The Art of Innovation – Developing Ideas and Business Opportunities Chapter 3 The Art of Innovation – Developing Ideas and Business Opportunities

Objectives Creating framework for innovating Filter ideas and build into opportunities Analyze opportunities using a 5 step process Using a framework to evaluate business opportunities

Introduction Entrepreneurs have to understand and manage the innovative process within their companies. Innovation can have many facets - Dell computers are similar to the competition – what is unique is the way these products are sold, manufactured, and delivered o the customers.

Technological Obsolescence Any new product can be copied within days. The entrepreneur’s defense is to have a sound intellectual property strategy and an innovative business model that supplies more than just a product. The product life cycle is the time that a product is able to command a high profit margin before it becomes obsolete or develops intense competition. Market life cycles are now shorter than product development cycles in the portable communications business. The entrepreneur needs to solve customer’s problems – think service, not product. Innovation is no longer a luxury – it is a necessity.

Definition of Innovation Successful innovation is the use of new technological knowledge, and/or new market knowledge, employed within a business model that can deliver a new product and/or service to customers who will purchase at a price that will provide profits.

Types of Innovation There are 2 types of innovation: incremental and radical. Incremental innovations are continual improvements on an existing product or service or in the way products are manufactured and delivered. Radical innovations are the result of major changes in the ground rules of competition, culminating in either a customer satisfying his need in an entirely new way or in a totally new need being created through innovation. A small company with no legacy to protect and account for has an inherent advantage over larger enterprises which are slow to change and adopt new ideas – example Netflix that attacked the location based Blockbuster. Barnes and Noble never saw Amazon as a threat until Amazon had taken a major share of the book market.

Finding and Assessing Ideas 5 ways to build on existing ideas: 1. Develop ideas as an extension or redesign of an existing service (Marriott Senior Living Services, Sam’s Club – an extension of Wal-Mart). 2. Resegment and create an improved service (overnight delivery – FedEx) 3. Redifferentiate and market the product at a lower price (Internet shopping). 4. Add value to an existing product or service (PCs just for the internet). 5. Develop or redesign a new version of an existing product (Snapple Iced Tea).

Idea Assessment The first step for any entrepreneur is to generate an idea for a new business. The entrepreneur must then assess the opportunity for putting the idea to practice. The Internet has made it easy to check whether an idea ha been discovered and put into a business. Patents as sources of ideas: www.uspto.gov Only 10% of existing patents have actually been commercialized – the remainder are potential opportunities.

Converting an Idea to an Opportunity Breakthroughs are more likely to be conceived and developed by small firms. Universities, government funded research laboratories, and other government funded R&D facilities are mandated by law to make the results of their research available to companies.

Opportunity: 5 phases to success 5 step model to know a winning business area: 1. Seize the Opportunity: know what factors create opportunity, calculate the opportunity cost, access the risks and rewards. 2. Investigate the need through market research: Ask preliminary questions, prepare data collection, execute a study to get answers. 3. Develop the plan: ask the right questions, prepare the business plan. 4. Determine the resources needed: start personal contacts and networking, perform financial requirements, gather sources of technical skills. 5. Manage the business: keep planning, deliver a total solution, cultivate advanced resources.

Summary The product life cycle is the time that a product is able to command a high profit margin before it becomes obsolete or develops intense competition. Successful innovation is the use of new technological knowledge, and/or new market knowledge, employed within a business model that can deliver a new product and/or service to customers who will purchase at a price that will provide profits. Incremental innovations are continual improvements on an existing product or service or in the way products are manufactured and delivered. Radical innovations are the result of major changes in the ground rules of competition, culminating in either a customer satisfying his need in an entirely new way or in a totally new need being created through innovation. Patents as sources of ideas: www.uspto.gov Universities, government funded research laboratories, and other government funded R&D facilities are mandated by law to make the results of their research available to companies.

Home Work 1. What is a product life cycle? 2. Define innovation. 3. Define the 2 types of innovations. 4. What are 5 ways to build on existing ideas? 5. Explain the 5 step model to know a winning business area?