THE SEARCH FOR A SOUND

BUSINESS IDEA
1. Performance, like the chair chat can
carry more weight;
2. Maintenance cost, like the car battery
that requires less servicing than
competing brands;
3. Acquisition cost, like the latest low
priced model of a certain brand of
cell phone compared to competition;
4. Salvage value, like the steel filing
cabinet that has a higher salvage
value; and
5. Uses, like the flypaper that can also
be used as mousetrap.
➢ Improvement of service to customers
may mean faster delivery or prompt
after sales service when required.
 Defined as the economic opportunity
which is within the reach of the
entrepreneur and which will provide
him with a desirable value.
 An entrepreneur who is well grounded
in the concept of sound business idea
will be able to save time, effort, and
money in pursuing his goals.
Figure 1: The Importance of Sound
Business Ideas

Sound

New Established
Venture Business

Successful Success in
Market Entry Competition
 Examples of these forms are the
following.
1. An old type of business can be
professionalized. Operations can be
stream lined and better organized.
2. A standard product can
customized.
3. New technology can be adapted to
manufacture and old product.
4. Imported products can be replaced
by local products. Importing
products can be too cumbersome
and difficult.
5. Business operations can be
internationalized. This is real
challenge to the entrepreneur. The
rewards are great, however, when he
is successful.
 The steps in the proposed procedure
are as follows:
1. Preparation of the listed ideas;
2. Screening of the listed ideas; and
3. Final selection.
Figure 2:

Preparation of the
List of Business
Ideas

Screening

Final Selection
 There are two general methods of
generating business ideas. They are as
follows:
1. Unanticipated means and
2. Deliberate search.
Figure 3: Methods for Searching Ideas
Methods of Searching for
Ideas

Unanticipated Deliberate
means search

Work Using search Idea

questions prompting

Hobbies

Acquaintances

Chance Event
Someone Customer Some other
else’s idea request event
 When the entrepreneur finds business
ideas without serious effort, the
method referred to as unanticipated
means. Included in this means are the
following:
1. The person’s work;
2. The person’s hobbies;
3. The person acquaintances; and
4. A chance event encountered by the
person.
 The Person’s Work
• Employees who are in direct contact with
customers are sometimes confronted
with demand for products or services
that are not currently provided by the
company.
• To the enterprising employee, this may
be interpreted as an opportunity for
entrepreneurship.
➢ The Person’s Hobbies
• A hobby is a useful means of
developing some skill which could be
useful later when the hobbyist
decides to operate a business.
• There are times when a person’s
hobby turns out to be a business
opportunity.
 Acquaintances
• There are times when a persons fails to
notice the existence of a business
opportunity. Sometimes, it takes another
person to make him aware of the wisdom
of starting a new business venture.
• This person could be a friend, a neighbor,
or just anybody he meets once in a while.
 A Chance Event
• There are times when a persons
encounters an event that will provide him
with a clue to a business venture.
➢ A disadvantages of unanticipated
means in idea generations is the
difficulty of ascertaining the exact
date when the ideas will come
pouring in. To offset this problem, a
deliberate search for ideas is made.
this type of idea generation takes the
form of the following:
1. Using search questions
2. Idea prompting
➢ Using Search Questions
• Business ideas are expected to
provide answers to some needs.
Answers can be obtained if the right
questions are asked.
• Examples of search questions are:
1. How can this product be made
differently?
2. What will motivate the consumers
to buy my product instead of the
competitor’s product.
 Idea Prompting
• Encounters with someone else’s idea,
or a customer request, or some other
event may provide hints or cues
leading to business ideas.
• Customer request could also be
analyzed to give way to idea
prompting.
 The search for a sound business idea
calls for the preparation of a list so
the best can be selected.
 Business ideas may be screened with
the use of the following criteria:
1. Market Feasibility
2. Technical Feasibility
3. Financing Feasibility
4. Financial Feasibility
 Market Feasibility
• A business idea must pass the test of
market feasibility. This means that
there must be some positive
indication about the following:
1. Stable and sufficient demand; and
2. Potential competitive strength of
the firm.
1. Stable and Sufficient Demand
• A business idea will not last if there
is insufficient demand for whatever
product or service that is
contemplated.
• Demand that remains constant or
shows signs of growth throughout
long periods indicates the probability
of market feasibility.
2. Competitive Strength
• The business idea must be such that
the venture can effectively compete
with current or potential
competitors.
• The competitive strength of the
competitors must be determined in
terms of Product offerings, Price,
Distribution methods, Promotion
methods, and others.
Figure 4: The Way to Sound Business Ideas

Search for 1. Unanticipated means

2. Deliberate search
Business Ideas

1. Market feasibility;
2. Technical feasibility;
Screening 3. Financing feasibility; and
4. Financial feasibility.

Adoption of the
Selected Business
Ideas

Preparation of
Formal Plans
 Information required to determine the
market fit of the business idea may
derived from the following:
1. Prior studies of the market or
related markets by other
companies, government agencies,
and entrepreneurs.
2. Negotiations with prospective
customers to solicit orders and
determine whether or not they will
actually buy.
3. Actual polls of population samples
representing typical customers. The
means used include the following:
a. Mail questionnaires;
b. Advertisements incorporating
feedback mechanisms such as
mail responses;
c. Phone interviews; and
d. Personal interviews.
 Technical Feasibility
• Business ideas oftentimes appear
easy to execute, but it is not really so
when converting them into real
products or services with the
required quality and quantity.
• Production difficulties could take the
form of unstable supply of materials,
unreliable or fluctuating power
supply, and others.
 Financing Feasibility
• One of the factors necessary in
determining whether a business idea
should be considered or not is
financing.
• This means that there must be
sufficient funds to finance
operations.
• the proposed owners of the venture
must have sufficient capital or if
insufficient, must be of good credit
standing in the community.
• The sourcing of financing include the
following:
1. The proposed owner’s saving;
2. Relatives and friends; and
3. Financing institutions like banks.
 Financial Feasibility
• The purpose of entrepreneurship is
to provide a source of income to the
entrepreneur.
• Any business idea that cannot
provide some indication of
profitability must be screened out.
• Profit is a result of the financial
feasibility of the business idea.
• Two steps of Financial Feasibility
1. The preparation of projected
financials statements, such as
a. Income statement
b. Balance sheet
c. Cash flow statement.
2. The determination and analysis of
financial ratios derived from the
projected statements.
Projected Financial Statements
• It means the forecast of something
which will happen in the future.
a. Projected income statement is a
financial record summarizing a
firm’s planned or expected financial
performance in terms of revenues,
expenses, and profits over a given
time period.
2. The projected balance sheet shows
the planned or expected financial
position of the enterprise on a
particular date.
3. The projected cash flow statement
is one which shows the planned or
expected cash sale and/or
purchases.
Figure 5: Determining the Financial Feasibility
of a Business Idea
Business idea

Prepare projected
financials statements

Derive
financial ratios

Analyze
financial ratios

Financially Not financially

feasible feasible
 The purpose of screening is to
eliminate from the list the generated
business ideas that did not pass the
adapted criteria. After screening, the
list may appear to be any of the
following:
a. Status quo;
b. A shorter list;
c. Zero listing.
 Status quo listing means all business
ideas listed passed the adapted
criteria.
 A short list means some of the ideas
generated were eliminated.
 Zero listing means all business ideas
generated and listed were eliminated.
 Final selection is applied to the status
quo, or the shorter list, whichever is
produced by the screening stage.
 An Evaluation of Shortlisted Business
Ideas

Projected Expected
Business Net Income Probability Value
Proposal A P 5 million 60% P3 million
Proposal B 4 million 70% 2.8million
Proposal C 3 million 80% 2.4million
1. Encouragement of 5. A climate of
creativity and risk- participation;
taking; 6. Structural
2. Rewards for mechanisms that
creativity; aid creativity;
3. Open 7. Training in the
communication; creative process;
4. Allowance for and
errors; 8. flexibility
▪ Creativity refers to activities involved in
finding solutions to problems that
hinder the achievement of the firm’s
objectives.
▪ It is the proactive way of solving
problems.
▪ The organizational that is
characterized by risk taking is not
discouraged by poor result in testing
ideas.
 Rewards for Creativity
▪ When an activity is rewarded, there is
an assurance that such activity will
continue existence. Creativity is no
exception.
 Open communication
▪ The free allowing exchange of ideas
between the members of an
organization.
▪ Communication flows through the
vertical and horizontal relationships
in the organization’s structure.
▪ An important advantage of open
communication is that problems are
easily directed with the ability to
offer solutions.
 Allowance for errors
▪ Innovation thrives in an environment
that provides allowance for errors.
▪ It is not right to expect any activity
to be devoid of imperfections.
▪ When an error is detected, a move
should be made to correct it.
 A Climate of Participation
▪ When somebody feels that the
organization espouses participation,
that person will not hesitate to make
a contribution to the creative efforts
of the organization.
 Structural Mechanisms That Aid
Creativity
▪ The urge to create solutions to
problems would be deeded by the
innovative person more easily if
there are structural mechanisms
within the organization to support
the exercise.
 Training in the Creative Process
▪ Creative pursuits are a bit
complicated and it will help if those
expected to perform such functions
are properly trained.
 Flexibility
▪ One of the distinct characteristics of
the creative organization is
flexibility.
 END OF THIS TOPIC
 THANK YOU