________________________________________________________________

5. Can we generate all the ideas we’ll ever need if we just sit down at a meeting?

Getting people together at a meeting to discuss ideas and to feed off of each other’s enthusiasm

seems like a smart thing to do.

______________________________________________________________________________

______________________________________________________________________________

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 Entrepreneur in Action Teaching Suggestion

Create a imaginary company that makes cellular phones and call a meeting of the

management, your class. You may wish to type an agenda for the meeting outlining objectives

with time limits and name certain class members (the vocal ones) to key positions; the rest of

the class works for these key players. These key positions could be, but are not limited to:

CEO Director of New Product Development Director of Sales

CFO Director of Engineering Director of Marketing

CIO Director of Technology Director of Production

Let them come up with new product ideas. You might like to steer them towards getting the

ideas from their areas.

The CEO, you, should lead the meeting.

6. Can a hobby become a entrepreneurial ventures?

Many entrepreneurial ventures got their start because of an entrepreneur’s love of doing

something - restoring antique automobiles, scuba diving adventure tours, baking grandma’s

scrumptious praline brownies, or whatever.

________________________________________________________________________

________________________________________________________________________

7. How does work experience help the entrepreneur create new ideas?

In the process of using work-related experiences, the entrepreneur may create a new product, but

a whole new industry.

______________________________________________________________________________

______________________________________________________________________________

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8. Can the entrepreneur get ideas from existing products or services?

Another source of possible ideas is to look at products and services currently available, both

familiar and unfamiliar ones.

______________________________________________________________________________

______________________________________________________________________________

9. Can the entrepreneur get ideas from the external environment?

The external environment is a good source of potential entrepreneurial ideas. Opportunities can

be found in the technological, societal culture, demographics, economic, and legal/political

sectors.

______________________________________________________________________________

______________________________________________________________________________

Rapid Review
 What common misconceptions do people have about great ideas? What are the realities of
great ideas?
Some common misconceptions are that great ideas just appear out of nowhere,
there are no stupid ideas, customers will tell you what to do if you’ll only listen, we
can generate all the ideas we’ll ever need if we just sit down at a meeting, and
getting ideas isn’t the problem; implementing them is. The realities of great ideas
are that entrepreneurial ventures thrive on ideas, generating ideas is an innovative
and creative process, there are better ways to generate ideas, and we should use
structured analysis to review each idea.
 What have various entrepreneurship researchers found with regard to the source of an
entrepreneur’s ideas?
Great ideas come from working in the same industry. Ideas for an entrepreneurial
venture can come from a serendipitous (coincidental) discovery. Many
entrepreneurial ventures got their start because of an entrepreneur’s love of doing
something.
 Describe the four main sources of entrepreneurial ideas.
A hobby
Work experiences, skills, and abilities
Look at products and services currently available, both familiar and unfamiliar
ones
External environment can offer ideas in the technological, societal culture,
demographics, economic, or legal/political sectors
 What types of things should entrepreneurs look for as they explore ideas?
Look for the limitations of what is currently available, for new and different
approaches, look at scientific and technological advances and breakthroughs, for
unfilled niches, and at trends and changes.

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10. What are ways to generate ideas?

(1) Environmental scanning, (2) creativity and creative problem solving, (3) brainstorming, and

(4) focus groups.

________________________________________________________________________

________________________________________________________________________

11. What is environmental scanning?

Environmental scanning is the screening of large amounts of information to detect emerging

trends.

______________________________________________________________________________

______________________________________________________________________________

12. What is creativity and creative problem solving?

Creativity and creative problem solving is a structured technique for generating ideas. A few

methods are: Checklist method in which the entrepreneur uses a list of questions or statements to

develop new ideas; free association where the entrepreneur develops a new idea through a chain

of word associations; attribute listing in which the entrepreneur develops a new idea by looking

at the positive and negative attributes.

______________________________________________________________________________

______________________________________________________________________________

Entrepreneur in Action Teaching Suggestion

Ask the students to use creativity and creative problem solving, structured. Pick one of the
cases in the chapter and ask the students to combine the ideas in the case in a unique way or to
make unusual associations between ideas. They should describe the idea the entrepreneur had
in the case, and those they’d add, from the start. It will be interesting seeing this structured
approach (checklist method in which the entrepreneur uses a list of questions or statements to
develop new ideas; free association where the entrepreneur develops a new idea through a
chain of word associations; attribute listing in which the entrepreneur develops a new idea by
looking at the positive and negative attributes) unfold. Others in the class can challenge the
idea, funding, or obstacles they might encounter.
This way the students, with you as the guide, can achieve a better understanding of the idea
process.
You might find that you have entrepreneurs around you.

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13. What is brainstorming?

In a typical brainstorming session, a group of people sit around a table. A group leader states the

issue to be addressed. Then members “free-wheel” as many ideas as they can in a given time.

Participants are encouraged to come up with as many ideas as possible and to build on each

other’s ideas. No criticism of ideas is allowed. Instead, all ideas, no matter how crazy, are

recorded for later discussion and analysis. It can be a frenzied, yet productive way to generate

numerous ideas.

______________________________________________________________________________

______________________________________________________________________________

14. How do focus groups work?

They are groups of individuals who provide information about proposed products or services in a

structured setting.

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15. How does intuition help the entrepreneur?

Intuition is a cognitive process where we subconsciously make decisions based on our

accumulated knowledge and experiences.

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______________________________________________________________________________

FYI—As Good As a Guess?

Rate your intuitive powers by taking the following quiz.

Complete the following quiz as honestly—and quickly—as you can. It will give you a gauge of how
strong your gut instinct is.

1. When working on a project, do you prefer to:

(a) Be told what the problem is but lefty free to decide how to solve it?
(b) Get very clear instructions about how to go about solving the problem before you start?
2. When working on a project, do you prefer to work with colleagues who are:
(a) Realistic?
(b) Imaginative?
3. Do you most admire people who are:

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 (a) Creative?
(b) Careful?
4. Do the friends you choose tend to be:
(a) Serious
(b) Exciting and often emotional?
5. When you ask a colleague for advice on a problem, do you:
(a) Seldom or never get upset if he questions your basic assumptions?
(b) Often get upset if he questions your basic assumptions?
6. When you start the day, do you:
(a) Seldom make or follow a specific plan?
(b) Usually make a plan to follow first?
7. When working with numbers, do you find that you:
(a) Seldom or never make factual errors?
(b) Often make factual errors?
8. Do you find that you:
(a) Seldom daydream during the day and really don’t enjoy it when you do?
(b) Frequently daydream during the day and enjoy doing so?
9. When working on a problem, do you:
(a) Prefer to follow the instructions or rules when they are given to you?
(b) Often enjoy circumventing the instructions or rules when they are given to you?
10. When you are trying to put something together, do you prefer to have:
(a) Step-by-step written instructions for assembly?
(b) A picture of how the item is supposed to look once it’s assembled?
11. Do you find the person who irritates you the most is the one who appears to be:
(a) Disorganized?
(b) Organized?
12. When a crisis that you have to deal with comes up unexpectedly, do you:
(a) Feel anxious about the situation?
(b) Feel excited by the challenge?
HOW TO SCORE
First, total the number of “a” responses you circled for questions 1,3,5,6 and 11. Second, total the number
of “b” responses you circled for questions 2,4,7,8,9,10, and 12. Add the totals.
If you scored above an 8, your intuition is humming. If you scored above 10, you are an intuition
superstar, in the top 10 percent of all Americans.
Source: By permission of Weston Agor, Ph.D. ENFP Enterprises, 5515 North Stanton Street, #18-D, El
Paso, TX 79912.

16. After reading this chapter, you should now be able to develop ideas on your own.

______________________________________________________________________________

______________________________________________________________________________

Rapid Review
 What is environmental scanning? How can it be used to generate ideas?
Environmental scanning is the screening of large amounts of information to detect
emerging trends. It can stimulate ideas by looking at upcoming trends from the
data you reviewed. By approaching an idea in this way, you’ll know that the
forecast trend is in your favor.
 Define creativity. Describe some specific techniques for enhancing creativity.
Creativity and creative problem solving is a structured technique for generating
ideas.
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 Some specific techniques for enhancing creativity are the checklist method in which
the entrepreneur uses a list of questions or statements to develop new ideas; free
association where the entrepreneur develops a new idea through a chain of word
associations; attribute listing in which the entrepreneur develops a new idea by
looking at the positive and negative attributes.
 What is brainstorming? How can it be used to generate ideas?
Where participants are encouraged to come up with as many ideas as possible and
to build on each other’s ideas.
 How could focus groups be used to generate ideas?
With a moderator, a focus group will discuss ideas.
 What is intuition, and what role does it play in generating ideas?
Intuition is “gut feel,” and it is a good measure of things you can’t quantify. It uses
your past experiences.

17. Why is idea evaluation important?

Exhibit 3-3 will help you.

________________________________________________________________________

________________________________________________________________________

18. What is risk and return?

Risk is the uncertainty you take on and return is the payback, financial or otherwise.

______________________________________________________________________________

______________________________________________________________________________

19. What questions can you ask to evaluate ideas?

 Do you have the capabilities for what you’ve selected?
 Are you ready to be an entrepreneur?
 Are you prepared emotionally for the stresses and challenges of being an entrepreneur?
 Are you prepared to deal with rejection and failure?
 Are you ready to work hard?
 Do you have a realistic picture of the venture’s potential?
 Have you educated yourself about financing issues?
 Are you willing and prepared to do continual financial and other types of analyses?

______________________________________________________________________________

______________________________________________________________________________

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 Entrepreneur in Action Teaching Suggestion
Separate the class in groups of 4–6 students in each. Give the groups an idea to evaluate
using some of the evaluation questions in the chapter.
Do you have the capabilities for what you’ve selected?
Are you ready to be an entrepreneur?
Are you prepared emotionally to deal with the stresses and challenges of being an
entrepreneur?

Are you prepared to deal with rejection and failure?

Are you ready to work hard?
Do you have a realistic picture of the venture’s potential?
Have you educated yourself about financing issues?
Are you willing and prepared to do continual financial and other types of analyses?

Go over their answers as a class and point out where others see issues differently.
How does what we are learning here tie back to the major challenges and rewards of being
an entrepreneur we learned in Chapter 1?

20. What is a feasibility study?

A feasibility study is a structured and systematic analysis of the various aspects of a proposed

entrepreneurial venture designed to determine its feasibility.

Exhibit 3-4 provides an outline of one possible approach to a feasibility study.

______________________________________________________________________________

______________________________________________________________________________

Rapid Review
 Why is evaluating ideas important?
Evaluation gives you the chance to assess the soundness of your idea.
 What role do risk and returun play in evaluating entrepreneurial ideas?
Risk is the uncertainty you take on with a new idea.
Return is the payback, financial or otherwise.
This plays a major role in your evaluation of the idea. Depending on the risk and
return will determine if the venture or idea is worth your consideration, tine
effort,and energy.
 What role do personal considerations play as an entrepreneur evaluates potential ideas?
Personal considerations include the need to make a critical analysis on whether you
have the time resources and expertise for this idea.
 What role do marketplace considerations play?
Marketplace considerations include who the competitors are and what else is
available.
 What is the break-even point? How is it calculated? Why is it important in evaluating ideas?
The break-even point is calculated by dividing the total fixed costs by the idfference
between the unit price and the unit variable costs.

49
  Describe the four-questions approach to evaluating entrepreneurial ideas.
(1) Do you love the business?
(2) Are you skilled at the business?
(3) Do you have experience at the business?
(4) Is the business simply a fad or trend?
 What is a feasibility study? Why is it a valuable tool in evaluating entrepreneurial ideas?
A feasibility study is a structured and systematic analysis of the various aspects of a
proposed entrepreneurial venture designed to determine its feasibility. It
systematically looks at the entrepreneurial venture with the key questions in mind
to determine the idea’s feasibility and to assist entrepreneurs to determine if they
have the key ingredients to make it happen.

21. Who are your competitors?

Exhibit 3-5 lists some specific factors that might be used to distinguish strategic groups of

competitors.

______________________________________________________________________________

______________________________________________________________________________

22. What type of competitive information should you look for?

 What types of products or services are the competitors offering?
 What are the major characteristics of these products or services? What are their products’
strengths and weaknesses?
 How do they handle marketing, pricing, and distributing?
 What do they attempt to do differently from other competitors? Do they appear to be
successful at it? Why? Why not?
 What are they good at? That is, what competitive advantage(s) do they appear to have?
 What are they not so good at? What competitive disadvantage(s) do they appear to have?
 How large and profitable are these competitors?

______________________________________________________________________________

______________________________________________________________________________

The Grey Zone

Here are some other techniques that have been suggested for gathering competitor information:
(1) Pretend to be a journalist writing a story. Call up competitor’s offices and interview
knowledegable personnel. (2) Dig through a competitor’s trash. (3) Sit outside a competitor’s
place of business and count how many customers go in. (4) Get copies of your competitors’ in-
house newsletters and read them. (5) Call the Better Business Bureau and ask if competitors have
had complaints filed against them and if so, what kind of complaints. (6) Have a friend call your
competitors for a price list, a brochure, or other marketing information. Do you think these
methods are ethical or unethical? Why? What ethical guidelines would you propose for
entrepreneurs when doing competitor intelligence?

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 Summary:
Ethics in business is an interesting topic, especially where it relates to competitive activities.
Some of the activities listed above go beyond information in the public domain, which in the
writer’s opinion is where the “line” may be crossed or stretched. Misrepresenting yourself or
your motive to obtain the information is not a practice I suggest you subscribe.
Teaching Notes:
Students of different age and work experience may address the ethical issues quite differently. I
suggest the class is able to offer opinions and react to classmates’ opinions on this matter.

Rapid Review
 What is competitor intelligence?
The process of gathering information on who competitors are, what they are doing,
and how their actions will affect your organization.
 What is competition?
It is defined as organizations vying or battling for some desired object or outcome,
typically customers, market share, survey ranking, or needed resources.
 Describe the three different ways to define possible competitors.
The industry perspective identifies competitors as organizations making the same
product or providing the same service. The marketing approach says that
competitors are organizations that satisfy the same customer need. The strategic
groups perspective defines groups of competitors following essentially the same
strategy in a particular market or industry.
 What are strategic groups and what types of strategic factors might be used to define a
strategic group?
Strategic groups are groups of competitors following essentially the same strategy
in a particular market or industry. Some factors used to define a strategic group
are priceand quality.
 What type of competitive information should an entrepreneur get, and what are some sources
of competitive information?
What types of products or services are the competitors offering? What are the
major characteristics of these products or services? How do they handle
marketing, pricing,and distribution? What are they good at?
Some sources of competitive information are published financial sources,
employees, dealers, suppliers, distributors, market surveys, trade fairs.
 What is reverse engineering?
Reverse engineering is the technical analysis of competitors’ products.
 What role should ethics play in competitor intelligence gathering?
Information should be gathered in a legal and ethical manner.
 How might a competitor analysis matrix be helpful?
It enables you to easily compare potential competitors.

23. What are possible financing options?

Exhibit 3-7 shows the various options.

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24. Who is the “SBA”?

The SBA stands for the U.S. Small Business Administration, which is a government agency

devoted to the enhancement, support, and education of entrepreneurs and small business

owners/managers.

Check out the SBA Web site at http:\\www.sba.gov

______________________________________________________________________________

______________________________________________________________________________

FYI—New Sources for Funding

Although most of the traditional funding sources for entrepreneurial ventures are the
most likely ones to pursue, there are some sources that provide new solutions to the perennial
financing challenge faced by entrepreneurs. Here are just a few of these:
1. SBA Express. This is another initiative of the U.S. Small Business Administration. It’s a
streamlined process for bank-qualified business owners. They can borrow up to $150,000
through a SBA-backed loan without going through the typical application process. An
answer is guaranteed within 36 hours. One difference, though, is that these loans are
guaranteed at only 50 percent of their value, so many lending institutions have yet to offer
this service.
2. Community banks. As competitors in the banking industry continue to merge with each
other, entrepreneurial ventures looking for financing from these megabanks often get
shortchanged. Many times, the best chance for these businesses is to look to local,
community banks where a long-term banking relationship can be established.
3. Microloans. These are loans that typically range from hundreds of dollars to the low six
figures. Because many financial institutions consider microloans too small to be worth the
effort, these may be difficult to find. But, if you need only a small amount of financing, ask
about one.
4. Third-party loan guarantees. Sometimes a loan approval can be gained if a third party
(family or close friend) cosigns for the loan. If this is something you’re reluctant to ask
someone close to you to do, there are financial sources that will consider cosigning your loan
for a fixed fee or a percentage of the face value of the loan.
5. Strategic partnership. Perhaps a financing alternative might be to look to a corporate
partner. The corporate partner benefits by having access to new technology or a niche market
that’s too small for it to pursue profitably on its own. Of course, the entrepreneur benefits by
getting the needed financing.

Source: J. A. Fraser, “How to Finance Anything,” Inc., March 1999, pp. 32–48.

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 Rapid Review
 What types of personal resources might an entrepreneur have access to for financing?
Types of personal resources an entrepreneur might have access to for financing are
personal savings, home equity, proceeds from the sale of personal assets, life
insurance policy loan, personal loans, credit cards, and loans from family and/or
friends.
 What types of financial institutions provide funds to entrepreneurs? How do they provide
these funds?
Financial institutions that provide loans include banks, savings and loan
institutions,credit unions, life insurance firms, other commercial lenders, and
finance companies.
They provide the funds in the form or loans.
 Describe an SBA-guaranteed loan.
A SBA-guaranteed loan guarantees that 80 percent of the amount loaned to the
entrepreneur’s business will be repaid by the SBA if the entrepreneur cannot pay
it.
 What is venture capital? Why would venture capitalists be interested in financing
entrepreneurial ventures?
Venture capital is external equity funding provided by professionally managed
pools of investor money.
Venture capitalist requests equity (ownership of the venture) financing. In other
words, the entrepreneur is giving up some amount of ownership in the
entrepreneurial venture in return for financing from the venture capitalist.
 What is an angel investor? What cautions are appropriate when dealing with an angel
investor?
An angel investor is a private investor, a wealthy individual, who offers financial
backing usually in high-risk/high-reward opportunities.
Some angels may be looking for a quick turnaround of their money and will, in
effect, destroy the business to get it back out. And, some supposed angels are less-
than-desirable individuals with suspicious backgrounds and intentions. In other
instances, angel investors may feel that their equity investment permits them to tell
the entrepreneur how to run the business.

25. How do you evaluate financing options?

The evaluation of financing options boils down to three words: control, risk, and reward.

Exhibit 3-9 provides a summary of these combinations.

______________________________________________________________________________

______________________________________________________________________________

53
 Rapid Review
 Why is it important for entrepreneurs to evaluate the various financing options?
An entrepreneur’s choice of financing will likely impact the business for a long
period of time.
 What role do control, risk, and reward play in an entrepreneur’s evaluation of the financing
options?
Each financing option involves trade-offs. An entrepreneur should evaluate all
financing options to ensure a good fit .
 Describe the various combinations of control, risk, and reward for each of the financing
sources.
Exhibit 3-9 details the trade-offs of each financing option.
 What role does preparation play in seeking financing? Explain.
Thorough planning and documentation are usually the ticket of admission to the
financing process.
 List and explain the guidelines for seeking financing.
1. Write a feasibility study and then a business plan.
2. Get professional advice and help.
3. Get references.
4. Go do it.

SUGGESTIONS FOR USING THE

“SWEAT EQUITY EXERCISES”
1. It is much easier to succeed at something you enjoy. As the chapter states, “Many

entrepreneurial ventures got their start because of an entrepreneur’s love of doing something—

restoring antique automobiles, scuba diving adventure tours, baking grandma’s scrumptious

praline brownies, or whatever.”

______________________________________________________________________________

______________________________________________________________________________

2. Research on trends and fads are inconclusive, as you don’t know which will become the next

staple product. How do you differentiate them?

______________________________________________________________________________

______________________________________________________________________________

54
3. One limitation in trying to generalize across Generation Y is the large range of ages – 16 years

separate the oldest and youngest members. What sub-groups might exist within Generation Y?

______________________________________________________________________________

______________________________________________________________________________

4. The more focused the strategy, the less risk of it being diluted by the pursuit of unrelated ideas.

______________________________________________________________________________

______________________________________________________________________________

5. One of the best uses of competitor intelligence is the opportunity to learn about best practices in

different aspects of the business.

______________________________________________________________________________

______________________________________________________________________________

6. While an entrepreneur should evaluate all possible financing options, it is important to remember

that most business funding comes from the entrepreneur, partners and family members.

______________________________________________________________________________

______________________________________________________________________________

7. While barriers to entry may exist, an established entrepreneur should be careful to avoid

expecting these barriers to prevent competitors from emerging.

______________________________________________________________________________

______________________________________________________________________________

8. While everyone can generate ideas, entrepreneurs are distinct in their ability to turn those ideas

into useful products, services and businesses.

______________________________________________________________________________

______________________________________________________________________________

9. Ask the students to look at each of these business trends and comment on what opportunities or

challenges they create.

 The computer revolution

55
  The rise of the Internet/World Wide Web
 The Internet shake-out
 Downsizing
 Outsourcing
 Abundant financing
 Globalization
 Quality improvement programs

______________________________________________________________________________

______________________________________________________________________________

ANSWERS TO QUESTIONS IN
“ENTREPRENEURSHIP IN ACTION CASES”
Spanx (www.spanx.com)
1. Where did the idea for Spanx come from? Is this a good source of entrepreneurial ideas? Why or

why not?

Sara Blakely’s idea for Spanx originated in her frustration as a customer. This represents

one of the best sources of business ideas as long as the entrepreneur tests to see if others

share their views.

2. What examples of researching a venture’s feasibility do you see in this story?

Blakely’s research included an extensive search for the products, her work with a patent

attorney, and her search for outsourcing providers.

3. Because no other organization was doing what Sara Blakely wanted to do, would she still need to

research competitors? Explain.

One key issues facing Sara is the threat of “kock-off” products after she brings her

products to market.

4. What other information might Sara have looked at as she researched the feasibility of her idea?

What would this information have provided her?

Sara would benefit by test marketing her products. This would help her assess the true

demand, the most desired design aspects, and the proper price point.

56
 Teaching Tip
Ask the class to identify examples of products and services they wish existed. Do any of these

rerpresent possible business ideas?

Sonicare (www.sonicare.com)
1. Describe the process of idea development behind Sonicare, the company’s sonic toothbrush.

Giuliani spent a long time attempting to perfect the product’s design before attempting to

secure funding and launch the business.

2. Would research-oriented universities be a good source of potential entrepreneurial ideas? Do

some research on this topic and write up a short report outlining the advantages and drawbacks of

this idea source.

Universities generally possess the resources and expertise to properly test new products.

They are generally not as effective in bringing products to market.

3. One of the misconceptions about great ideas is that they come out of nowhere. How do you

explain the fact, then, that Giuliani “saw” the connection between a process of nature (waves

hitting the beach and eroding the sand) and his redesign of the company’s prototype?

It is far more important to focus on how to leverage ideas rather than on identifying the

precise source of the ideas.

4. What is your opinion of Giuliani’s approach to the company’s financing needs? What

suggestions might you have given him?

This is a great idea. No single investor has too much influence. Giuliani will also have

access to the ideas, experience, and contacts of each investor.

Teaching Tip
Ask the class to identify and discuss some examples of products that turned out to have major

design flaws. Brainstorm how these failures might have been prevented.

57
Accuship (www.accuship.com)
1. What do you think of Fred Smith’s advice about creating a business? How does this fit in with

what we discussed in this chapter?

His advice is excellent. The needs of the market should always drive the process.

2. In evaluating the potential of his idea, what would Kauffman want to look at? Explain.

Kauffman would be well served by testing to verify the size of the market and the extent of

the need.

3. What do you think of Kauffman’s approach to financing? What are the advantages and

drawbacks of financing growth only through available cash?

His approach is likely to prevent excessive growth that could cause him to lose control of

key aspects of the business.

4. Kauffman stated in relation to company growth that “timing is everything.” How might this

approach affect the way that an entrepreneur researches a venture’s feasibility? Explain.

The timing of growth is important in ensuring that the market is ready for the products or

services. Growth should also be controlled to avoid a lack of follow-through with

customers.

Teaching Tip
Develop a list of situations where members of the class were disappointed by a business. Which

of these situations appear to be due to excessive growth?

Nobody in Particular Presents (www.nipp.com)

1. Define who the competitors are using the industry perspective, the marketing perspective, and the

strategic groups perspective.

Some businesses offer similar products, while others focus on meeting the same customer

needs. Other firms compete by attempting not to deviate too much from what other firms

are doing.
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2. What type of competitive information should NIPP have gathered? Be specific.

Which players are in which markets? How large and successful are competitors? Where

are the entry barriers too high?

3. Do some research on Clear Channel Communication. Find out its sales revenues, number of

employees, and top managers. In addition, try to find specific information about its live concert

business. Would this information have been valuable to NIPP? Why or why not? (Be sure to cite

your sources.)

Clear Channel is very geographically dispersed. The company also covers a wide range of

the entertainment spectrum.

Teaching Tip
Ask the class to identify ways in which various radio stations business models are similar? How

are they different?

Papa Murphy’s Pizza (www.papamurphys.com)

1. Do a competitive analysis of the pizza industry. Put your information in a competitor analysis

matrix. This will require you to do significant outside research.

Some “pizza” categories include: frozen, fresh and ready to bake, focal pizza shops,

regional pizza shops, and national chains (with and without restaurants).

2. What approach did you use in identifying your competitors? How did you choose the competitors

that you did?

Many pizza producers attempt to create a pizza based upon their individual tastes.

3. What could other entrepreneurs learn from Graham’s and Collins’s experiences?

Entrepreneurs can benefits from picking a tight niche and staying very focused.

Teaching Tip

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 Ask the class to identify examples of businesses that lost their focus by attempting to do too

many things form too many different customer groups.

Business Plan Pro Exercise 3-1: Concept Kick Start and Evaluating
Ideas
Teaching Tip
Ask the class whether they view the business plan process as a help or a hindrance during the

“idea evaluation” phase.

Business Plan Pro Exercise 3-2: Graphico and Competition

• This is a small graphics design business. What competition does a business like this have? How

would it research the competition?

• Read through this sample plan’s examination of the market and competition. Compare its

discussion of competition, including sections 4.3, Service Business Analysis; 4.3.1, Competition

and Buying Factors; and 5.1, Competitive Edge. How does this analysis compare to your

imaginary analysis of Graphico in Exercises 2-2 and 2-3? How would you research your

competition and factors of competition for a plan for Graphico?

Teaching Tip
Ask the class to consider which types of competition represent the greatest threat to this small

graphics design business?

Business Plan Pro Exercise 3-3: Understand the Competition

• Consider the competitive landscape for graphic design in your area. How does it compare to the

plan for the Metolius Agency? How would you go about finding out, for your market area, the

nature of competition in graphics design?

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 Teaching Tip
Ask the class to discuss the risks of “over-focusing” on competitors.

Business Now Video: Wherenet

1. Where do you think the idea for Wherenet came from?

The idea for Wherenet likely stemmed from the daily frustrations of someone running an

unrelated business.

2. What types of competitive information would Wherenet want to have? Be specific.

Who are the main competitors? How are they meeting customers’ needs now? How large

and experienced are they in this business?

3. Dave Wisherd described the company’s product as radical and change-the-world. How important

do you think these characteristics are in researching the feasibility of an entrepreneurial venture?

These characteristics are very important. If a business enters the market too soon, it may

not survive. If entry barriers are too low, this may open the door to a large number of new

competitors.

Teaching Tip
Ask the class to identify examples of good and bad timing by entrepreneurs in starting their

businesses.

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