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Chapter Three: Business Idea Generation and Initial
Evaluation
Table of Contents
Brief Chapter Outline.
…………………………………………………………………………………2
Chapter Outline and Lecture notes..........................................................................3
Key Terms.............................................................................................................. 11
Suggested Text
Responses…………………………………………………………………………..12
Class Activities and Sample
Assignments…………………………………………………………14
Discussion Questions for Online/Hybrid classes....................................................16
Lecture Links......................................................................................................... 19
Lecture Link 3.1: M-Commerce and the Entrepreneur........................................19
Lecture Link 3.2: E-Commerce and the Entrepreneur........................................20
Lecture Link 3.3: Assess Your Skills....................................................................21
Bonus Internet Exercises....................................................................................... 22
Bonus Internet Exercise 3.1: Opportunity Analysis from New Business Trends..22
Bonus Internet Exercise 3.2: Green Alternatives for the New Entrepreneur.......23
Bonus Internet Exercise 3.3: The Bureau of Labor Statistics Projections............25
Critical Thinking Exercises.....................................................................................26
Critical Thinking Exercise 3.1: The Detail Oriented Entrepreneur......................26
Critical Thinking Exercise 3.2: Chart the Business Idea......................................27
Critical Thinking Exercise 3.3: The deficit Analysis............................................28
Bonus Cases.......................................................................................................... 29
Bonus Case 3.1: Uber Changes the Business.....................................................29
Bonus Case 3.2: Retirement and the Entrepreneur............................................31
Bonus Case 3.3: Community and the New Entrepreneur...................................32
Endnotes............................................................................................................... 34
Brief Chapter Outline
I. Learning Outcomes (text page 46)
IM 3-1
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Three: Business Idea Generation and Initial
Evaluation
Describe a systematic means for examining skills in order to generate new
business ideas.
Discuss the elements of opportunity analysis.
Analyze how to choose a business.
II. Generating Business Ideas (text pages 43 through 48)
Learning Outcome 3-1: Describe a systematic means for examining skills in
order to generate new business ideas.
III. Opportunity Identification (text pages 48 and 49)
Learning Outcome 3-2: Discuss the elements of opportunity analysis.
IV. Choosing a Business (text pages 50 through 57)
Learning Outcome 3-3: Analyze how to choose a business.
V. For Review (text page 58)
Chapter Outline and Lecture notes
1. Learning Outcomes (text page 41)
Describe a systematic means for examining skills in order to generate new
business ideas.
Discuss the elements of opportunity analysis.
Analyze how to choose a business.
2. Generating Business Ideas
Learning Objective 3-1: Describe a systematic means for examining skills in
order to generate new business ideas.
A. Potential entrepreneurs evaluate business opportunities and their potential
for success. (text pages 43 through 48)
B. Three approaches to develop quality business ideas
i. List and evaluate their skill sets
1. Hobbies
2. Education
3. Past work experience
4. Family history of experiences
ii. Analyze the market for gaps in unmet need
IM 3-2
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Three: Business Idea Generation and Initial
Evaluation
iii. Compare the skills and capabilities to gaps in market
1. Ask students to create a chart and compare skills and
capabilities to gaps that reveal opportunities in the market
C. New small business person requires depth of understanding
i. Builds long-term advantage in domain
D. New small business person requires an interest in and a passion for their
business
E. Founders need a synergy that connects skills, understanding and a
competitive advantage so that the sum of the parts is greater than the
individual parts
F. First set of skills is from hobbies and activities
i. Current hobbies and activities
ii. Other hobbies and activities pursued in the past
iii. Assessment of why the hobby or activity is exciting
iv. Specific skills needed to implement the hobby or activity
v. Experiences with the hobby or activity which could help others
vi. Products and services used in the hobby or activity
G. The second set of skills to assess include formal or informal education
i. Assess the courses taken in one’s formal education
1. Evaluate why they were enjoyable
ii. Courses taken that were easy
iii. Programs taken which were unusual
iv. Any specialized training in a specific area
v. If you had to do it all over again, what areas would you pursue now.
H. Third set of skills obtained from work experience
i. The businesses where you previously worked
ii. The skills that were critical to the jobs performed
iii. Previous positions held
iv. Areas of expertise
v. What you really enjoyed about a previous position
vi. Your frustrations in a previous position
vii. The time when you were most excited about work
I. Next, assess the family orientation
i. Family history with any new business ventures
ii. Types of travel/vacations your family enjoys
iii. Skill sets in your nuclear family
iv. Financial resources of your extended family
v. Unique family traits that interest other individuals or groups
vi. What skills are developed as part of your family activities
J. Consider other factors in the assessment
i. Your top three personal skills
ii. The tasks that you like doing the best every day
IM 3-3
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Three: Business Idea Generation and Initial
Evaluation
iii. The one or two things you enjoyed doing the most over the past
year
iv. The magazines and books you like to read
v. Your three greatest accomplishments in life
1. The skills that you required to complete those
accomplishments
vi. What you enjoy about working with other people or working alone
while concentrating in a particular area
vii. The industry in which you prefer to work
K. Consider the goals from this assessment in order to explore your range of
skills and abilities
L. Raise other questions to tailor your business to your unique skills and
personality
i. Your level of enjoyment working with people
1. If no
a. Focus on a business that has minimal interpersonal
demands or back-office operations like bookkeeping
or billing
2. If yes and you have adequate skills
a. Focus on a business in retail or other service
businesses
ii. Your level of detail orientation
a. If yes, focus on a complex business that involves the
management of a variety of details
b. Consider a business that helps someone manage the
details of their life (i.e. Supply company to large
manufacturers)
c. If no, pursue business with simple business models
iii. Your level of training
1. Experience
2. Educational skills
iv. Your ability to quickly and easily change and evolve the business
3. Opportunity Identification (text pages 48 and 49)
Learning Objective 3-2: Discuss the elements of opportunity analysis
A. Gap Analysis
i. A relatively simple process of systematically examining the
difference, or gap, between what is expected and what occurs. One
IM 3-4
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Three: Business Idea Generation and Initial
Evaluation
type of gap analysis, called opportunity analysis, examines
opportunities in the marketplace side-by-side with the individual’s
ability to address those gaps
ii. Potential businesses
1. Methods to identify gaps or business opportunities
a. Examine trends in the region, nation, and world that
may not have reached your geographic location
b. Trends do not start uniformly
c. Interview successful entrepreneurs
d. Pursue opportunities for mentorship
iii. Discuss new business opportunity with family
1. They understand your abilities and disposition
2. They provide honest feedback
iv. Look for environmental and regulatory changes such as in health
care.
v. Do Brainstorming
1. A creative process whereby a group of individuals are
brought together and asked to generate ideas with little or no
effort made to evaluate the potential for each idea
2. Group interaction leads to dynamic new, innovative ideas
3. Works well in informal groups
vi. Consider what frustrates you and your family
vii. Determine your interest and skill set in technology
1. Examination of patent files to discover opportunities from
part of a patent
2. Search for existing patents that are maintained by an original
inventor and together attempt a commercial application
4. Choosing a Business (text pages 50 through 57)
Learning Outcome 3-3: Analysis of how to choose a business
A. The process of generating business ideas
i. Time required
ii. Interaction with others
iii. Consideration of effects
iv. Evaluation of options
v. Iteration to repeat the processes involved
B. Interaction evaluation of ideas
IM 3-5
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Three: Business Idea Generation and Initial
Evaluation
i. Ask students to list three to five businesses where the founders
have the appropriate skills and there appears to be an opportunity
C. Due diligence analysis
i. After careful analysis, the entrepreneur may choose a different
business opportunity to pursue and initiate the process over again
ii. Due diligence focuses on one business concept
iii. Analysis and thought process is required
1. Focus
2. Time
3. Financial investment
iv. Decision to pursue a specific business is accomplished through gap
analysis
D. Develop a Gap Analysis Chart to examine the issues that impact the
success of the potential new business venture
i. List three to five new small business ideas
ii. Examine the issues that impact the potential success of the new
small business
iii. List the business ideas down the first column
1. Provide explanation of what each idea entails
2. Elevator pitches are used to pitch the business in two
minutes or the time to ride an elevator to the top of the
building.
iv. In the second column list one category to analyze the idea
1. Consider each of the five categories individually
a. Finances
i. Assess your existing resources
1. Savings accounts
2. Retirement accounts
3. Spouses resources
4. Family resources
5. Other money raised in a short period of
time
ii. Assess the financial business needs of the
potential business for one year
1. Rent
2. Furniture
3. Utilities
4. Advertising
5. Renovation
6. Equipment
7. Supplies
IM 3-6
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Three: Business Idea Generation and Initial
Evaluation
8. Employees
9. Taxes
10.Fees
11. Add the amount of funds estimated and
add 50 percent to it
12.Realize that new start-ups require twice
the money that was initially forecasted
a. Is this number within your range
b. Time
i. Do not underestimate the time necessary to
start the business
ii. Realize that various business types require
different time frames
iii. Determine your resources
1. The amount of time you dedicate to the
business
2. Decision if you will quit your job to work
on new business venture
3. Determination of the time you are willing
to commit on a weekly basis
4. Consideration of your other
commitments
5. Consideration whether your family
supports you
iv. Determine your business needs
1. Hours of operation
2. Additional hours required to manage the
operation
3. When a staff will be needed
4. Consideration when you will eat and
sleep
c. Nonfinancial resources
i. Other resources
ii. Special contacts with suppliers or customers
iii. Physical location of the business
iv. Being creative
1. The resources that provide your
competitive knowledge
a. Unique capabilities
b. Knowledge
IM 3-7
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Three: Business Idea Generation and Initial
Evaluation
c. Experiences
2. Business needs
a. Unique skills that will be required
b. Contracting to get needed skills
c. Obtain resources quickly
d. Consider the unique business
resources necessary to maintain
a competitive advantage
d. Risk
i. Commensurate with the rewards
ii. Within the tolerance level of the new small
business owner
iii. Two types of risk
1. Personal risk
2. Business risk
v. List resources in the third column
1. Include an estimation of resources
vi. List estimates of the required resources for success in the fourth
column
vii. Provide a gap analysis of the skills/resources with the perceived
requirements of the particular business and record the deficit or gap
in the fifth column
1. Next, ask the question is the deficit surmountable or is it one
that kills the idea
viii. A Gap Analysis Chart is completed with little or no research
ix. Short time frame to complete the analysis
x. The outcome of a Gap Analysis Chart is to provide a quick analysis
to see if the business passes the initial test
xi. Business risk is further examined by considering the three threats
to business success
1. Threats to profit margin
a. The threat of not being able to achieve a profit margin
sufficient to allow the business to attain substantial
returns.
2. Threats to Sales Generation Schemes
a. The threat of not being able to generate sufficient
sales required to make the firm profitable.
3. Threats to Operational Financing
a. The threat of not obtaining sufficient financing to
operate a firm.
IM 3-8
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Three: Business Idea Generation and Initial
Evaluation
4. Competitors – new firm must be realistic about its
competitors.
a. Evaluate the competition
i. Telephone
ii. Internet
iii. Strategic risk
IM 3-9
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
