Developing & Screening Business Ideas

BBUSS 2403 • BUSINESS PLANNING
CHAPTER 2
Developing & Screening
Business Ideas
Chapter Two
Developing and screening business
ideas
– Three most common sources of new
business ideas
– Techniques for generating ideas
– First screen
2-2
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
2-3
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
2-4
Figure 2.2
Three sources of new business ideas
Changing Unsolved Gaps in the

environmental problems marketplace
trends
2-5
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

2-6
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
2-7
Trends
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
2-8
Trends
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
2-9
Trends
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
2-10
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
2-11
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
2-12
Techniques for Generating
Ideas
• Casual observation, intuition,
serendipity, or luck
• Three sources of business ideas

– Brainstorming
– Focus groups
– Library and Internet research
2-13
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
2-14
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
2-15
Focus Groups
• Works best as a follow-up

to brainstorming
• Conducted by trained
moderators to keep the
group focused
2-16
Focus Group
College drop in
A 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
2-17
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
2-18
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
2-19
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
2-20
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
2-21
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
2-22
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
2-23
Part Three: Market and
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
2-24
Part Three: Market- and
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
2-25
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
2-26
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
2-27
Key Words
Barriers to entry
A condition that creates a
disincentive for another firm to
enter the company’s niche market
2-28

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BBUSS 2403 • BUSINESS PLANNING

Changing Unsolved Gaps in the

• Gaps in the marketplace

• Many companies have

• Key large retailers compete on

• Three sources of business ideas

Participants share their ideas

A focus group is a gathering

• Works best as a follow-up

• The First Screen is an entrepreneur’s first

A target market is a place within a

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