Business Idea PDF

BUSINESS IDEA Chapter 5 THE SEARCH FOR A SOUND  FG.8: THE IMPORTANCE OF SOUND BUSINESS IDEAS SOUND BUSINESS IDEA NEW ESTABLISHED VENTURE...

BUSINESS IDEA Chapter 5 THE SEARCH FOR A SOUND  FG.8: THE IMPORTANCE OF SOUND BUSINESS IDEAS SOUND BUSINESS IDEA NEW ESTABLISHED VENTURE BUSINESS SUCCESSFUL SUCCESS IN MARKET ENTRY COMPETITION The product or service offering may be improved in terms of: 1. PERFORMANCE like the chair that can carry more weight; 2. MAINTENANCE COST like the car battery that requires less servicing than competing brands; 3. ACQUISITION COST like the latest low priced model of a certain brand of cellphone compared to competition; 4. SALVAGE VALUE like the steel filing cabinet that has a higher salvage value; and 5. USES like the flypaper that can also be used as mousetrap.  WHAT IS A SOUND BUSINESS IDEA A sound business idea mary be def ined as the economic opportunity which is within the reach of the entrepreneur and which will provide him with a desirable value entrepreneur who is well grounded in the concept of sound business idea will be able to save time, effort, and money in pursuing his goals.  BUSINESS IDEAS DIFFER IN FORM. EXAMPLES OF THESE FORMS ARE THE FOLLOWIN 1. An old type of business can be professionalized. Operations can be stream lined and better organized. An example of the professional approach that applied to restaurant service is McDonald's. Food f irms such as McDonald's stress presentation, service, cleanliness, and quality  BUSINESS IDEAS DIFFER IN FORM. EXAMPLES OF THESE FORMS ARE THE FOLLOWIN 2. A standard product can be customized. This is what a recording recording did when it produced minus one music in three pitch levels: low pitch, medium pitch, and high pitch. This product, in combination with what the pitch control mechanism of the VCD equipment can do offers a terrific opportunity to perfectly fit any singer's voice.  BUSINESS IDEAS DIFFER IN FORM. EXAMPLES OF THESE FORMS ARE THE FOLLOWIN 3. New technology can be adapted to manufacture an old product. When certain bakery started using machines to produce various kinds of bread production cost decreased and more quantities could be produced quickly.  BUSINESS IDEAS DIFFER IN FORM. EXAMPLES OF THESE FORMS ARE THE FOLLOWIN 4. Imported products can be replaced by local products. Importing products can be too cumbersome and dif ficult. Local production could be a good business idea. For example, the production of local textbooks was thought to be a good business idea. It turned out to be a lucrative venture.  BUSINESS IDEAS DIFFER IN FORM. EXAMPLES OF THESE FORMS ARE THE FOLLOWIN 5. Business operations can be internationalized. This is a real challenge to the entrepreneur. The rewards are great, however, when he is successful. The entry of Jollibee in the foreign market, for instance, is an indication of the possibility of opportunities in international operations. FG.10: METHODS OF SEARCHING FOR IDEAS Methods of Generating Business Ideas Unanticipated Means Deliberate Search Work Using Search Idea Prompting Questions Hobbies Acquaintances Someone Elses Customer Some Other Chance Event Idea Request Event UNANTICIPATED MEANS When the entrepreneur finds business ideas without serious effort, the methods referred to as unanticipated means. Included in this means are the following: 1. The person's work; 2. The person's hobbies; 3. The person's acquaintances; and 4. A chance event encountered by the person.  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. To the enterprising employee, this may be interpreted as an opportunity for entre preneurship. THE PERSON'S HOBBIES There are times when a person's hobby turns out to be a business opportunity. A hobby is a useful means of developing some skill which could be useful later when the hobbyist decides to operate a business. Entrepreneurship literature abounds with stories of people with hobbies which were later converted into successful business ventures.  THE PERSON'S 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. This other person could be a friend, a neighbor, or just any body he meets once in a while. A CHANCE EVENT ENCOUNTERED BY THE PERSON There are times when a person encounters an event that will provide him wis a clue to a business venture. D E L I B E R AT E SEARCH A disadvantage of unanticipated means in idea generation is the difficulty of as certaining the exact date when the ideas will come pouring in. To offset this problem a deliberate search for ideas is made. This type of idea generation takes the form of the following: USING SEARCH QUESTIONS; AND IDEA PROMPTING USING 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." EXAMPLES OF SEARCH QUESTIONS: 1. How can this product be made differently? 2. What will motivate the consumers to buy my product instead of the com petitor's product? 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. For instance, somebody made a casual remark on the difficulty of preparing and meeting the various requirements of a wedding. That idea, when properly viewed, may just lead to the listing of a business idea. Customer requests could also be analyzed to give way to idea prompting. The incmasing number of burglaries may lead someone to think of a business solution that will offer protection to homeowners. SCREENING GENERATED IDEAS The search for a sound business idea calls for the preparation of a list so the best can be selected. Before selection is made, however, the ideas listed must be screened first. Adoption of the Search for Preparation of Screening Selected Business Business Ideas Formal Plans Idea 1. Unanticipated means 1. Market feasibility 2. Deliberate search 2. Technical feasibility 3. Financing feasibility 4. Financial feasibility FG.11: METHODS OF SEARCHING FOR IDEAS Business ideas may be screened with the use of the following criteria: MARKET FEASIBILITY TECHNICAL FEASIBILITY FINANCING FEASIBILITY FINANCIAL FEASIBILITY  MARKET FEASIBILITY A business idea must pass the test of market feasibility. This means that then must be some positive indication about the following: 1. Stable and sufficient demand; and 2. Potential competitive strength of the firm.  STABLE AND SUFFICIENT DEMAND A business idea will not last if there is insuf fic ient demand for whatever product or service that is contemplated. Demand that remains constant or shows signs of growth throughout long periods indicates the probability of market feasibility. Demand must also be large enough to justify the investments that will be needed by the venture  COMPETITIVE STRENGTH The business idea must be such that the venture can e f fe c t i v e l y c o m p e t e w i t h c u r r e n t o r p o t e n t i a l competitors. The competitive strength of the competitors must be determined in terms of product offerings, price, distribution methods, promotion methods, and others. SOURCES OF MARKET INFORMATION Information required to determine the market f it of the business idea may be derived from the following: 1. Prior studies of the market or related markets by other companies, government agencies, and entrepreneurs. 2. Actual polls of population samples representing typical customers. The means used include the following: a. Mail questionnaires; b. Advertisements incorporating feedback mechanisms such as mail responses; c. Phone interviews; and d. Personal interviews. 3. Negotiations with prospective customers to solicit orders and determine whether or not they will actually buy.  TECHNICAL FEASIBILITY Anything can go wrong in the attempt to assemble the needed resources. Dif fic ulties may be encountered in the procurement of materials and manpower. Production dif fic ulties could take the form of unstable supply of materials, unreliable or f lu ctuating power supply, and others. Nevertheless, technical concerns such as those must f irst be cleared before subjecting the business idea to further consideration.  FINANCING FEASIBILITY The proposed owners of the venture must have suf ficient capital or if insuf fic ient, must be of good credit standing in the community. In general, the sources of financing include the following: 1. The proposed owner's savings; 2 Relatives and friends; and 3. Financing institutions like banks.  FINANCIAL FEASIBILITY Prof it is a result of the f in ancial feasibility of the business idea. Financial feasibility may be determined through an analysis of the f inancial prospects of the proposed business idea (Figure 12). This may be done in two steps: 1. The preparation of projected financial statements, such as a. Income statement; b. Balance sheet statement; and c. Cash flow statement. 2. The determination and analysis of f inancial ratios derived from the projected statements.  FG.12:DETERMINING THE FINANCIAL FEASIBILITY OF A BUSINESS IDEA Business Idea Prepare Projected Financial Statements Derive Financial Ratios Not Financially Financially Feasible Feasible Analyze Financial Ratios PROJECTED FINANCIAL STATEMENTS The forecast of something which will happen in the future is referred to as a projected financial statement. The projected income statement is a f inancial record summarizing a f irm's planned or expected f inancial performance in terms of revenues, expenses, and prof its over a given time period. The projected balance sheet shows the planned or expected financial position of the enterprise on a particular date. The projected cash f low statement 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: 1. Status quo; 2. A shorter list; and 3. Zero listing Status quo listing means all business ideas listed passed the adapted criteria. A short list means some of the ideas generated were eliminated. Zero listing means all business ideas generated and listed were eliminated.  TABLE 10: AN EVALUATION OF SHORTLISTED BUSINESS IDEAS BUSINESS PROJECTED NET INCOME PROBABILITY EXPECTED VALUE Proposal A P 5 Million 60% P 3 Million Proposal B P 4 Million 70% P 2.8 Million Proposal C P 3 Million 80% P 2.4 Million  ORGANIZATIONAL CULTURE AND CREATIVITY Effective innovation assures the continuous survival and growth of the enter- prise, but innovation can only thrive in a creative organization with a culture charac- terized by the following: 1. Encouragement of creativity and risk-taking; 2. Rewards for creativity; 3. Open communication; 4. Allowance for errors; 5. A climate of participation; 6. Structural mechanisms that aid creativity; 7. Training in the creative process; and 8. Flexibility  1.ENCOURAGEMENT OF CREATIVITY AND RISK-TAKING Creativity refers to activities involved in f inding solutions to problems that hinder the achievement of the f ir m's objectives. It is the proactive way of solving problems. In a creative environment, solutions to problems are expected to come by more easily. If this is true, innovation will thrive in an organization that encourages creativity. 2. REWARDS FOR CREATIVITY When an activity is rewarded, there is an assurance that such activity will continue existing. Creativity is no exception. Such is the case of a creative activity presented below. Mr. Ponciano Samonte is a worker assigned to a unit that produces containers of various types and sizes. One day, he creatively worked for a while and that was enough for him to come up with a novel idea that had the potential for cost saving within the company. He thought of changing the design of one of the containers they were currently producing. Upon his suggestion, the company adapted the idea and millions of pesos were saved annually. 3. OPEN COMMUNICATION The free-f lowing exchange of ideas between the members of an o r g a n i z a t i o n i s r e fe r r e d t o a s "o p e n c o m m u n i c a t i o n." Communication f lo ws through the vertical and horizontal relationships in the organization's structure. An important advantage of open communication is that problems are easily directed to persons with the ability to offer solutions. 4. 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 imperfections. When an error is detected, a move should be made to correct it. When this is done, the creative individual is not discouraged from pursuing his creative endeavors. In the end, it is the company that benefits. 5. A CLIMATE OF PARTICIPATION When somebody feels that the organization espouses participation, that person will not hesitate to make a contribution to the creative efforts of the organization. The f ir m will benef it from the good effects of employee participation. This is so because there is a chance that more bright ideas will be generated if employees feel free to par- ticipate in the creation of solutions to problems. 6. STRUCTURAL MECHANISMS THAT AID CREATIVITY The urge to create solutions to problems would be heeded by the innovative per- son more easily if there are structural mechanisms within the organization to support the exercise. An example of such mechanism is the unit that is responsible for provid- ing logistical support to activities that are creative in nature. The person in charge of the unit is usually qualif ied to manage such activities as creativity. 7. TRAINING IN THE CREATIVE PROCESS Creative pursuits are a bit complicated and it will help if those expected to per- form such functions are properly trained. Alth Although some persons have natural talents for generating business ideas, those who are not considered as such would benef it from acquiring the required skills through training. 8. FLEXIBILITY One of the distinct characteristics of the creative organization is f le xibility. The creative employee is allowed to engage in creative activities on hours most convenient to him and to the company. Whenever possible, his working hours are adjusted to accommodate the time that he is most creative. THA YOU NK