Chapter 2
Developing and Screening Business Ideas
Key Words
First screen—a mechanism for quickly assessing the merits of a business idea before
subjecting it to full feasibility analysis and business planning
Brainstorming—a catch phrase that generally describes a session targeted to a specific
topic about which a group is instructed to come up with ideas
Chapter Overview
This chapter walks students through the process of testing specific ideas to determine if a
good business opportunity truly exists. The chapter is divided into two parts: (1) a focus
on the three most common sources of new business ideas and (2) the introduction of a
tool called the “First Screen.”
Chapter Summary
1.
The three most common sources of new business ideas include: changing
environmental trends, unsolved problems, and gaps in the marketplace.
2.
and political action and regulatory changes.
The most important environmental trends to follow, in the context of discovering
3.
in their lives, and then realized that the solution to the problem represented a
business opportunity.
Many companies have been started by people who have experienced a problem
4.
Gaps in the marketplace exist when there are products or services that consumers
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5.
Three techniques that entrepreneurs use to generate new business ideas include:
brainstorming, focus groups, and library and Internet research.
6.
The most common way to identify business ideas quickly is through
7.
relationship to the issues being discussed. Although focus groups are used for a
variety of purposes, they can be used to help generate new business ideas.
A focus group is a gathering of 5 to 10 people who are selected because of their
8.
Often, the best new business ideas emerge when the general notion of an idea is
merged with extensive library and Internet research.
assessing the merits of a business idea.
10.
Although completing the First Screen does take some research and analysis, it is
not meant to be a lengthy process. It contains 25 items and should be able to be
completed in less than an hour.
topic about which a group of people are instructed to come up with ideas.
Chapter Outline
I. Introduction
II. Three Most Common Sources of New Business Ideas
a. Changing Environmental Trends
i. Economic Trends
b. Unsolved Problems
c. Gaps in the Marketplace
III. Techniques for Generating Ideas
a. Brainstorming
b. Focus Groups
c. Library and Internet Research
IV. First Screen
a. Part 1: Strength of the Business Idea
Chapter Notes
I. Introduction
• Many businesses fail, not due to a deficit of commitment and hard work,
but because the idea wasn’t a good one to begin with
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II. Three Most Common Sources of New Business Ideas
• The first step in creating an effective business plan is selecting an idea that
fills a need and provides unique value to the customer
• It is difficult to get people to change habits and behaviors to try a new
product even if the new product is better or less expensive
a. Changing Environmental Trends
o Changes in these areas often provide the impetus for new
business ideas
i. Economic Trends
• When the economy is strong, people are
more willing to buy discretionary products
and services
ii. Social Trends
• Entrepreneurs must also understand the
impact of social trends on the way people
iii. Technological Advances
• Technological advances provide an ongoing
source of new business ideas
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has created an entire industry that produces
accessories)
iv. Political Action and Regulatory Changes
• New laws create opportunities for
entrepreneurs to start firms to help
companies and individuals comply with
these laws
b. Unsolved Problems
o Many companies have been started by people who have
experienced a problem and, in the process of solving the
problem, realized that they were on to a business idea
o There are many examples of products that consumers need
or want that aren’t available in a particular location or
aren’t available at all
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III. Techniques for Generating Ideas
• Some people recognize new business ideas through casual observation,
intuition, or even serendipity or luck
a. Brainstorming
o Brainstorming is the most common way to generate
business ideas
b. Focus Groups
o A focus group is a gathering of 5 to 10 people who are
selected because of their relationship to the issues being
discussed
c. Library and Internet Research
o Entrepreneurs would be making the mistake of overly
linear thinking to assume that the process of researching
does not begin until after the business idea has been chosen
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IV. First Screen
• Once a business idea has been chosen, it is important to have a way to
quickly assess the merits of the idea before subjecting it to full feasibility
and business plan
a. Part 1: Strength of the Business Idea (five criteria)
o (1) High potential ideas are typically drawn from one of the
three sources of business ideas and are timely in terms of
market introduction
b. Part 2: Industry-Related Issues (five criteria)
o Researchers have found that 8 to 30 percent of the variation
in firm profitability is directly attributable to industry
factors such as
▪ (1) The number of competitors
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c. Part 3: Market- and Customer-Related Issues (five criteria)
o (1) Identification of the target market in which the firm
competes is extremely important.
o (2) The ability to create barriers to entry, a condition that
creates a disincentive for another firm to enter the
company’s niche market, is an important aspect of any
firm’s potential competitive advantage
▪ Economies of scale
▪ Intellectual property protection such as patents
o (3) Entrepreneurs should also consider the purchasing
power of potential customers
o (5) Another important issue is the growth potential of a
firm’s target market
d. Part 4: Founder- (or Founders-) Related Issues (five criteria)
o The potential founder should also complete a self-
assessment that is forthright and fair, understanding that
few firms will score high on each of the five dimensions
o The attributes that make for a strong founding team include
(1) Experience in the industry the new venture is entering
(3) Social and professional networks in the industry the
firm will be entering
e. Part 5: Financial Issues (five criteria)
o (1) The initial capital investment needed to start a firm is
important
▪ At this point, the entrepreneur should have a sense
of the magnitude of the investment; exact estimates
will be developed later if the idea is indeed viable
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o (2) The number of revenue drivers that a business has is
also important
generating sales
o (3) The time it takes a firm to break even or recoup its
initial investment is also important
o (4) The next issue to consider is to assess the financial
Review Questions
1.
What are the three most common sources of new business ideas? Briefly
describe how each of the sources spawns potential business ideas.
Answer: The three most common sources of new business ideas are: (1)
changing environmental trends—if entrepreneurs are able to distinguish between
location or aren’t available at all.
2.
(4) political action and regulatory changes. Types of business ideas will vary.
What four environmental trends provide the richest sources of new business
ideas? List each environmental trend and provide an example of the type of
business idea that it might create.
Answer: (1) economic trends, (2) social trends, (3) technological advances, and
3.
someone he knows, is having. Once he has successfully solved the problem for
Explain how “unsolved problems” can create a business idea. Provide an
example that was not mentioned in the chapter of a business that was created by
solving an unsolved problem.
Answer: Often an entrepreneur will attempt to solve a problem that he, or
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4.
geographic location, personal style, or comparatively small market size. These
Explain how finding a gap in the marketplace can lead to new business ideas.
Answer: Gaps in the marketplace can often be targeted by niche companies.
5.
markets.
Describe the four categories of new business ideas and the most realistic
categories for new firms.
Answer: Existing markets, new markets, existing products, and new products
6.
ideas about potential solutions to common problems.
Describe the brainstorming process. How can brainstorming be used to generate
new business ideas?
Answer: Typically, brainstorming sessions are targeted to a specific topic about
7.
because they have some relationship to an issue being discussed. Focus groups
Describe how a focus group is set up and how it can be used to generate new
business ideas?
Answer: A focus group is a gathering of 5 to 10 people who are selected
8.
Explain how library and Internet research can be used to generate new business
opportunity. Student examples will vary.
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ideas?
Answer: Libraries are often underutilized sources of information for generating
9.
Why is it necessary to quickly assess the merits of a business idea before
conducting a feasibility analysis and writing a business plan?
Answer: The time and resources necessary to complete a feasibility and full
10.
financial issues.
Describe the makeup and the purpose of the First Screen.
Answer: The First Screen is a tool that contains 25 items for an entrepreneur to
Application Questions
specific magazines, trade journals, and industry reports.
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1.
Tim Jensen thinks he has identified a new e-commerce idea but wants to make
sure that he isn’t just following a hunch. What criteria can Tim use to make sure
that his business idea has a fundamentally sound basis?
Answer: Tim could complete a First Screen, which examines the business idea
2.
Megan Holms just finished reading this chapter and was struck by the idea of
opening a fitness center for people 50 years old and older. She is interested in
running with the idea but first wants to make sure that that it is consistent with
changing economic trends, social trends, and technological advances. Make a
table that lists these three environmental trends as well as the changes in these
trends that work for and those that work against Megan’s idea.
Answer: Student answers will vary but could include data regarding changing
3.
Think about the problems that you encounter in your everyday life. Select one
problem, and describe how solving the problem might represent the basis for a
new business idea.
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4.
A good friend of yours, who works for a large corporation, was just notified that
his job will be phased out in three months. He is tired of working for large
companies and wants to start his own business. He has several vague notions of
businesses to start, but nothing specific. Make some suggestions to your friend
regarding how he might go about deciding on a business to start.
Answer: Solid library and Internet research about the industries of interest
5.
Complete the First Screen for the business idea you selected to answer Question
#3. Which areas of the First Screen were the easiest to complete and which areas
were the most difficult? Was the result the one you expected?
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Additional Activities
1. Changing Environmental Trends
This exercise can either be conducted in your classroom or be assigned to students to do
on their own. If you decide to make this an outside or homework assignment, you should
at least discuss in the classroom:
Purpose: Your instructional goal is to encourage students to fill the board with amazing
(and sometimes silly or ridiculous) products and services. This is a valuable exercise
because many students do not consider themselves to be creative. When the exercise is
Next, review the rules of brainstorming. When done as an individual activity for
homework, emphasize that it is not difficult for an individual to brainstorm, even by
herself! Brainstorming rules typically include quantity over quality, no criticism of ideas
is allowed, fast and furious is required, and piggybacking of ideas is encouraged.
Each discussion team is now asked to use brainstorming to:
• First, quickly generate a short list (3 to 5) of current facts related to their trend.
For example, a social trend is baby boomers approaching retirement.
2. Unsolved Problems and Gaps in the Marketplace
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This exercise can either be conducted in your classroom or be assigned to students to do
on their own. If you decide to make this an outside or homework assignment, you should
at least discuss in the classroom the differences between trends and fads.
Purpose: Your instructional goal is encourage students to fill the board with amazing
(and sometimes silly or ridiculous) products and services. This is a valuable exercise
because many students do not consider themselves to be creative. When the exercise is
Ask each pair of students to use brainstorming to:
• Identify a short list (2 to 3) of problems that they personally encountered within
the last 24 hours. For example, parking, waking up, or a burned out light bulb. Or
ask them to identify gaps in the marketplace they have noticed within the past
month.
Consider using both exercise one and two to really fill the board in your classroom!
3. First Screen
Purpose: This exercise will reinforce for students the need to conduct research on a
concept before advancing too fast to open a new business. Many students do not enjoy
research, do not know the benefits of research, and/or do not know where to find
information.
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4. Brainstorming and Other Creative Stimulus Techniques
Purpose: This exercise is important because students often do not take the rules of
brainstorming seriously, or they are unaware of other ways to stimulate creative thinking.
5. Focus Groups
Purpose: This exercise is valuable to show that focus groups are relatively easy for
students to conduct. In the corporate world, focus groups are typically closely controlled
and monitored, but students can gain valuable information even from more casually
conducted efforts.
6. If You Had only a $1,000 . . .
Purpose: This activity will demonstrate that it does not have to cost a lot of money to
start a business, to practice brainstorming, and/or to help students get to know one
another.
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After describing the purpose of the activity, review the rules of brainstorming:
• The goal is to generate a large quantity of new businesses concepts that could be
started with very few resources. The goal is quantity, not quality.
Ask students to form small discussion groups. The group’s assignment is to generate as
many new business concepts as they can as quickly as they can. The team with the
longest list is the winner.