3.1 - Innovation: The Creative Pursuit of Ideas: Opportunity Identification
3.1 - Innovation: The Creative Pursuit of Ideas: Opportunity Identification
o Misconception 2: Technical specification should be thoroughly prepared.
Truth: Quite often it is more important to use a try-test-revise approach.
o Misconception 3: Innovation relies on dreams and blue-sky ideas.
Truth: Innovators create from opportunities not daydreams.
o Misconception 4: Big projects will develop better innovations than smaller
ones.
Truth: Smaller groups foster creative ideas better.
o Misconception 5: Technology is the driving force of innovation success.
Truth: Not the only source.
Truth: Market-driven innovations have the highest probability of
success
Principles of Innovation
o Be action-oriented; search for new ideas.
o Make the product, process, or service simple and understandable.
o Make the product, process, or service customer-based.
o Start small; begin small, plan for proper expansion.
o Aim high; seek a niche in the marketplace.
o Try-test-revise; help work out flaws.
o Learn from failures.
o Follow a milestone schedule; have schedule in order to plan and evaluate
the project.
o Reward heroic activity and give it respect.
o Work, work, work!
3.2 - Assessment of
Entrepreneurial Opportunities
The Challenge of New Venture Start-ups and
Pitfalls in Selecting New Ventures
400,000 new firms have emerged every year since 2010; that works out to
approximately 1,100 business start-ups per day. The reasons that entrepreneurs start
new ventures are similar to the characteristics (as discussed in previews modules) on
the entrepreneurial mind-set:
(1) The need for approval
(2) The need for independence
(3) The need for personal development
(4) Welfare (philanthropic) considerations
(5) Perception of wealth
(6) Tax reduction and indirect benefits
(7) Following role models
Uniqueness
Range of uniqueness in a new venture can be considerable. Uniqueness is further
characterized by the length of time a nonroutine venture will remain nonroutine.
Investment
Required capital investment can vary considerably. Extent and timing of funds needed
is critical.
Key questions to ask to determine the amount of funding needed during the start-up
phase:
o
Will industry growth be sufficient to maintain break-even sales to
cover a high fixed cost structure during the start-up period?
Do the principal entrepreneurs have access to substantial financial
reserves to protect a large initial investment?
Do the entrepreneurs have the appropriate contacts to take
advantage of various environmental opportunities?
Do the entrepreneurs have both industry and entrepreneurial track
records which justify the financial risk of a large-scale start-up?
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Development
o
Are the initial production costs realistic?
o
Are the initial marketing costs realistic?
o
Does the product have potential for very high margins?
o
Is the time required to get to market and to reach break-
even realistic?
o
Is the potential market large?
o
Is the product the first of a growing family?
Does an initial customer exist?
Are the development costs and calendar times realistic?
o
Is this a growing industry?
Can the product—and the need for it—be understood by
the financial community?
Design-Centered Entrepreneurship
The entrepreneur applies design methods in four action stages of developing an
opportunity.
Ideation
Prototyping
Market engagement
Business model
Actionable
Accessible
Auditable
Uniqueness
Range of uniqueness in a new venture can be considerable.
Uniqueness is further characterized by the length of time a non-routine venture will
remain non-routine.
Investment
Required capital investment can vary considerably.
Extent and timing of funds needed is critical.
Key questions to ask to determine the amount of funding needed during the start-up
phase:
o
Will industry growth be sufficient to maintain break-even sales to cover a
high fixed cost structure during the start-up period?
Do the principal entrepreneurs have access to substantial financial
reserves to protect a large initial investment?
Do the entrepreneurs have the appropriate contacts to take advantage of
various environmental opportunities?
Do the entrepreneurs have both industry and entrepreneurial track
records which justify the financial risk of a large-scale start-up?
Growth of Sales
Key questions to ask about growth of sales during the start-up phase:
o
What is the growth pattern anticipated for new-venture sales and profits?
Are sales and profits expected to grow slowly or level off shortly after
start-up?
Are large profits expected at some point with only small or moderate
sales growth?
Are both high sales growth and high profit growth likely?
Will there be limited initial profits with eventual high-profit growth over a
multiyear period?
In answering these questions, it is important to remember that most ventures fit into
one of the three following venture classifications:
o
Lifestyle ventures
Independence, autonomy, and control are the primary driving forces.
Sales and profits are deemed to provide a sufficient and comfortable
living for the entrepreneur.
Small profitable ventures
Financial considerations play a major role.
Autonomy and ownership control are important factors.
High-growth ventures
Significant sales and profit growth are expected.
May be possible to attract venture capital money.
May be possible to attract funds raised through public or private
placements.
Product Availability
o Goods or services must be available.
o Lack of product availability can affect the company’s image and its bottom line.
Customer availability
o Risk continuum (two extremes):
o Customers willing to pay cash before delivery.
o Venture begun not knowing exactly who will buy the product.
o Two critical considerations:
o How long will it take to determine who the customers are?
o What are the customers’ buying habits?
product/market problems
financial difficulties
managerial problems
o Are the initial production costs realistic?
Most estimates are too low.
Careful detailed analysis should be made.
o Are the initial marketing costs realistic?
Identify target markets.
Identify market channels.
Identify promotion strategy.
o Does the product have potential for very high margins?
A necessity for a fledgling company
Gross margins are important.
o Is the time required to get to market and to reach break-even realistic?
The faster, the better.
An error here can spell trouble later on.
o Is the potential market large?
Must look three to five years into the future
Market needs time to emerge.
o Is the product the first of a growing family?
o Does an initial customer exist?
o Are the development costs and calendar times realistic?
Preferably, they are zero.
A ready-to-go product gives the venture a big advantage over competitors.
o Is this a growing industry?
o Can the product—and the need for it—be understood by the financial
community?
MARKETABILITY
Three major areas involved:
1. Investigating the full market potential and identifying customers (or users) for the
goods or service,
2. Analyzing the extent to which the enterprise might exploit this potential market,
and
3. Using market analysis to determine the opportunities and risk.
Design-Centered Entrepreneurship
The entrepreneur applies design methods in four action stages of developing an
opportunity.
o Ideation
o Prototyping
o Market engagement
o Business model
Actionable
Accessible
Auditable
Pivot
Build-Measure-Learn Feedback Loop
Validated Learning