Business and Entrepreneurship Class XII Textbook PDF

Business and Entrepreneurship Class XII Department of Curriculum and Professional Development Royal Government of Bhutan Thimphu Published by: Department of Curriculum and Professional Development (DCPD) M...

Business and Entrepreneurship Class XII Department of Curriculum and Professional Development Royal Government of Bhutan Thimphu Published by: Department of Curriculum and Professional Development (DCPD) Ministry of Education Thimphu BHUTAN Telephone: +975-2-332885/322880 Toll free: 1850 Website: www.education.gov.bt Provisional Edition 2021 Copyright © 2022 DCPD, MoE, Thimphu. All rights reserved. No part of this book may be reproduced in any form without the permission from Ministry of Education, Thimphu. Reprint 2023  Acknowledgement The Ministry of Education would like to thank all specialists, professionals, lecturers and teachers from different agencies, colleges and schools for their valuable contributions towards the development of this book. Advisors: 1. Kinga Dakpa, Director General, REC, Paro 2. Wangpo Tenzin, Dean, Curriculum Specialist, REC, Paro 3. Dr. Sonam Choiden (Subject Committee Chair), President, GCBS, Gedu. 4. Kinley Namgyal, Unit Head, TVET and Commercial Division, REC Research and Writing: 1. Tenzin Rabgay (Lead Author), Lecturer, Gedu College of Business Studies, Gedu 2. Kinley Yangdon, Lecturer, Gedu College of Business Studies, Gedu 3. Tashi Zangpo, Curriculum Developer, Royal Education Council, Paro 4. Gangaram Bhattarai, Lecturer, College of Language and Cultural Studies, Taktse Review and Refinement: 1. Tenzin Rabgay, Lecturer, Gedu College of Business Studies, Gedu 2. Nima Wangchuk, Lecturer, Gedu College of Business Studies, Gedu 3. Dechen Wangdi, Lecturer, Gedu College of Business Studies, Gedu 4. Tashi Zangpo, Curriculum Developer, Royal Education Council, Paro 5. Ram Bdr Gurung, Dy. Chief Programme Officer, MoLHR 6. Jigme Thinley, Programme Officer, MoLHR 7. Gangaram Bhattarai, Lecturer, College of Language and Cultural Studies, Taktse 8. Yoenten Phuntsho, Teacher, Yangchenphug HSS, Thimphu 9. Sonam Tashi, Teacher, Phuntsholing HSS, Phuntsholing 10. Sonam Rindup, Teacher, Chukha HSS, Chukha 11. Choki, Teacher, Rangjung HSS, Trashigang 12. Tenzin Choden, Teacher, Lhuntse HSS, Lhuntse Copy Editor: Tshering Lhamo, Lecturer, GCBS, Gedu Language Editing: Gangaram Bhattarai, Lecturer, College of Language and Cultural Studies, Taktse Nima Wangchuk, Lecturer, Gedu College of Business Studies, Gedu Layout and Illustration Surjay Lepcha, ReEdIT Consultancy  Foreword Entrepreneurship is a process of generating new business ideas, gathering economic resources and establishing business ventures. A person who carries out such activities and willing to bear risks and enjoy profit as a reward is known as an entrepreneur. Entrepreneurs play a critical role in the economic development of a country. They mobilise resources from the entrepreneurial ecosystem and add value to create new goods and services required in the society, generate employment opportunities and become revenue contributors to the government in the form of taxes besides other contributions. Entrepreneurship education has become one of the indispensable learning areas in any education system. It enhances entrepreneurial competencies such as creativity, innovation, calculated risk-taking and problem-solving skills which in turn, help in generating business ideas, establishing and managing businesses to address socio-economic challenges. Entrepreneurship education has become crucial for Bhutan owing to the emerging issues such as youth unemployment, trade deficit and soaring national debt. Further, Bhutan is exposed to the global market where ethical issues such as product adulteration, exorbitant prices, integrity and trust, customer rights, breach of moral and ethical duty prevail, posing grave concerns in a small society. Therefore, it is important to make learners aware of such emerging issues and prepare them to overcome or address it through the entrepreneurship education. The new business and entrepreneurship curriculum developed by Department of Curriculum and Professional Development (DCPD) intends to enable learners to develop foundational knowledge and competencies in generating and pitching business ideas, developing business proposals, and mobilising finance to pursue entrepreneurship as a career. The curriculum will also provide a solid foundation for higher studies in entrepreneurship and business management. To that extent, the curriculum has incorporated up-to-date contents and pedagogy which are relevant to the current business world, and particularly applicable to the Bhutanese business ecosystem. Further, the new textbook is rooted in Bhutanese values and development paradigm of Gross National Happiness to ensure that the learners are well-grounded on national goals and aspirations. It is my sincere belief, therefore, that learners will reap immense benefits by acquiring knowledge, skills, competencies and values in launching entrepreneurial ventures. This would ensure gainful employment after their schooling and contribute in addressing the unemployment and related issues in the country. I am also optimistic that the new curriculum will help our learners to fulfill His Majesty’s vision of nurturing SMART (Sincere, Mindful, Astute, Resilient, and Timeless) citizens and help them to become nationally rooted and globally competent. Tashi Delek! Kinga Dakpa Director General  Contents Acknowledgment III Foreword IV Chapter 1- Innovation and Entrepreneurship 1 Chapter 2- Business Opportunity Identification and Selection 17 Chapter 3- Development of Business Model 37 Chapter 4- Introduction to Business Plan 53 Chapter 5- Market Analysis and Marketing Plan 63 Chapter 6- Operations Plan 81 Chapter 7- Organisational and Management Plan 95 Chapter 8- Financial Plan 103 Chapter 9- Business Plan Pitching 123 Annexure: 135 i. Reshaping Singapore Using Design Thinking 136 ii. Depreciation Schedule 139 iii. Assessment 141 iv. Sample Estimation and Projection 155 Bibliography 170  Chapter 1 Innovation and Entrepreneurship Learning Objectives  Discuss the concepts of imagination, creativity, innovation and entrepreneurship  Explain the interrelationship amongst imagination, creativity, innovation and entrepreneurship  Use contemporary methods of creative problem solving Reprint 2023  2 Chapter 1 1.1 Concepts of Imagination, Creativity, Innovation and Entrepreneurship Imagination refers to envisioning new ideas, images or concepts that were not perceived or explored before. Creativity refers to the ability to develop new ideas or discover new ways of looking at problems and opportunities. It is the actual usage of imagination to address or solve various challenges such as social, economic, environmental and technological. Innovation is the action or process of innovating. It is the process of making changes in something already established by introducing new methods, ideas or products. In other words, innovation is the application of creativity to generate new solutions to problems and create opportunities for enhancing lives and enriching the society. According to Keeley et al., (2013), innovation is the creation of a viable new offering. This implies the innovator must have a deep understanding of customer needs. The innovation must also have the ability to create value for which customers are willing to pay and generate revenue for the business. According to Venkataraman and Shane (2000) “Entrepreneurship is defined as an activity that involves the discovery, evaluation and exploitation of opportunities to introduce new goods and services, ways of organizing, markets, processes and raw materials through organizing efforts that previously had not existed.” Timmons (1999) defines entrepreneurship as “a way of thinking, reasoning, and acting that is opportunity obsessed, holistic in approach, and leadership balanced for the purpose of value creation and capture.” A more elaborative definition of entrepreneurship was given by Kuratko and Rao (2012) who defined entrepreneurship as “a dynamic process of vision, change and creation. It requires an application of energy and passion towards creation and implementation of new ideas and creative solutions. The process of innovation and new venture creation accomplished through four major dimensions: Individual, organizational, environmental and process aided by collaborative networks in government, education and institutions.” In general entrepreneurship is the application of innovation, scaling unique ideas for creating a new enterprise with a willingness to bear any of the associated risk so as to make profit and generate social benefits. The relationship amongst imagination, creativity, innovation and entrepreneurship is as illustrated in Figure 1.1. Reprint 2023  Innovation and Entrepreneurship 3 Imagination Creativity Entrepreneurship Innovation (Envisioning things (Applying imagination (Applying innovation, (Applying creativity scaling unique ideas that do not exist ) to address problems) to generate unique and inspiring others' solutions) imagination) Figure 1.1: Relationship amongst imagination, creativity, innovation & entrepreneurship Entrepreneurship is said to be the function of imagination, creativity and innovation – successful entrepreneurs always capitalise on their ability to discover new ideas and implement what they have discovered. Tina Seelig, a Professor at Stanford University, refers to the relationship amongst imagination, creativity, innovation and entrepreneurship as the ‘Invention Cycle’. ist I ON 't ex T n NA es A GI t do IM ha w on Ap dre CR ima a ch i vis ply ss ad EA gina alle En TI tio nge VI n t TY o INVENTION EN ply deas CYCLE Ap TR inn to EP ova fru RE tion ition i NE to op ON evel UR brin I AT d SH g OV to s IP N ity ea IN eativ e id cr iqu ply un Ap Figure 1.2: Invention Cycle Reprint 2023  4 Chapter 1 According to Seelig (2017), the invention cycle starts with imagination and leads to entrepreneurship through creativity and innovation in a cyclic form. Each stage of the invention cycle is briefly discussed as follows: 1.1.1 Imagination Imagination is envisioning things that do not exist. It is the ability to conceive ideas in one’s mind. It is mostly influenced by real and fictional experiences a person has been through. For example, a person could imagine manufacturing a solar powered car owing to the problems or experiences associated with current automotive systems. Engagement and envisioning are essential components and skills used in imagination stage of the invention cycle. In order to come up with good results of imagination, one must get actively immersed in the object, phenomenon or the situation. Having immersed actively and made observations of the problems and opportunities, it is time for envisioning on how to address these problems and seize the opportunities. Learning Activity 1.1 This activity aims to engage learners into the practice of imagination. Instructions: a. Silently observe a place or an object in your school or home or anywhere for 30 minutes. b. Make as many observations as possible and consider how these observations impact you and your environment. c. Contemplate on the opportunities of improving what you have observed. Also, envision improvements you would like to make. Task: Share your reflection with the class. 1.1.2 Creativity The application of imagination is referred to as creativity. For example, after imagining to build a solar car, the design, functionalities and features of the car must be experimented and well developed. Getting these things done in a unique way can be termed as creativity. Reprint 2023  Innovation and Entrepreneurship 5 One of the essential components of creativity is to have the motivation to make improvements and changes in the environment. Another essential component is experimentation. For example, understanding what motivates an individual to build a solar car and trying to build it through experiments are important parts of creativity. Learning Activity 1.2 This activity will facilitate learners to engage in creativity exercise. Instructions: Engage yourself into motivation and experimentation exercises. Task: Complete the following tasks and share your reflection to the class. a. Based on the opportunities you have identified in the Learning Activity 1.1, note down what motivates you to pursue the opportunities. b. Conduct an experiment of what you have envisioned to improve in the Learning Activity 1.1. 1.1.3 Innovation The application of creativity to generate unique solutions to the problems is termed as innovation. This stage of invention cycle requires focus and reframing of brain. Focus is also called as mindfulness – focus of mind on the problems, opportunities and environment. Reframing the brain refers to retraining the brain by questioning assumptions, seeing challenges as opportunities and being able to shift one’s perspective. This helps in unlocking innovative ideas that are new to the world. For example, after having a defined motivation to build a solar car and experiments being conducted, it is then essential to focus on developing the car. While developing, it is paramount to think outside-the-box in terms of its features and performance. Reprint 2023  6 Chapter 1 Learning Activity 1.3 This activity intends to help learners enhance mindfulness and flexibility. Instructions: Complete the given tasks. Task: Complete the given tasks. a. Choose a quiet place and focus on a task you wish to accomplish. See how long you can focus on the task. Try to eliminate distractions if any and attempt to enhance your mindfulness. b. Use your non-dominant hand to either eat, write, brush your teeth, etc., and reflect how flexible you are. Repeat the exercise till you attain the desired level of flexibility. 1.1.4 Entrepreneurship The word entrepreneur is derived from French word ‘entreprendre’ which means to ‘undertake’. Entrepreneur is the person who undertakes a business venture. Entrepreneurship is defined as application of innovation to bring ideas to fruition. At this stage of the invention cycle, Seelig (2017), states that one must be persistent to bring ideas to life. The goals must be set and one must focus on the task for extended period of time and push through obstacles along the way. All of these require persistence. Successful and impactful entrepreneurial ventures are grounded on the concerted efforts put in by the partners and stakeholders. Therefore, another important component of this stage of the invention cycle is inspiration. Inspiration relates to the ability of the entrepreneur to inspire and bring on board family, friends, investors, suppliers, employees, customers, etc. Learning Activity 1.4 This activity aims to expose learners to the concept of entrepreneurship, traits of successful entrepreneurs, and the charms and challenges of being an entrepreneur. Instructions: Read the story ‘YiGa Chocolates’ and compete the tasks. Reprint 2023  Innovation and Entrepreneurship 7 YiGa Chocolates Kinley Pelden is the founder and Chief Executive Officer of Yiga Chocolates, a firm which manufactures artisanal premium chocolates using unique Bhutanese flavours such as chillies, quinoa, ginger, gooseberries and mountain blueberries. Yiga chocolates are not just infused with naturally grown Bhutanese superfoods but also uses a handcrafted process, design and packaging. Yiga carries forth the spirit of health and happiness. The product was launched in the market in August 2018 and retailed, as of March 2021, in five Dzongkhags through 13 shops including BHR Café and Bhutan Essence at the departure lounge at Paro International Airport. The chocolates have also been promoted at international festivals in various countries such as Japan, South Korea, Germany, US, Singapore, India and Australia besides the in-country promotions by family and friends. It all started with a 6-minute cake recipe that Kinley Pelden designed as a need for healthy snack for her little girls then in 2014. The recipe is so easy that her 11-year-old daughter then took to it. From the basic recipe, she started making many variations for the family and friends, who were happy to eat anything sweet and moreish. In her wave of culinary curiosity, she asked her mother how to make chocolate. They concocted a gooey mix of cocoa powder, milk and sugar. Not satisfied, they googled and learnt how to mould compound chocolate together. While the children moved on dabbling into other interests, Kinley’s interest in chocolate making grew and Yiga chocolate came into existence. Sensing opportunity in chocolate business, she shared the idea and encouraged many to give chocolate business a shot. Finding no Bhutanese chocolate in the market even by 2017, she test-drove the idea at Loden Foundation. Loden went on to support with collateral and interest free loan, mentors and network – all conditions necessary for a Reprint 2023  8 Chapter 1 new startup. Under the comprehensive entrepreneurship ecosystem provided, she was able to fine tune the brand and clearly The importance of small steps define the market segment. Some friends asked if she regretted not starting the business earlier in her life. “There is no regret and it was just timing and conditions coming together over time. It is the sense of gratitude and diligence that worked. I realised that one need not be in hurry to find the niche. If we give our best in the present moment and responsibility at hand, that will somehow build us and our course of life. Little did I know then that, in holding my children’s hands to explore their interest and passion, it would set me on this delightful journey,” said Kinley. Alongside the chocolate startup, Kinley provides mentoring to entrepreneurs in agriculture and product development ventures by listening and sharing information and network necessary for launching and scaling up their startups. Kinley reflects that one thing led to another in a beautiful way throughout her entrepreneurial journey, thus far. She believes that entrepreneurship is not necessarily being in business. One can be enterprising in any role we are in or at any task at hand. It is the unique quest for effectiveness and efficiency in getting things done. Being mindful and observant even with everyday mundane tasks are what she believes to have helped in ideation of her business. She shares that one must be aware of personal interests, strengths and weaknesses, and then what opportunities and threats lie in the business environment. For Kinley, every day is a new day with new challenges and new solutions for pursuing personal and professional growth. Being mindful of who and what influences your decisions; knowing the fine line between tragedy of commons and wisdom of the crowd when it comes to choices and decisions; being humble to be able to learn and grow in life; and starting small and dreaming big are some of her urges for the young aspiring entrepreneurs. Reprint 2023  Innovation and Entrepreneurship 9 Task: Complete the given tasks. a. Present your views on who is an entrepreneur. b. Discuss essential traits of a successful entrepreneur. c. Describe the charms and challenges of being an entrepreneur. d. Explore the differences between a businessman and an entrepreneur. 1.2 Contemporary Entrepreneurial Methods There are many methods the entrepreneurs adopt to start, build and sustain their enterprises. Some of the popular entrepreneurial methods include design thinking, lean startup and effectuation. Each of these methods are briefly discussed as follows: 1.2.1 Design Thinking Design thinking is a method used widely in problem solving. Developed by Brown (2008), design thinking is a methodology that uses designer’s sensibility to match customer needs and the value that a business can offer. It is also described as a human centric approach to problem solving. Conduct a point Build a of view that is representation based on user of one or more Empathise needs & insights Ideate of your ideas to Test show others Learn about the Brainstorm Return to your audience for and come up original user group whom you are with creative Prototype and testing your designing Define solutions ideas for feedback Figure 1.3: Design thinking methodology Reprint 2023  10 Chapter 1 The stages of design thinking methodology are: a. Empathy The design thinking process starts with empathy. The design thinker or the entrepreneur learns about the target group for whom the product or service is being designed. Since design thinking is a human centric approach, empathy is the centerpiece because problems that entrepreneurs are trying to address are of other people, generally the customers and rarely their own. In empathy stage, it is important to observe, engage, watch and listen to the target group. These will enable the entrepreneurs to understand the needs of the target group. Problem definition Having empathised, the next stage is to define an actionable and meaningful problem statement. The problems faced by the target group must be properly defined so that actual problems are identified. A problem statement is a point of view that will guide the problem-solving process. Using data and information from empathy stage is essential to define the problem correctly. b. Ideation After the problem definition stage, ideation begins. Ideation is the process of generating and choosing creative ideas which addresses the defined problem. Brainstorming, brainwriting and SCAMPER method are some of the techniques used for ideation. These techniques are further discussed in Chapter 2. c. Prototype It is essential to have a product or service that would address the problems of the target group. Developing a product or service with primary functionalities and basic features is called prototyping. Prototype is a representation of ideas shown to others towards reaching a possible solution. It is a Minimum Viable Product (MVP – smallest form of product with just the basic functionalities) that would address the key problems. Low-fidelity prototyping and storyboard are a few commonly used prototyping techniques. Low-fidelity prototyping is creating a sketch or drawing as the draft version of the final product that you want to design based on the idea that you have chosen before one starts to invest time and resources to create the product. Reprint 2023  Innovation and Entrepreneurship 11 Storyboard is a series of images that presents the key elements of your design chronologically so that the main idea can be conveyed like a story through the snapshots. d. Test Following the prototype development, testing of the prototype is necessary. It is an opportunity to learn whether the solution developed for the target group addresses their problems or not. Prototype is used for gathering feedback from early adopters. The feedback is further used for reconfirming and iterating empathy, problem definition, ideation and prototype development. Although design thinking has been depicted as a linear process in the Figure 1.3, it is important to note that it can take a non-linear and iterative process – design thinking team may choose to move from one stage to another in any direction based on the need and circumstances. Today, design thinking is widely used for addressing not just business and economic problems but also social issues. Refer Annexure 1 for understanding how Singapore is using design thinking. Learning Activity 1.5 This activity aims to facilitate leaners to get a hands-on experience of applying design thinking methodology. Instructions: Choose an activity or area of work from your school or home. It can be the service of your school canteen, mess, hostel, stationery store or any other and complete the following tasks. Task: a. Observe how services are provided currently. b. Identify the pain points of the service recipients. c. Define their problem. d. Ideate how the problems faced by the service recipients could be addressed. e. Develop a prototype of the service you would like to enhance in order to enhance the experience of the service recipients. f. Test the service prototype by incorporating it in actual operation of the Reprint 2023  12 Chapter 1 chosen service area. g. Incorporate the feedback of the service recipients and make necessary iterations in the service delivery. h. Maintain a proper journal for each stage of design thinking exercise and present a matchbook collection. 1.2.2 Lean Startup A startup or an existing firm is susceptible to the risk of spending huge amount of money and time in building a product or service which may ultimately be of little or no use or value to the customers. Lean Startup methodology helps in reducing such risks. Lean Startup is an entrepreneurial method for launching a new product or service by a startup or an existing firm with lesser investment both in terms of money and time. It is a process that turns ideas into commercial ventures using rapid experimentation through customer feedback and iterations in the product or service to improve product development. Lean startup is founded on following principles: ( Entrepreneurs are everywhere – anyone who works on a product or service development under the condition of extreme uncertainty is an entrepreneur. This means entrepreneurs are everywhere and lean startup methodology can work in organisation of any size and nature. ( Entrepreneurship is management – a startup is an institution not just a product. Therefore, it requires a new management geared towards working in the context of extreme uncertainty. ( Validated learning – startups exist not only to make products, earn money and serve customers but also to learn how to make grow a sustainable business. The learnings can be validated scientifically through frequent experiments. ( Build-Measure-Learn – the primary activity of a startup is to turn ideas into products or services, measure how customers respond, and then learn whether to pivot (change) or persevere (continue). ( Innovation accounting – there is a need for new accounting approach designed for improving entrepreneurial outcomes and hold innovators accountable. This requires clarity on the metrics or conditions of measuring startup progress, setting up milestones and prioritising activities. Figure 1.4 Depicts how lean startup methodology works. Reprint 2023  Innovation and Entrepreneurship 13 Build Faster Turning ideas into products. Building an MVP Continuous integration BUILD Idea Product Learn Faster LEARN MEASURE Measure Faster Customer development Actionable metrics Pivot or Persevere based on Taking the products to learning early adopters Gathering feedback Data Figure 1.4 Lean startup methodology According to Ries (2011), every entrepreneur begins with some untested hypotheses. They succeed by building an MVP, testing it with early adopters, measuring the success using metrics, learning through feedback and making necessary iterations to the MVP based on the learning. The first phase of the Lean Startup methodology is to turn the ideas into an MVP. Then, the MVP is taken to the early adopters who would buy it. In this stage, measuring the progress of the product is essential. It is important to have actionable metrics in place. For example, actionable metrics for a startup developing a mobile application could be number of downloads, number of active users, retention rate, churn rate, net promoter score, etc. The data gathered through the metrics and feedback received from the early adopters help in learning faster. Learning faster enables to decide whether to pivot or persevere with the project. Customer development, which involves understanding the customers’ needs and problems, is the key focus of learning. Further, what has been learned must be continuously integrated into the product. Unlike traditional approaches of building a product which may lead to wastage of resources and time in building a product and getting it delivered to the customers, lean startup methodology helps in building, measuring and learning faster. This enables the entrepreneur to succeed faster and persevere with the project or fail faster and pivot to another project without wasting much resources. Reprint 2023  14 Chapter 1 1.2.3 Effectuation Effectuation is another entrepreneurial method used for starting entrepreneurial ventures. The term was coined by Dr. Saras Sarasvathy. It refers to a logic of thinking that uniquely serves entrepreneurs in starting businesses by first taking an inward look which involves taking an inventory of the resources that an entrepreneur has at his or his disposal and then setting a business goal. This then facilitates the entrepreneur to interact with stakeholders to garner commitment for co-creating the venture. Managerial thinking is usually guided by predetermined goals and managers gather resources and support to attain these goals. Unlike managerial thinking, effectual thinking starts with determining means or resources available to an entrepreneur. Based on the available resources, entrepreneur determines the goals to be achieved. It provides a way to control future that is inherently unpredictable. Effectuation helps in advancing ideas towards sellable products and services with proven customers. The effectual logic is grounded on following principles: ( Bird-in-hand – it fundamentally refers to starting a business with the means (resources) one has at his or her disposal. The means are determined by who the entrepreneur is, what the entrepreneur knows and whom the entrepreneur knows. ( Affordable loss – it relates to limiting the risk by understanding what the entrepreneur could afford to lose while conducting business. The loss could be related to business aspects such as finance, reputation and network. ( Lemonade – entrepreneurs make lemonade out of lemon which means they transform problems into opportunities. ( Patchwork quilt – entrepreneurs seek commitments from stakeholders in order to co-create the enterprise and new markets. ( Pilot-in-the-plane – it is a belief that the future is created and not predicted. Entrepreneurs focus on the activities within their control and understand the desired outcomes. Reprint 2023  Innovation and Entrepreneurship 15 New means NEW add to the AFFORDABLE LOSS MEANS resources New commitments help crystallize MEANS GOALS INTERACTIONS COMMITMENTS the goals NEW GOALS LEVERAGE SURPRISE NEW Surprises add PRODUCTS, to means and MARKETS, AND FIRMS change goals Figure 1.5: Effectual cycle The entrepreneur begins with the stock of means at his or her disposal. Based on the available means, the goals are set. The entrepreneur also ensures that the set goals are within the affordable loss. Then, the entrepreneur engages in interaction with stakeholders to garner commitments. The commitment from stakeholders helps in pooling new means and add to the overall resources available to the business. The stakeholders commit their resources with certain goals in mind. Therefore, necessary adjustments to refine the overall goals of the business must be made. The entrepreneur then co-creates the new venture in collaboration with the committed stakeholders. This is how the cycle continues through transformation of surprises and challenges into opportunities. Thus, the effectual cycle helps in creating new products, new market and new ventures. Reprint 2023 16 Chapter 1 Chapter Review Questions 1. Discuss the relationship amongst imagination, creativity, innovation and entrepreneurship. 2. Explain invention cycle in your own words. 3. Discuss the application of design thinking for generating innovation. 4. Explore the uses of design thinking in addressing the grassroots problems in Bhutan. 5. Evaluate the significance of lean startup methodology in the context of entrepreneurship. 6. Assess the uses of effectual cycle in entrepreneurship. Reprint 2023  Chapter 2 Business Opportunity Identification and Selection Learning Objectives  Discuss the meaning of business idea and opportunity  Explain business opportunity identification process  Generate business ideas using various methods of idea generation  Undertake business idea screening and selection  Explain the need for intellectual property system Reprint 2023  18 Chapter 2 2.1 Meaning of Business Idea and Business Opportunity Business idea and business opportunity are two terms which are often used interchangeably but they are actually different. Business idea refers to a business concept that can address an issue which may result in profit and other benefits if it is converted to a tangible product or service. It can stimulate to lead to business opportunity. Business opportunity, on the other hand, can be an idea or a situation which has the potential to be converted into a viable business with commercial value. This implies a business opportunity has to lead to generation of profit. Good business ideas form the basis for potential business opportunities but not every idea translates into viable business opportunity. A person may have many business ideas but the commercial value and benefits of all the ideas cannot be guaranteed. Therefore, there is a need for a proper and rigorous process of business idea generation, screening and selecting the right business opportunity and finally taking action on that opportunity through execution. 2.2 Business Opportunity Identification Process Business opportunity identification process typically consists of three broad stages namely idea generation, screening and selection. The aims and methods used in different stages are presented in the Figure 2.1. Stages & Aim Methods Used Trend Analysis, Focus Idea Generation Group, Brainstorming, (Generate as many Brainwriting, Problem ideas as possible) Inventory Analysis, SCAMPER Technique, etc. Idea Screening PESTLE Analysis, SWOT (Filtering and choosing Analysis, CEFE’s Criterion promising ideas for further Analysis, The Idea Evaluation selection) Matrix by BCITSA, etc. Idea Selection Market, Technical, Organisational (Select the most viable idea) and Financial Feasibilities. Figure 2.1: Business idea generation, screening and selection Reprint 2023  Business Opportunity Identification and Selection 19 2.2.1 Business idea generation It refers to the generation of abstract ideas which may or may not have market and economic potentials. The abstract ideas can be generated using several methods. Some of the popular business idea generation methods are: a. Trend Analysis This involves generation of ideas by checking the trends in the past so as to be able to generate potential business ideas. The global megatrends are increasingly becoming a reality. While there are harmful effects of these megatrends, entrepreneurs can see it as an opportunity for realising their entrepreneurial dreams as they contribute to address the issues. Notable global megatrends are: ( Shift in Global Economic Power – this shift from west to east (from USA to China & India) is evident of how businesses today should be readjusting their focus. ( Climate Change & Resource Scarcity – crop failure, widespread flooding, destroyed habitats and energy shortages are some of the noted effects. ( Demographic and Social Change – in general, it is predicted that the world’s population would have increased by 1 billion in 2030, and by 2050, over one third of world’s total population would be above 60 years of age. Further the demographic changes are aggravated by declining birth rate in some of the countries. Consequently, notable issues such as labour shortage, increased demand for healthcare and educational services and changing consumer demands are bound to happen. ( Technological Breakthrough – as machines are predicted to learn faster than humans, more occupations and services are expected to be automated. ( Rapid Urbanisation – it is predicted that over two third of world’s population will live in urban areas by 2050. Having been exposed to the global megatrends, it is important to contemplate and act on generating business ideas that can address the problems likely to be caused by the megatrends. In addition to the global megatrends, other trends in the market or economy often are great sources of business ideas which have the potential to be converted into business opportunities, especially when the entrepreneur is able to identify impactful market Reprint 2023  20 Chapter 2 trends which last for considerable period of time. Some of the common trends in which entrepreneurs have spotted their business opportunities are: ( Green Trend – a trend wherein consumers are very conscious about the environmental impact and willing to pay premium price for green products thereby making them conscious of their spending habit. Green construction products, eco-friendly printing, products manufactured using waste, etc., are some common examples. ( Clean Energy Trend – entrepreneurs around the world have capitalised on clean energy from solar, wind, hydro and geothermal sources to make their business value proposition unique. ( Organic Trend – as people continue to become increasingly health conscious, the organic trend, especially in the food sector continues to gain an important place in their lives. ( Social Trend – social network platforms such as Facebook, YouTube, Telegram, MySpace, LinkedIn, WhatsApp and WeChat have transformed how people communicate and network across the world. ( Health Trend – as the aging population continues to increase in many countries, health care products and services are seen as opportunities for entrepreneurs. b. Focus Group In focus group discussion, group of individuals led by a moderator engages in an open and in-depth discussion by way of providing information in a structured way. Focus group discussions are used as a means to generate business ideas. c. Brainstorming It is a group method for obtaining new ideas and solutions through spontaneous discussion and ideation. It is important to make sure that no criticisms are made, freewheeling is encouraged, preference is given to the quantity of ideas over quality and compliments must be encouraged in a brainstorming exercise. d. Reverse Brainstorming It is similar to brainstorming but criticisms are allowed in reverse brainstorming. This method is based on finding faults or drawbacks in the proposed ideas. As this Reprint 2023  Business Opportunity Identification and Selection 21 method focuses on finding the negative aspects of the ideas or products, utmost care must be given to maintain the group’s morale. After the negative aspects are fully noted, it is followed by discussion on how the problems could be addressed. As this method focuses on finding the negative aspects of the ideas or products, an utmost care must be given to maintain the group’s morale. After the negative aspects are fully noted, it is followed by discussion on how the problems could be addressed. e. Brainwriting Brainwriting is popularly referred as written brainstorming. Each member in the group is given a card or form where they write the ideas and circulate to other members for writing their ideas. f. Problem Inventory Analysis It is similar to focus group discussion for generating new ideas. The customers are provided with a list (inventory) of problems in a general product category. They are then asked to identify and discuss about the problems they have in the given product category. The key element, in this technique, becomes the list of problems based on which ideas are invited from the customers to improvise or create a new product. Thus, a proper compilation and analysis of the listed problems are often helpful in developing new products or improving the existing ones. g. SCAMPER Technique SCAMPER is an acronym for Substitute, Combine, Adapt, Modify or Magnify, Purpose or Put to another use, Eliminate or Minimise and Rearrange or Reverse. It is a team brainstorming technique used to generate ideas to develop or improve products or services. A product or service is chosen and the discussion revolves around: ( Substitute: What can be replaced or substituted? For example, components, materials, people or a step in a service. ( Combine: What can be combined? For example, components, devices, steps in service, etc. ( Adapt: What can be added? For example, adding new elements or functions. ( Modify or Magnify or Maximise or Minimise: What can be modified? For example, change the size, shape, colour or other attributes of the product or service. Reprint 2023  22 Chapter 2 ( Put to other use (Purpose): Can the product be put to a different use or use it in another industry? For example, PET bottle used for storing water, worn out tyres used as flower pots, etc. ( Eliminate: What can be removed for simplification? For example, self- serve kiosk in place of food being served by waiters, elimination of keypad from mobile phone, doing away of clutch by introducing auto gear system in automobile, etc. ( Reverse or Reengineer or Rearrange: Can the production process be reversed? What can be swapped or flipped? For example, autocratic decision-making being democratised, manual steering to power steering, etc. In addition to the aforementioned methods, the leaners may also explore other business idea generation methods such as checklist, free association, forced relationships, collective notebook, attribute listing, big-dream approach, parameter analysis, Delphi technique, scenario analysis, cost-effect analysis and morphological analysis. Learning Activity 2.1 This activity aims to help learners to generate business ideas using the business idea generation method(s) discussed earlier. Instruction: In group recapitulate the business idea generation methods discussed in the class and complete the given task. Note: Formation of group is very important as learners are suggested to continue to work in the same group until the completion of business plan. Task: Using the business idea generation methods, list as many business ideas as possible and make a presentation to the class. 2.2.2 Business idea screening It is not possible and recommendable to implement all the business ideas generated through Learning Activity 2.1. Pursuing all the ideas generated may require distribution of efforts and resources which will result in inefficiency, ineffectiveness and failure, especially when skills and resources are scarce. Therefore, impractical Reprint 2023  Business Opportunity Identification and Selection 23 ideas must be eliminated and promising ideas must be chosen for further pursual. Some of the commonly used methods for screening the business ideas PESTLE Analysis are: a. PESTLE Analysis PESTLE analysis describes a framework for assessing macro-environmental factors that influence an organisation. It is an acronym for Political, Economic, Social, Technological, Legal and Environmental factors that influence an organisation from the perspective of external business environment. An analysis of PESTLE factors is necessary for making a strategic decision and screening business ideas. Ascertaining the favourability of the PESTLE factors is important for pursuing the business ideas. Each of the factors is briefly described here: SOCIO DEMOGRAPHIC TECHNOLOGICAL ECONOMIC ENVIRONMENTAL THE ORGANISATION POLITICAL LEGAL PESTLE Figure 2.2: PESTLE analysis i. Political factors The political factors include any changes in government, policies and regulations and stability of the political environment that influence the business operations and determine success or failure of the business to a large extent. Reprint 2023  24 Chapter 2 ii. Economic factors Since the businesses sell its products and services to the customers, it is important to consider the purchasing power of the target market as it will determine the demand for the products and the services. For this, understanding the level of disposable income, unemployment rate, inflation rate, tax rates, etc., are important. iii. Social factors The factors that relate to customer taste and preferences, lifestyles, buying patterns, cultural values, societal norms and, religious beliefs, etc., that affect customers’ taste and preferences, lifestyles and buying patterns must be properly studied. iv. Technological factors The innovation and technological dynamics impact operations of businesses. Therefore, the favourability of the technological environment such as the availability of technology to be used in the business, its future usability, compatibility with new development, cost of switching, etc., must be studied before investing in any business. v. Legal factors Operation of business in accordance with the legal framework is basic requirement for a business to stay afloat. Businesses must be familiar with the provisions of different laws of the state such as Labour and Employment Act, Consumer Protection Act, Environmental Act and Companies Act and ensure compliance to avoid any unwanted legal consequences. vi. Environmental factors It is also known as the ecological factors. It relates to the relationship of the business with factors in the natural environmental. Importance must be placed on how the practices such as use of raw materials, technology and energy sources impact the environment. Other environmental concerns such as water, noise, air and soil pollutions that the business might cause must be taken care of. On the other hand, the impact of natural disasters such floods or earthquakes or any changes in the natural environment on business operations must also be accounted for. Above all, at the business idea stage, it is essential that the PESTLE analysis is conducted to see how each of the factors is favourable for pursuing a specific idea. If the factors are found to be unfavourable, pursing the business idea will lead to negative consequences. Reprint 2023  Business Opportunity Identification and Selection 25 b. SWOT Analysis SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Analysis of SWOT helps to understand the business’s strengths and weaknesses which could be used to the seize opportunities and counteract threats. i. Strengths Strengths are within the control of the entrepreneur and they occur at present moment. Strengths must be capitalised and harnessed to render the weaknesses insignificant. Some examples of strengths could be having managerial experience, good network and relationship with banker, family support for pursuing the business idea, accessibility to market, having technical knowledge and expertise, availability of land, adequate knowledge about the product or service and good reputation of the entrepreneur. ii. Weaknesses Like strengths, weaknesses are also within the control of the entrepreneur. They also occur at present moment. Weaknesses are usually linked with what the entrepreneur or business lacks – absence of favourable conditions and resources and other internal weak points of the business. Weaknesses must be eliminated as far as possible. Lack of business experience, poor knowledge about the product or service, bad history of personal finance and financial knowledge, inability to conduct market research, shortage of capital and poor network and relationship with stakeholders are some examples of weaknesses. iii. Opportunities Opportunities are favourable factors in the external environment. The entrepreneur must take advantage of opportunities as it makes the business idea potentially viable. However, opportunities are mostly beyond the control of the entrepreneur. They are different from strengths. While strengths are positive internal factors of the business, opportunities are positive conditions in the external business environment. Few and instable competitors, growing demand for the products and services, availability of cheaper raw materials, availability of skilled workforce and supportive government policies are some of the examples of opportunities. iv. Threats Threats are unfavourable factors in the external environment. Like opportunities, these are normally beyond the control of the entrepreneur. If threats are not Reprint 2023  26 Chapter 2 counteracted properly, they will affect the business adversely. Although both threats and weaknesses have negative impact on the business, threats differ from weaknesses as it is beyond the control of the entrepreneur. A proper analysis of threats must result in effective ways of hedging and counterbalancing actions for reducing the negative impacts. Some of the examples of threats are rising interest rates, poor infrastructural facilities, economic instability, political unrest, unfavourable exchange rates, rising material costs, rising labour costs and ease of entrance for competitors. Generally, for the purpose of screening business ideas, the ideas with maximum strengths and opportunities, and minimum weaknesses and threats must be chosen for further pursual. c. Criterion Analysis As every idea is not relevant and doable, criterion analysis uses certain criteria against which each of the ideas are evaluated and promising ones are chosen. Although criteria or evaluation matrix can be developed on case-by-case basis, following are two examples of criterion analysis which can be used for evaluating the goodness of an idea. i. The Idea Evaluation Matrix by BCITSA The Idea Evaluation Matrix by British Colombia Institute of Technology Student Association (BCITSA) is a screening process, a filter and a qualitative decision- making tool used to evaluate and prioritise business ideas. This tool is used to identify potential ideas from a massive list of ideas. The matrix evaluates the ideas by assessing whether the ideas are different or better; capable of delivering value; doable or practical and weighs its cost and benefit. However, other criteria can be added to customise the matrix for making it suitable for one’s need. Table 2.1: Idea Evaluation Matrix by BCITSA BCITSA Idea Evaluation Matrix Scoring CRITERIA 1=Low Different or Delivers Doable or Cost / TOTAL 2=Moderate Other? Better Value Practical Benefit SCORE IDEAS 3=High Reprint 2023  Business Opportunity Identification and Selection 27 High priority criteria are briefly explained here: ( Different or Better: The idea must be innovative (improvement over existing) or inventive (something new) and be different from what already exists. It must have an added value over and above what the target market is currently using to solve the problems they are experiencing. ( Delivers Value or Solves a Problem: The idea must address a specific problem that is faced by the customers. It must deliver value for which the customers are ready to pay. Attention must be paid to needs versus wants of the customers – if your idea is what they need, they will not mind paying for it, however, if it is what your customers want then the willingness to pay for it will be weaker. ( Doable or Practical: The idea may be remarkable but if it is beyond the capability of current technologies or is on the bleeding edge of technology development, it will be difficult to develop the product and convince the target market. Most ideas require proven technologies. Thus, this criterion is about the feasibility of implementing the idea. ( Cost or Benefit: The essence of the idea is to provide value to customers for solving their problems. A higher score must be assigned to those ideas with more benefits than the cost of delivering the value. Once the criteria are confirmed, the ideas can be listed in the first column of the matrix. Then, each idea must be assessed against the pre-determined criteria. The scoring can be done by assigning 1 for indicating a low score, 2 for a moderate and 3 for a high score. The ideas with the higher total score can then be chosen for further pursual. (Source: Adapted from BCITSA Entrepreneurial Services) ii. CEFE’s Criterion Analysis Another popular template for criterion analysis is the one developed by Competency- based Economies through Formation of Enterprise (CEFE). The business ideas are listed on the left-hand side of the given template. These ideas are then evaluated based on some predetermined criteria. For every criterion, an appropriate rating from 1 to 5 is assigned. Weight must be assigned based on the importance of each criterion for every idea. Total weighted scores are then calculated for every idea and typically, the ideas with the highest weighted scores are chosen for further selection. The Critical Success Factors which do not form a part of evaluation criteria are also noted so that due attention is paid for these factors as well. Reprint 2023  28 Chapter 2 Table 2.2: CEFE’s Criterion Analysis Critical Criterion A Criterion B Criterion C Criterion D Criterion E Total Business Success Weighted Ideas Factor R W WS R W WS R W WS R W WS R W WS Score (CSF) 1 2 3 4 5 6 Legend Rating Criterion R - Rating 5 - Excellent A - Market availability W - Weight 4 - Very satisfactory B - Raw material availability WS - Weighted score 3 - Satisfactory C - Technology availability 2 - Fair D - Skills availability 1 - Poor E - Ease of implementation. Notes: 1. Total of the weights of the criteria used in rating one project must equal 100% or 1. 2. It is advised to assign weight for the criteria considering the level of importance (criticality) of the criteria to pursue the idea. This can be done using a forced ranking system to compute the weights. 3. Weights are computed as follows: Market Raw Material Technological Skills Ease of Total Availability Availability Availability Availability Implementation Force Rank 1 2 3 4 5 Force Rank 5 4 3 2 1 15 Points Weight (W) 0.33 0.27 0.20 0.13 0.07 1 Rating (R) 5 4 3 2 1 Weighted 1.67 1.07 0.60 0.27 0.07 3.67 Score (WS) Reprint 2023  Business Opportunity Identification and Selection 29 Force rank must be assigned based on criticality of the criteria for pursuing the business idea. Based on the assigned force ranks, the criteria with force rank 1 must be given highest force rank point (5). Rest of the criteria should receive force rank points accordingly. Next, weights for each criterion must be calculated. Divide force rank points of each criterion by the total force rank points to compute weights. 4. The criteria must also be rated based on the current situation of the criteria on a scale of 1 to 5 (1 means poor..., and 5 means excellent). 5. Then, weighted score (WS) must be computed by multiplying the rating (R) by corresponding weights (W) of each criterion. 6. The possible highest total weighted score is 5. The ideas with the higher total weighted score must be chosen for further selection. Due attention must be paid to the critical success factors, if any, for each idea. CEFE's criterion analysis is based on a ranking scale of 1 to 5 and weights for 5 criteria. Although the criteria may be customised, not every criterion deemed to be essential for evaluating each idea can be accommodated. Therefore, if such factors are there, they must be noted in the critical success factor column. (Source: Adapted from CEFE course pack) Learning Activity 2.2 This activity intends to help learners to conduct screening of business ideas using the business idea screening method(s) discussed earlier. Instruction: In the group already formed, study the business idea screening methods and complete the given tasks. Task: a. Using appropriate business idea screening methods discussed in the class, conduct screening of business ideas from the list of ideas generated in Learning Activity 2.1. b. Share the results with the class and explain how the screening of ideas was done. Reprint 2023  30 Chapter 2 2.2.3 Business idea selection Having generated and screened the business ideas, now it is time for selecting the most feasible idea. The PESTLE analysis conducted earlier has looked into the suitability of macro- economic factors for pursuing the ideas. Likewise, SWOT analysis checked on the strengths, weaknesses, opportunities and threats surrounding the ideas. Further, criterion analysis helped in the screening ideas. Now, it is time to pay additional attention to select the right idea. This can be done through four broad feasibility studies namely market, technical, organisational and financial feasibility studies. The detailed feasibility studies will be conducted when the entire business plan is prepared in the subsequent units. At this stage, putting the ideas through a qualitative feasibility checklist in four broad areas is sufficient. a. Market feasibility checklist This checklist helps in understanding whether there is a need for the proposed business idea in the market, intensity of competition that is likely to be faced, adequacy of revenue, preparedness with marketing strategies and extent of marketing expenses and noncurrent assets required for marketing purposes. The entrepreneur can use the following checklist: Table 2.3: Market feasibility checklist SL No. Key Checklist YES NO 1 There is need for the proposed product or service. 2 There are no or lesser similar products or service offered presently. 3 There is a considerable surplus gap of demand over supply of the product or service. 4 There are proper marketing strategies developed for addressing the gap. 5 There is adequate resource provision for marketing expenses and noncurrent assets. 6 The marketing staff is available. 7 There are growth and expansion possibilities if the idea is pursued. b. Technical feasibility checklist It is important to know the ability of the business to produce or offer what it intends to offer. This requires to check the availability of resources, technology, technical know- how, operational logistics, etc. Following checklist may be useful in getting this done: Reprint 2023  Business Opportunity Identification and Selection 31 Table 2.4: Technical feasibility checklist SL No. Key Checklist YES NO 1 There is a proper plan for production facility. 2 The production process and methods are well researched and prepared. 3 The raw materials are available as required. 4 There are financial arrangements made for the acquisition of equipment and incurring operational expenses. 5 The technical and operational staff is available. c. Organisational feasibility checklist Organisational feasibility requires checking on the nature, form and name of the business,; credentials of the proponents,; organisational structure,; human resource requirements,; administrative overheads and capital expenditure required for administrative purposes. These can be confirmed using the following checklist: Table 2.5: Organisational feasibility checklist SL No. Key Checklist YES NO 1 The form of the business and business name are decided. 2 The capability profile of the proponents is prepared. 3 Organisational structure and segregation of duties of the staff is ready. 4 Recruitment and selection of the staff is planned. 5 The financial arrangement for meeting cost of administrative staff, administrative overheads, and noncurrent assets for administrative use is arranged. d. Financial feasibility checklist In addition to the earlier feasibility checklists, understanding the preparedness of the business from the financial perspective is also important. Following may be looked at as a part of financial feasibility checklist: Table 2.6: Financial feasibility checklist SL No. Key Checklist YES NO 1 The total project cost of implementing the idea is determined. 2 The financing plan is prepared. 3 Security for debt is being arranged. 4 Preparation of projected financial statements are planned. 5 Key financial analysis such as breakeven analysis, payback period determination, estimation of profit margin, and calculation of internal rate of return are done. Reprint 2023  32 Chapter 2 The feasibility checklist exercise will enable the entrepreneur to know about the preparedness of the entrepreneur in pursuing the business ideas. In addition to the insights drawn from the business idea screening exercise 2.2, the feasibility checklist will help in selecting the right business idea. Learning Activity 2.3 The Thisfeasibility checklist activity aims to helpexercise learnerswill enable selection to conduct the entrepreneur to know of business aboutthe ideas using the preparedness of the entrepreneur business idea feasibility checklists.in pursuing the business ideas. In addition to the insights drawn from the business idea screening exercise 2.2, the feasibility checklist willInstruction: help in selecting In thethe right business existing group, use idea. the business idea feasibility checklists and complete the given tasks. Task: a. From the list of business ideas screened, use the marketing, technical, organisational and financial feasibility checklists to select the best idea. b. Present the results and explain how the best idea was selected. 2.3 Intellectual Property Intellectual Property (IP) is an intangible property resulting from creativity and innovation. Some of the common intellectual properties include copyrights, trademarks, patents and industrial designs. According to the World Intellectual Property Organization (WIPO), Intellectual Property (IP) refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce. WIPO is the global forum for intellectual property services, policies, information and cooperation. Once the entrepreneurs come up with innovative business ideas, concepts, innovations, or inventions that has enormous market potential, protecting these from unauthorised use by any others becomes a major concern. Protection of IP under law enables the owner (entrepreneur) to earn recognition or financial benefit from the invention or creation, thereby fostering an environment in which creativity and innovation can flourish. Moreover, development of the knowledge economy, the globalisation of markets as well as the increasing complexity of products and services has increased the importance of Intellectual Property Rights (IPRs). IPRs refer to a broad range Reprint 2023  Business Opportunity Identification and Selection 33 of legal rights conferred by laws of the IP to the owner of the IP. In Bhutan, the Department of Intellectual Property, Ministry of Economic Affairs is responsible for implementing the policies and laws concerning IP. The Copyright Act of the Kingdom of Bhutan, 2001 and The Industrial Property Act of the Kingdom of Bhutan, 2001 are the laws governing IP in Bhutan. In addition, the National Intellectual Property Policy 2018 aims at developing an IP system consistent with best international practices that encourage creativity, innovation and inventiveness and provide protection through appropriate legislations. 2.3.1 Types of Intellectual Property IP consists mainly of two branches: a. Copyright b. Industrial Property a. Copyright According to WIPO, Copyright relates to literary and artistic creations such as books, music, paintings and sculptures and films and technology-based works (such as computer programs and electronic databases). Copyright protects two types of rights – economic rights and moral rights. Economic rights allow right owners to derive financial rewards from the use of their works by others. Moral rights allow authors and creators to take certain actions to preserve and protect their link with their works. The author or creator may be the owner of the economic rights or those rights may be transferred to one or more copyright owners. In general, the economic and moral rights shall remain protected through the entire life of the author(s) and for fifty years after the death of the author(s). b. Industrial Property Industrial property is one of the two categories of Intellectual Property. It includes patents, industrial designs, trademarks or service marks and geographical indications. i. Patents According to The Industrial Property Act of the Kingdom of Bhutan, 2001, a patent refers to the title granted to protect an invention. Invention refers to an idea of an inventor which permits in practice the solution to a specific problem in the field of Reprint 2023  34 Chapter 2 technology. An invention may be related to either a product or a process. Patents are the most widespread means of protecting technical inventions. The patent system is designed to contribute to the promotion of innovation and the transfer and dissemination of technology to the mutual advantage of inventors, users of inventions and the general public. The owner of a patent has the right to prevent anyone else from commercially exploiting the invention for a limited period, generally 20 years. Once the patent expires, the protection ends and the invention enters the public domain. ii. Utility Model Utility model is also a type of industrial property, which is similar to patents but sought for technically less complex inventions or for commercially short-lived inventions. It is not popular in many countries and it is granted usually for incremental innovations upon something, which has already been invented. The duration of protection of utility model under law ranges from 7 to 10 years. One easy example to relate with will be the case of marker pen and its cover. Marker pen is an invention but the ink dries up when kept open. Thus, people have come up with the cover and lid to prevent the drying. So, in this case cover and the lid is the utility model which has increased the value of the marker pen which has already been invented. iii. Industrial Designs It refers to the ornamental or aesthetic aspects of an article including composition of lines or colours or any three-dimensional form that gives a special appearance to the product or handicraft. It applies to wide range of industrial products and handicrafts. The design must have aesthetic appeal. Moreover, it must be something that can be reproduced by industrial means for mass production; this is the essential purpose of the design and the reason why the design is called ‘industrial’. From a legal perspective, an industrial design refers to the right granted to protect the original, ornamental and nonfunctional features of a product resulting from design activity. In Bhutan, the validity of an industrial design shall be for a period of five years from the date of filing the application for registration. The registration may be renewed for two consecutive terms of five years each through a payment of the prescribed fee. iv. Trademark Reprint 2023  Business Opportunity Identification and Selection 35 A trademark is a sign, or a combination of signs that differentiates the goods or services of one company from another. The signs may be in the form of words, letters, numerals, pictures, shapes and colours or any combination thereof. Trademarks are commonly used on goods as well as for marketing purposes through advertisements, packages, newspapers, etc. Trademarks are usually renewable indefinitely upon paying renewal fees. In addition to trademarks, there are other marks such as Collective Marks, Trade Name and Service Mark which distinguishes a company and its products from that of others. Collective mark refers to any visible sign designated as such in the application for registration and capable of distinguishing the origin or any other common characteristic, including the quality of goods or services of different enterprises which use the sign under the control of the registered owner of the collective mark. It is a trademark that belongs to an association or organization, such as an association of accountants, engineers and entrepreneurs, whose members use it for the purpose of differentiating their products and services from that of the non-members with regard to the level of quality and standards set for the association. Trade name refers to the name or designation of an enterprise that it is commonly known as. It is more like a name that is used by enterprises in doing their business which could be different from their registered name. The name ‘Tashi Cell’ is a trade name by which people refer to Tashi Infocomm Limited (registered name) and the company also uses it for advertising and doing business. Thus, a trade name is DBA name (Doing Business As name). A trademark which is used specifically in association with services is called service mark. It is used by businesses in the service industry. v. Geographical Indication It is a sign used on goods that have a specific geographical origin and possess qualities or a reputation due to that place of origin. Geographical indication is commonly used for agricultural products, culture and tradition-oriented products, etc. Assam Tea and Darjeeling Tea are examples of geographical indication. Reprint 2023  36 Chapter 2 Learning Activity 2.4 This activity aims to facilitate learners’ understanding of legal provisions pertaining to the intellectual property regulations in Bhutan. Instruction: In groups, refer the latest Acts governing the intellectual property and IP reports of Bhutan to complete the given tasks. These documents can be accessed from: https://www.moea.gov.bt/?page_ id=941 and https://www.moea.gov. bt/?page_id=943 Task: a. Read the Acts governing intellectual property and reports pertaining to it thoroughly and select one intellectual property or report discussed. Different groups may select different provisions of intellectual property. b. Prepare and deliver a presentation on the different provisions pertaining to the chosen intellectual property. Chapter Review Questions 1. Compare and contrast the concept of business idea and opportunity. 2. Explain business opportunity identification process. 3. Mr. Dorji aspires to do some business but has no business idea. Advise him how to generate business ideas using business idea generation methods. Further, suggest him suitable techniques for screening ideas generated earlier. 4. Based on your suggestion to Dorji in question 3, advise him to conduct feasibility studies in choosing the most promising business idea. 5. Discuss different types of intellectual properties by citing an example each. 6. Explain the protection of ideas using intellectual property system. Reprint 2023  Chapter 3 Development of Business Model Learning Objectives  Describe the components of Business Model Canvas  Develop Business Model Canvas for the selected idea  Conduct an assessment of the business model  Deliberate on embedding sustainability in business model Reprint 2023  38 Chapter 3 3.1 Business Model Canvas The introduction to Business Model Canvas (BMC) was already covered in chapter 3 of the Business and Entrepreneurship textbook of Class XI. Nevertheless, this chapter will begin with a brief description of BMC to reiterate and make the concepts clear. Business model describes the rationale of how an organisation creates, delivers and captures value. In simple terms, it refers to how a business plans to make money. This requires entrepreneur to clearly identify the customer segment(s) that he or she wishes to serve; plan the value propositions intended to be offered; plan the channels through which information and the products are to be delivered; strategise how customer relationships will be developed and nurtured; explore and identify the revenue streams for the business; identify and plan arrangement of key resources; recognise the key activities the business must undertake; strategise how to develop key partnerships; and estimate the cost and cost structure for the business. These 9 interrelated components constitute the building blocks of BMC. Each of these components is briefly discussed below: 3.1.1 Customer Segment The customer segment building block defines the group of individuals or organisations that the business aims to reach and serve. They represent the group for whom the business is creating value. Customers make up the heart of any business model and without them no company can operate. Businesses typically group their customers into segments based on their common needs, behaviors or other attributes to serve them better. Mass market, niche market, segmented market and diversified market are few examples of customer segments. 3.1.2 Value Proposition Value proposition describes the bundle of products and services that create value for the specific customer segment. The value proposition should describe how the product solves customer problems, benefits the customers can expect and why customers should buy from one business over its competitors. Unique and superior value proposition distinguishes and gives a competitive edge to the business over its competitors. The price, turnaround time, product volume, etc., could be examples of quantitative value whereas the newness, performance, convenience, brand, customisation, design of the product and customer experience could be considered as qualitative value. Reprint 2023  Development of Business Model 39 3.1.3 Channel The channel describes how a company communicates with and deliver its value proposition to its customer segment. It is important to understand which pathway (or channel) is best for the business to reach its customers. A company can choose to reach its consumers either through its own network (Business-to-Consumers (B2C)) or Partner channel (Business-to-Business (B2B)) or through a mix of both. In a broader sense, a channel not only includes the mode of transportation but also medium such as websites, social media and other promotional mix through which the business communicates with its customers. While deciding upon the channel, the entrepreneur must pay due consideration to all the phases a customer goes through while purchasing and consuming the product or service – awareness creation, evaluation of the value proposition, the actual purchase of the product, delivery of the product and availing after sales services. 3.1.4 Customer Relationships Customer Relationships building block describes the nature of relationship a business establishes with each of its customer segments. It helps in customer acquisition and retention to boost sales. Customer relationship could be improved through personal assistance, automated services, self-service and co-creation to deliver unique user experience. 3.1.5 Revenue Streams Revenue streams building block represents the cash that a business generates from each customer segment. If customers are considered as the heart of the business model, revenue streams are its arteries. There are several ways a business can generate revenue. Some of the ways through which revenue streams can be generated are sale of assets, usage fee, subscription fee, renting, leasing, licensing, brokerage and advertising fees. 3.1.6 Key Resources Key resources building block describes the most important resources needed by an organisation to make its business model work. Key resources can be intellectual, financial, physical or human. Every model requires key resources and it is through key resources that businesses generate value propositions, offer value propositions to its customer segments, maintain relation with its customers and generate revenue. Reprint 2023  40 Chapter 3 3.1.7 Key Activities This building block describes the business activities without which the business cannot operate. Every business model requires key activities and they vary depending on the business model. Like key resources, they are essential to create and offer a value proposition, reach markets, maintain customer relationships and earn revenues. 3.1.8 Key Partnerships Key partnerships building block refers to the network a business builds with the stakeholders such as suppliers, distributors and other partners which make the business model work. These partnerships enable the business to mobilise resources, reduce risks and uncertainties to succeed. Different types of essential partnerships are strategic alliances between non-competitors; competition – strategic partnerships between competitors; joint ventures to develop new businesses; and buyer-supplier relationships to ensure reliable supplies. 3.1.9 Cost Structure Cost structure refers to the cost incurred in implementing the business model. This component of BMC is important in understanding the cost impact and deciding whether to proceed with the business or change some components in the BMC as desired. Generally, businesses may be categorised into cost-driven and value-driven businesses. The cost driven businesses will always attempt to minimise cost whereas the value driven businesses will focus less on cost and focus more on enhancing the value of the products and services for the customers. Reprint 2023  Development of Business Model 41 3.2 Development of Business Model Canvas Business Model Canvas is a basis for writing a business plan. Therefore, it is advisable for an entrepreneur to sketch the BMC prior to preparing a full-fledged business plan. Figure 3.1 represents a template which can be adapted for the purpose of developing a BMC. KEY KEY VALUE CUSTOMER CUSTOMER PARTNERS ACTIVITIES PROPOSITIONS RELATIONSHIPS SEGMENTS Describe how you Describe your plan to establish and key activities manage relationships List your key here. Describe with your customers partners here. your value here. Describe your proposition target customer KEY here. segment here RESOURCES CHANNELS Describe your plan to: List the key acquire customers resources you deliver value have at your proposition disposal. communicate with your customers COST STRUCTURE REVENUE STREAMS Describe your cost structure here. Describe your revenue streams here. Figure 3.1: Template for Business Model Canvas Reprint 2023  42 Chapter 3 Learning Activity 3.1 This activity aims to enable learners to develop their own Business Model Canvas. Instruction: Refer the business idea your group has selected towards the end of chapter 2 and complete the given tasks. Task: Develop a Business Model Canvas for the selected idea and present it to the class. 3.3 Assessment of Business Model The assessment of business model is an essential exercise to test the overall relevance and appropriateness of the model. A popular method used to conduct the assessment of business model is to put the business model through a SWOT analysis. SWOT stands for strengths, weaknesses, opportunities and threats. SWOT analysis provides these four perspectives from which a business model can be assessed. Figure 3.2 represents the SWOT matrix. STRENGTHS WEAKNESSES INTERNAL OPPORTUNITIES THREATS EXTERNAL HELPFUL HARMFUL Figure 3.2: SWOT Matrix Reprint 2023  Development of Business Model 43 Strengths and weaknesses are internal to the business while opportunities and threats relate to the external environment of the business. Strengths and opportunities are factors which are helpful for the business while weaknesses and threats are factors which affect the business negatively. Using SWOT analysis for assessing business model enables the entrepreneur to understand the strengths and weaknesses the business model possesses; identify the opportunities the business model has and recognise the threats associated with the business model. The analysis of business model requires close examination of each of the 9 building blocks of the Business Model Canvas. A brief description of assessing business model using SWOT is given below: 3.3.1 Assessment of Strengths While assessing strengths, it is important to pay attention to all the 9 building blocks. The entrepreneur must clearly understand the strengths of the business model and further enhance it to take advantage of the opportunities. Some of the probable strengths related to customer segments could be well segmented customer base; high attraction and retention rate and low churn rate. Similarly, value proposition aligned with customer needs; satisfied customers with the value proposition and uniqueness and inimitability of value proposition could be strengths related to value proposition. Efficient and effective channels; high economies of scope of the channel and wider and well-integrated channels could be some channel-related strengths. Some of the strengths related to customer relationships could be strong customer relationships; proper fit between relationship and customer segment; strong brand image and binding customers through high switching cost. Some strengths associated with revenue streams could be high margins; stable, and sustainable and diversified revenue streams. Availability of required resources; inimitability of the resources and their combination, and efficient inventory management may be some of the strengths pertaining to key resources. Likewise, efficient and inimitable processes may be some strengths related to key activities. Strong relationships with partners, and having committed and reliable key partners could be primary strengths related to key partnerships block. The strengths associated with cost structure could be low-cost impact, predictable costs; cost-efficient operations and economies of scale.. 3.3.2 Assessment of Weaknesses Like strengths, it is important to understand the weaknesses of the business model. The entrepreneur must always attempt to convert the weaknesses into strengths or at least hold it constant so that it does not disrupt the business functioning. Some of the weaknesses related to the 9 building blocks could be unsegmented customer base; low Reprint 2023  44 Chapter 3 customer acquisition and retention rate; high churn rate; misaligned value proposition and customer needs; inefficient channels; poorly integrated channels; weak customer relationships; weak brand image; low switching cost for customers; poor margins; unpredictable revenue; single revenue stream; high revenue collection cost; easily replicable key resources; unpredictable resources requirement; easily imitable key activities; poor working relationships with partner