102106 - ENTREPRENEURSHIP STARTUP IDEAS & EVALUATION Chapter – II STARTUP IDEAS & EVALUATION Dr.BALAMURUGAN MUTHURAMAN Summer Semester

Dr.BALAMURUGAN MUTHURAMAN LEARNING OUTCOME Identify several factors that determine whether an idea for a new venture is a good investment opportunity. Give several reasons for starting a new business from scratch rather than buying a franchise or an existing business. Distinguish among the different types and sources of startup ideas. Describe external and internal analyses that might shape new venture opportunities. Explain broad-based strategy options and focus strategies. Dr.BALAMURUGAN MUTHURAMAN Summer Semester

STAGES IN THE LIFE CYCLE OF AN ENTREPRENEURIAL FIRM. Management - Chapter 6 Dr.BALAMURUGAN MUTHURAMAN Summer Semester

BREAKING INTO THE MARKET Three Ways Offer a totally new product Offer an existing product to a different market Offer a product or service similar to those existing in the same market Dr.BALAMURUGAN MUTHURAMAN Summer Semester

IDENTIFYING STARTUP IDEAS Opportunity Recognition Identification of potential new products or services that may lead to promising businesses Entrepreneurial Alertness Readiness to act on existing, but unnoticed, business opportunities Good Investment Qualities Products that serve clear and important needs Products that customers know about Products that customers can afford A good idea is not the same as a good opportunity. Dr.BALAMURUGAN MUTHURAMAN Summer Semester

IS AN IDEA A GOOD INVESTMENT OPPORTUNITY? Market Factors Fatal Flaws Judging a Business Opportunity Competitive Advantage Management Capability Economics Dr.BALAMURUGAN MUTHURAMAN Summer Semester

CREATING A NEW BUSINESS FROM SCRATCH To develop a commercial market for new product or service. To tap into unique resources that are available Motivations To Start a Business Wanting the challenge of succeeding (or failing) on your own To avoid undesirable features of existing companies Dr.BALAMURUGAN MUTHURAMAN Summer Semester

BASIC QUESTIONS ABOUT STARTUPS What other startup types might be considered? What are some sources for more new ideas? How to identify a genuine opportunity that creates value, for both the company and the company’s owners? How should the idea be refined? What can be done to increase the chances that the business will be successful? What competitive advantage does the business have over its rivals? Dr.BALAMURUGAN MUTHURAMAN Summer Semester

EVALUATION CRITERIA FOR A STARTUP Marketing Factors Need for product Identified or unfocused Customers Reachable or not, brand loyal Value created for customer Significant or insignificant Life of product Recovery of cost by customer Dr.BALAMURUGAN MUTHURAMAN Summer Semester

EVALUATION CRITERIA FOR A STARTUP Marketing Factors (cont’d) Market structure Emerging or mature Market size (known or unknown?) Market growth (how fast?) Competitive Advantage Cost structure Control over price, costs, channels of supply Barriers to entry: regulatory protection, response/ lead-time advantage, legal, contacts and networks Dr.BALAMURUGAN MUTHURAMAN Summer Semester

EVALUATION CRITERIA FOR A STARTUP Economics Return on investment? Investment requirements Break-even point Management Capability Diverse skills or solo entrepreneur with no related experience Fatal Flaws Dr.BALAMURUGAN MUTHURAMAN Summer Semester

TYPES OF IDEAS THAT DEVELOP INTO STARTUPS Dr.BALAMURUGAN MUTHURAMAN Summer Semester

Dr.BALAMURUGAN MUTHURAMAN KINDS OF STARTUP IDEAS Type A Are centered around providing customers with an existing product not available in their market. Type B Involve new ideas, involve new technology, centered around providing customers with a new product. Type C Are centered around providing customers with an improved product. Dr.BALAMURUGAN MUTHURAMAN Summer Semester

SOURCES OF STARTUP IDEAS Source: Data developed and provided by the National Federation of Independent Business and sponsored by the American Express Travel Related Services Company, Inc. Dr.BALAMURUGAN MUTHURAMAN Summer Semester

CHANGE-BASED SOURCES OF ENTREPRENEURIAL OPPORTUNITIES Change Factor Definition Industry Factors The unexpected Unanticipated events lead to either enterprise success or failure. The incongruous What is expected is out of line with what will work. Process needs Current technology is insufficient to address an emerging challenge. Structural change Changes in technology, markets, etc., alter industry dynamics. Human and Economic Factors Demographics Shifts in population size, age structure, ethnicity, and income distribution impact product demand. Changes in perception Perceptual variations determine product demand. New knowledge Learning opens the door to new product opportunities with commercial potential. Dr.BALAMURUGAN MUTHURAMAN Summer Semester

APPLYING INNOVATIVE THINKING TO BUSINESS IDEAS Borrow ideas from existing products and services or other industries. Combine two businesses into one to create a market opening. Begin with a problem in mind. Recognize a hot trend and ride the wave. Explore ways to improve a product or service’s function. Think of how to streamline a customer’s activities. Adapt a product or service to meet customer needs in a different way. Imagine how the market for a product or service could be expanded. Keep an eye on new technologies. Dr.BALAMURUGAN MUTHURAMAN Summer Semester

EVALUATING ENTREPRENEURIAL OPPORTUNITIES Outside-In Analysis Studying the context of the venture to identify business ideas and determine which ideas qualify as opportunities. General Environment A broad environment, encompassing factors that influence most businesses in a society. Industry Environment The combined forces that directly impact a given firm and its competitors. Competitive Environment The environment that focuses on the strength, position, and likely moves and countermoves of competitors in an industry. Dr.BALAMURUGAN MUTHURAMAN Summer Semester

SEGMENTS OF THE GENERAL ENVIRONMENT Dr.BALAMURUGAN MUTHURAMAN Summer Semester

MAJOR FACTORS OFFSETTING MARKET ATTRACTIVENESS Threat of New Competitors Threat of Substitute Products or Services Intensity of Rivalry Among Existing Competitors Attractiveness and Profitability of a Target Market Bargaining Power of Suppliers Bargaining Power of Buyers Dr.BALAMURUGAN MUTHURAMAN Summer Semester

Dr.BALAMURUGAN MUTHURAMAN COMPETITOR ANALYSIS Who are the new venture’s current competitors? What resources do they control? What are their strengths and weaknesses? How will they respond to the new venture’s decision to enter the industry? How can the new venture respond? Who else might be able to observe and exploit the same opportunity? Are there ways to co-opt potential or actual competitors by forming alliances? Dr.BALAMURUGAN MUTHURAMAN Summer Semester

EVALUATING OPPORTUNITIES… Inside-Out Analysis Assessing the firm’s internal competitive potential Resources Basic inputs that a firm uses to conduct its business Tangible resources: visible and easy to measure. Intangible resources: invisible, difficult to quantify Capabilities Integration of various organizational resources that are deployed together to the firm’s advantage. Core Competencies Resources and capabilities that provide a firm with a competitive advantage over its rivals. Dr.BALAMURUGAN MUTHURAMAN Summer Semester

INTEGRATING INTERNAL AND EXTERNAL ANALYSES Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis A type of assessment that provides a concise overview of a firm’s strategic situation. Helps identify opportunities that match the venture. Seeking Competitive Insight Will the opportunity lead to others in the future? Will the opportunity build skills that open the door to new opportunities in the future? Will pursuit of the opportunity be likely to lead to competitive response by potential rivals? Dr.BALAMURUGAN MUTHURAMAN Summer Semester

EXAMPLES OF SWOT FACTORS Dr.BALAMURUGAN MUTHURAMAN Summer Semester

IMPORTANT STRATEGIC TERMS Strategy A plan of action that coordinates the resources and commitments of an organization to achieve superior performance. Strategic Decision A decision regarding the direction a firm will take in relating to its customers and competitors. Sustainable Competitive Advantage A value-creating industry position that is likely to endure over time. Dr.BALAMURUGAN MUTHURAMAN Summer Semester