Chapter 2 Idea Generation And Evaluation
Prof Pr of.. And ndre res s
Identify and evaluate new ideas Avoid Avoid the the wrong ideas
Some interesting trends and ideas
Brainstorming to generate ideas
Sources of New Business Ideas • Forces, trends and mega-trends tech, macro, social, political
• Changing market structures and needs • Market inefficiencies inefficiencies • Products in the market • Personal experience, hobbies and pastimes, personal passions
• Cross regional, discipline or industry
Characteristics of Successful New Business Ideas • Not necessarily a new invention • Not necessarily a new idea • Notion that is poised to be taken
seriously in the market place • Idea that is a tiny push away from general acceptance
Evaluating New Ideas • Original? • Feasible? • Marketable? • Profitable?
Assessing Feasibility of a New Venture
Analyze Strengths and Weaknesses
1. Is the venture proprietary? 2.Are the initial production costs realistic? 3.Are the initial marketing costs realistic? 4. Does the product have potential for high margins? 5.Is the time required to get to the market and to reach the break-even point realistic?
Look at Both Internal and External Factors • Is the potential market large? • Is the product the first of a growing • • • •
family? Does an initial customer exist? Are the development costs and calendar times realistic? Is this a growing industry? Can the product and the need for it be understood by the financial community?
Evaluate Technical Feasibility • • • • • •
Functional design and attractiveness Flexibility, durability, reliability Product safety Ease and low cost of maintenance Ease of processing and manufacturing User friendliness
Evaluate Marketability • Investigate the full market potential and
identifying customers • Analyzing the extent to which the potential market can be exploited • Determine opportunities and risks • Information sources include -
General economic trends Market data Pricing data Competitive data
Use an Idea Checklist
Basic Feasibility - Will it work? Is it legal? Competitive Advantage - Advantages, competitors Buyer Decisions - Who are the likely customers? - How will they be serviced? Marketing of Goods & Services - How much budget for advertising and selling? Pricing? Distribution?
Production of Goods & Services Make or buy or both? QA?
Staffing Decisions Who, when and competence?
Financing How much is needed, where will it come from, ROE, exit strategy?
Do you Have These Critical Success Factors? •
•
•
Uniqueness – Amount of innovation required during pre-start-up – Length of time a non-routine venture remain non-routine Investment – Capital investment varies from industries – Extent and timing of funds needed Sales Growth – Growth pattern anticipated for new-venture sales and profits
• Product Availability • Product and service still in
development? • Products released too soon be have to be recalled for further modifications, affecting company’s image
• Customer Availability • Critical consideration to
determine who the customers are and what their buying habits are.
Ask the Right 10 Questions About Your Idea 1. Is the product or service idea new?
6. Has market research been conducted?
2. What are its weak points?
7. What sales and distribution methods will be used?
3. What reaction has it received from the public?
8. How will the product be made?
4. Is it easily understood? 5. Can the product penetrate different market segments?
9. Will the business concept be developed and licensed to others or sold away? 10. Can the company get or does it already have the necessary skills to operate?
Avoiding the Wrong Idea: Pitfalls in Selecting New Ventures Pitfalls
Ways to avoid
Lack of objective evaluation
Subject all ideas to rigorous study and investigation
No real insight into the market
Project the life cycle of the product; timing is critical
Inadequate understanding of technical requirements
Study the project thoroughly before initiating it
Avoiding the Wrong Idea: More Pitfalls in Selecting New Ventures Pitfalls
Ways to avoid
• Poor financial understanding
• Do not underestimate development costs • Ensure customer awareness of product superiority through product differentiation • Patents, trademarks and
• Lack of venture uniqueness
• Ignorance of legal issues
copyrights to protect one’s
inventions
Some Big-Name New Venture Ideas That Failed •
RCA’s Videodisc
– Superior image quality, but lack
of recording capability lost out to videotape. Loss: $500 million
•
IBM’s PC
Jr
– The awkward Chiclet keyboard,
slow microprocessor, unattractive price and a late launch cost IBM $40 million
Why Do New Ventures Fail? • Product / Market Problems – Poor timing, product design problems,
inappropriate distribution strategy – Unclear business definition, over-reliance on one customer
• Financial Difficulties – Initial under-capitalization, assuming debt
too early, VC relationship problems
• Managerial problems – Concept of a team approach
HR problems
Internal Problems Experienced by Entrepreneurs
External Problems Experienced by Entrepreneurs
Determinants of New Venture Failures
Some Interesting Trends and Ideas: Past and Present Trends and Mega-Trends Pre-industrial
Industrial
New Economy
Labor
Production of primary products
Technical efficiency Societal organization Location of production Transportation speed Social class determined by National wealth determined by
Low Rural Families or manors
Production of manufactured goods and services Higher Urban Firms and enterprises
Production of information and services Much higher Global Anywhere
5 mph
60 mph
186M/miles/sec
Birth
Ownership of production Accumulation of capital and labor
Knowledge and skills
Abundance of natural resources and conquest
Intellectual capital; knowledge and skills
Some Interesting Trends and Ideas: Past and Present Trends and Mega-Trends
Quality of life
Work
Entertainment Health
Life expectancy
Pre-industrial
Industrial
Illiterate, no books, no schooling, no travel
Literate, books, schools, travel
New Economy
Access to all of human knowledge, virtual travel Back-breaking work in Factory or office work Tedious or dangerous the fields work performed by machines; humans focus on creativity None TV, Radio, Movies Interactive multimedia, virtual reality Widespread hunger, Hunger and disease Hunger and genetic debilitating disease reduced by machines diseases virtually and medicine eliminated through nanotechnology Avg life expectancy 30 Avg life expectancy 70 100+ year life years; high levels of years expectancy; end of child mortality aging through genetic engineering
Examples of Current Tech Trends and Megatrends Technology will become ubiquitous
Broadband and wireless broadband
Convergence, Integration and interoperability
Worldwide, instant, always-on connectivity with no external devices
Mobile computing, PC no longer sole computing device, speech and voice recognition
Experience-based transactions (VR) Automation
Examples of Current Tech Trends and Megatrends Computers will move beyond silicon chips
20-ghz nano-silicon chips with 1 billion transistors
3-dimensional chips
Optical computers
DNA computers
Nanotube computers
Quantum computing
Examples of Current Tech Trends and Megatrends Technology and biology will merge • Micro-machines and Nano-technology • Biometric security • Bio-informatics • Exponential growth of machine intelligence leads to
intelligent, conscious (?) machines • Neural implants to extend human intellectual capability • Merging of human and machine intelligence creates
substrate-independent minds
Using Brainstorming to Generate Ideas Brainstorming - No Criticism • Designed to produce as many ideas as
possible • Key ground rule: Postpone all criticism and evaluation of ideas • Invent ideas with no fear of looking foolish • Wild ideas are explicitly encouraged
Before Brainstorming • Define your purpose • Choose the right number of participants • Change the environment • Design an informal atmosphere • Choose a facilitator
During Brainstorming • Seat the participants side by side facing
the problem • Clarify the ground rules, especially the no-criticism rule • Brainstorm • Record the ideas in full view
After Brainstorming • Star the most promising ideas • Invent improvements for promising
ideas • Set up a time to evaluate ideas and decide
Brainstorming Tips • Allow enough time to get below the surface of • •
• •
your thinking 20-30 participants are ideal. Large but not too large group Divide the group into teams of four to six people for more diverse thought and to dilute the impact of those who know all the answers Invite a wide variety of people to participate and go outside the core group Do a warm-up mental exercise to break the ice Brainstorm in bursts
Brainstorming Tips • Have everyone write their own ideas on
sticky notes • People should stand while ideating • Push for quantity and you will get quality • Distill the output periodically
