Chapter 2: Idea Generation and Evaluation
Sources of New Business Ideas
Forces, trends and mega-trends tech,
macro, social, political
Changing market structures and needs
Market 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
Chapter 2: Idea Generation and Evaluation

Determine opportunities and risks 3. What reaction has it received from the
Information sources include public?
o General economic trends 4. Is it easily understood?
o Market data 5. Can the product penetrate different
o Pricing data market segments?
o Competitive data 6. Has market research been conducted?
7. What sales and distribution methods will
Use an Idea Checklist be used?
Basic Feasibility 8. How will the product be made?
Will it work? Is it legal? 9. Will the business concept be developed
Competitive Advantage and licensed to others or sold away?
Advantages, competitors 10. Can the company get or does it already
Buyer Decisions have the necessary skills to operate?
Who are the likely customers? Avoiding the Wrong Idea: Pitfalls in Selecting New
How will they be serviced? Ventures
Marketing of Goods & Services
How much budget for advertising PITFALLS WAYS TO AVOID
and selling? Pricing? Distribution? Lack of objective Subject all ideas to
Production of Goods & Services evaluation rigorous study and
Make or buy or both? QA? investigation
No real insight into the Project the life cycle of
Staffing Decisions
market the product; timing is
Who, when and competence? critical
Financing Inadequate Study the project
How much is needed, where will it understanding of thoroughly
come from, ROE, exit strategy? technical before initiating it
requirements
Do you have these Critical Success Factors?

Uniqueness
Avoiding the Wrong Idea: More Pitfalls in
o Amount of innovation required
Selecting New Ventures
during pre-start-up
o Length of time a non-routine PITFALLS WAYS TO AVOID
venture remains non-routine Poor financial Do not underestimate
Investment understanding development costs
o Capital investment varies from Lack of venture Ensure customer
industries uniqueness awareness of product
o Extent and timing of funds needed superiority through
Sales Growth product
o Growth pattern anticipated for differentiation
new-venture sales and profits Ignorance of legal Patents, trademarks
issues and copyrights to
Product Availability
protect ones
o Product and service still in
inventions
development?
o Products released too soon be
have to be recalled for further Some Big-Name New Venture Ideas that
modifications, affecting Failed
companys image
Customer Availability RCAs Videodisc
o Critical consideration to o Superior image quality, but
determine who the customers are lack of recording
and what their buying habits are. capability lost out to
videotape.
Ask the right 10 Questions about your IDEA o Loss: $500 Million
IBMs PC JR
1. Is the product or service idea new?
o The awkward Chiclet
2. What are its weak points?
keyboard, slow
Chapter 2: Idea Generation and Evaluation

microprocessor, External Problems Experience by

unattractive price and a Entrepreneurs
late launch cost IBM $40
Million

Why do new ventures fail?

Product / Market Problems

o Poor timing, product
design problems,
inappropriate distribution
strategy
o Unclear business
definition, over-reliance on
one customer
Financial Difficulties
o Initial under-capitalization,
assuming debt too early,
VC relationship problems
Managerial problems
o Concept of a team
approach
o HR problems

Internal Problems Experienced by

Entrepreneurs

Determinants of New Venture Failures

Entrepreneur Rank Venture Rank

Capitalist
I-Lack of 1 I-Lack of 1
Management Management
Skill Skill
I-Poor 2 I-Poor 2
Management Management
Strategy Strategy
I-Lack of 3 I-Lack of 3
Capitalization Capitalization
I-Lack of 4 E-Poor 4
Vision External
Market
Conditions
I-Poor Product 5 I-Poor Product 5
Design Design
I-Key 6 I-Poor Product 6
Personnel Timing
Incompetent
Chapter 2: Idea Generation and Evaluation

Some Interesting Trends and Ideas: Past o DNA computers

and Present Trends and Mega-Trends o Nanotube computers
o Quantum computing
Pre- Industrial New Technology and Biology will
industri Economy
merge
al
o Micro-machines and Nano-
Labor Producti Productio Production
on of n of of technology
Primary Manufactu Information o Biometric security
Products red Goods and o Bio-informatics
and Services o Exponential growth of
Services machine intelligence leads
Technical Low Higher Much to intelligent, conscious (?)
Efficiency Higher machines
Societal Rural Urban Global o Neural implants to extend
Organizatio human intellectual
n capability
Location of Families
Firms and Anywhere o Merging of human and
Production or Enterprise machine intelligence
Manorss creates substrate
Transporta 5mph 60mph 186M/miles/
independent minds
tion Speed sec
Social Class Birth Ownership Knowledge Using Brainstorming to Generate Ideas
determined of and Skills
by Production Brainstorming NO CRITICISM
National Abundan Accumulat Intellectual
Wealth ce of ion of Capital; Designed to produce as many
determined Natural Capital Knowledge ideas as possible
by Resourc and Labor and Skills Key ground rule: Postpone all
es and criticism and evaluation of ideas
Conques Invent ideas with no fear of looking
t foolish
Wild ideas are explicitly
Examples of Current Tech Trends and encouraged
Mega-Trends
Before Brainstorming
Technology will become
ubiquitous Define your purpose
o Broadband and wireless Choose the right number of
broadband participants
o Convergence, Integration Change the environment
and interoperability Design an informal atmosphere
o Worldwide, instant, Choose a facilitator
always-on connectivity
with no external devices During Brainstorming
o Mobile computing, PC no Seat the participants side by side
longer sole computing facing the problem
device, speech and voice Clarify the ground rules,
recognition especially the no-criticism rule
o Experience-based Brainstorm
transactions (VR)
Record the ideas in full view
Automation
Computers will move beyond After Brainstorming
silicon chips
o 20-ghz nano-silicon chips Star the most promising ideas
with 1 billion transistors Invent improvements for
o 3-dimensional chips promising ideas
o Optical computers
Chapter 2: Idea Generation and Evaluation

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
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