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The Search for a Sound Business Idea

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sheryl pena

on 9 January 2014

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Transcript of The Search for a Sound Business Idea

- defined as the economic opportunity which is within the reach of the entrepreneur and which will provide him with a desirable value.

* new business venture-is confronted with the immediate concern of gaining atleast a foothold in the market it desires to serve.

What is a Sound Business Idea?
Chapter 5 : The Search for a Sound Business Idea
An old type of of business can be professionalized. Operations can be streamlined and better organized.
A standard product can be customized.
New technology can be adapted to manufacture an old product.
Imported products can be replaced by local products. Importing products can be cumbersome and difficult. Local production could be a good business idea.
Business operation can be internationalized.
The Person's work
-
employees who are in direct contact with customers are sometimes confronted with demand for products or services that are not currently provided by the company.
The Person's Hobbies
- there are times when a person's hobby turns out to be a business opportunity. Entrepreneurship literature abounds with stories of people with hobbies which were later converted into successful business ventures.
Acquaintances
- there are times when a person fails to notice the existence of a business opportunity. Sometimes it takes another person to make him aware of the wisdom of starting a new business venture.
A Chance Event
- there are times when a person encounters an event that will provide him with a clue to a business venture.
Using the Search Questions
- business ideas are expected to provide answers to some needs. Answers can be obtained if the right questions are asked. When questions are used to draw out specific answers, they are referred to as "search questions".
Idea Prompting

- encounters with someone else's idea, or a customer request, or some other event may provide hints or cues leading to business ideas.
The Way to Sound Business Ideas
technical feasibility
- business ideas oftentimes appear easy to execute, but it is not really so when converting them into real products or services with the required quality or quantity.
financing feasibility
- one of the factors necessary in determining whether a business idea should be considered or not is financing. the sources of financing includes the following:
the proposed owner's savings
relatives and friends
financing institution like banks
financial feasibility
- may be determined through an analysis of the financial prospects of the proposed business idea. This may be done in two steps:
The product or service offering may be improved in terms of:
preparation of the list of business Ideas;
screening of the listed ideas;
final selection
business ideas may be screened with the use
of the following criteria:

market feasibility
- a business idea must pass the test of market feasibility. this means that there must be some positive indication about the following:
stable and sufficient demands
~ a business idea will not last if there is insufficient demand for whatever product or service that is contemplated.
competitive strength

~ the business idea must be such that the venture can effectively compete with the current or potential competitors.
The competitive strength of the competitors
must be determined in terms of

product offerings, price distribution methods,promotion methods and others.
Procedures in Determining the Best Business Idea
Screening Generated Ideas
>Deliberate Search
The Importance of Sound Business Ideas
Business Ideas differ in form. Examples of these forms are the following:
performance, like the chair that can carry more weight;
maintenance cost, like the car battery that requires less servicing than competing brands;
acquisition cost, like the latest low priced model of a certain brand of cellphone compared to competition;
salvage value, like the steel filing cabinet that has a higher salvage value;
uses, lke the flypaper that can also be used as mousetrap.
Sound Business Idea
New venture
Established Business
Market Successful Entry
Success in Competition
Methods of Searching for ideas
Unanticipated means
work
hobbies
acquaintances
chance event
Deliberate search
using search questions
idea promoting
someone else's idea
customer request
some other event
>Unanticipated means
Search for Business
Ideas
Unanticipated means
Deliberate search
Screening
Market Feasibility
Technical Feasibility
Financing Feasibility
Financial Feasibility
Adoption of the Selected Business Idea
Preparation of
Formal Plans
Sources of Market Information
prior studies of the market or related markets by other companies, government agencies, and enterpreneurs.
actual polls of population samples representing typical customers. The means used includes the following:
mail questionnaires
advertisements incorporating feedback mechanisms
phone interviews
personal interviews
negotiations with perspective customers to solicit orders and determine whether or not they will actually buy.
the preparation of the projected financial statements, such as
income statement
balance sheet statement
cash flow statement
the determination and analysis of financial ratios derived from the projected statements.
Determining the Financial Feasibility of a Business Idea
Business Idea
Prepare Projected
Financial Statements
Derive Financial
Ratios
Analyze Financial
Ratios
financially
feasible
not financially
feasible
projected financial statements
- is the forecast of something which will happen in the future.
projected income statements
- is a financial record summarizing a firm's planned or expected financial performance in terms of revenues, expenses, and profits over a given period of time.
projected balance sheet
- shows the planned or expected financial position of the enterprise on a particular date.
projected cash flow statements
- is one which shows the planned or expected cash sale and/or purchases.
Final selection
~
the purpose of screening is to eliminate from the list the generated business ideas that did not pass the adapted criteria. after screening, the list may appear to be any of the following:
status quo - all business ideas listed passed the adapted criteria.
a shorter list - some of the ideas generated were eliminated.
zero listing - all business ideas generated and listed were eliminated.

*final selection is applied to the status quo list, or the shorter list, whichever is produced by the screening stage. A new set of criteria is adapted so the best among those listed can be determined.
An Evaluation of Shortlisted Business Ideas
Business Projected Net Income Probability Expected Value
Proposal A

Proposal B

Proposal C
Php 5 million

4 million

3 million
60%

70%

80%
Php 3 million

2.8 million

2.4 million
Organizational culture and Creativity
Effective innovation assures the continuous survival and growth of the enterprise, but innovation can only thrive in a creative organization with a culture characterized by the following:
encouragement of creativity and risk-taking
- creativity is the proactive way of solving problems. In a creative environment, solutions to problem are expected to come by more easily.testing an idea, however, will require a certain measure of risk taking.
rewards for creativity
- when an activity is rewarded,there is an assurance that such activity will continue existing.
open communication
- the free flowing exchange of ideas between the members of an organization. Communication flows through the vertical and horizontal relationships in the organizational structure.
allowance for errors
- innovation thrives in an environment that provides allowance for errors. It is not right to expect any activity to be devoid of any imperfections. If an error is detected, a move should be made to correct it.

a climate of participation
- the firm will benefit from the good effects of employee participation.
structural mechanisms that aid creativity
- the urge to create solutions to problems would be headed by the innovative person more easily there are structural mechanisms within the organization to support the exercise.
training in the creative process
- some people have natural talents for generating business ideas,those who are not considered as such would benefit from acquiring the required skills through training.
flexibility
- the creative employee is allowed to engage in creative activities on hours most convenient to him and to the company.
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