CHAPTER 3

Getting Started
 After studying this chapter, you
should be able to
1) Identify several factors that determine whether
an idea for a new venture/project is a good
investment opportunity.

2) Give several reasons for starting a new

business from scratch rather than buying a
franchise or an existing business.

3) Distinguish among the different types and

sources of startup ideas.

4) Describe external and internal analyses that

might shape new venture opportunities.
 Introduction
In Chapters 1 and 2, we talked about the mindset(Outlook) and
lifestyle of the entrepreneur and the importance of integrity in the
enterprise.

Now, in Part 2, we will focus on topics that will help the individual
entrepreneur decide what kind of startup is best for him or her.
In this chapter, we will describe opportunity recognition and
strategy setting for startups—businesses that did not exist
before entrepreneurs created them.

In later chapters, we will go beyond a discussion of businesses

“started from scratch” and consider business opportunities that
already exist, including purchasing a franchise or buying out a
business (Chapter 4) and joining a family business (Chapter 5).
 Continue……….
• Perhaps you already have a business idea in mind that you would
like to follow. “Trying to achieve smithing over along period of
time”

• With good planning and the right strategy, you may soon be
well on your way to becoming a successful entrepreneur.

• Or maybe you have an idea in mind but are not sure if it is a

good business opportunity.
• No matter which group you fall into, this chapter will help to
get you started on the right foot, with the right idea and the
right strategy.
 Continue……….
• Opportunity Recognition
– Identification of potential(possible) 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 (useful or helpful) clear and
important needs
– Products that customers can have enough money
– A good idea is not the same as a good opportunity.
 Identifying Startup Ideas
1. Identify several factors that determine whether
an idea for a new venture/project is a good
investment opportunity.
• To represent a good investment opportunity, a product or
service must meet a real market need with respect to
benefits offered and price.
• The fundamental requirements for a good business idea
relate to market factors, competitive advantage,
economics, management capability, and fatal flaws.
 Identifying Startup Ideas
• It is critical to determine whether an idea for a new
business actually represents a good opportunity.

• To qualify(Have a right) as a good investment

opportunity, a product or service must meet a real
market need, such as a problem for which the entrepreneur
offers a sensible solution.

• If consumers are influenced that the benefits of a product

or service are value the price they will have to pay to get it,
they will likely want to buy it—assuming they know about
it and can afford it.
 Continue……….
• Many popular frameworks highlight important factors to
consider when deciding whether a new business idea can lead
to a promising business opportunity.
• Some of the moreimportant features of these
approaches follow.
• Market factors: The product or service must meet a clearly
defined market need; furthermore, the timing must be right.
• Even when the concept is good, success requires a window of
opportunity that remains open long enough for an entrepreneur
to take advantage of it.
• If the window closes before the enterprise can get established,
it is unlikely to survive for long.
 Continue……….
• Competitive advantage: In practical terms, a competitive advantage
exists when a firm offers a product or service that customers perceive
(notice or see) to be superior to those offered by competitors.
• It follows that the business must be able to achieve an edge that can
withstand challenges from rival businesses.
• Many startups fail because entrepreneurs do not
understand the nature and importance of a competitive
advantage.
• Economics: The venture needs to be financially rewarding,
allowing for significant profit and growth potential.
• Its profit potential must be sufficient to allow for errors and mistakes
and still offer acceptable economic benefits.
• At a minimum, the enterprise must offer a reasonable path to
profitability—no business can operate for long when it is losing
money.
 Continue……….
• Management capability: The fit(match be suitable)
between entrepreneur and opportunity must be good.
• In other words, a business idea is an opportunity only for
the entrepreneur who has the appropriate experience,
skills, and access to the resources necessary for the
venture’s launch and growth.
• Fatal flaws: are mental or physical weaknesses
that humans demigods and immortals possess,
There must be no fatal flaw in the venture—that is, no
circumstance or development that could, in and of itself,
make the business unsuccessful.
 Creating a New Business from Scratch
2. Give several reasons for starting a new business from scratch
rather than buying a franchise or an existing business.
• Several motivations may lead you to start a business from
scratch rather than pursuing other alternatives, such as buying a
franchise or an existing business or joining a family business. They
include the following:
{1}. Having a personal desire to develop the commercial market for a
recently invented or newly developed product or service.
{2}. Hoping to tap(get) into unique resources that are available, such
as an ideal location, new equipment technologies, or exceptional
employees, suppliers, and bankers
{3}. Avoiding unwanted features of existing companies: including
unfavorable cultures, policies, procedures, and legal commitments
{4}. Wanting the challenge of succeeding (or failing) on your own
 BASIC AND DISCUSSION QUESTION about
Startups
• Assuming you have sound reasons for considering a startup, you should still address
several basic questions before making the commitment:
1. What other startup/inauguration types might be considered?
2. What are some sources for more new ideas?
3. How should the idea be refined(Improved)?
4. What can be done to increase the chances that the business will be
successful?
5. What competitive advantage does the business have over its
competitors?
6. Why People Start Small Business?
7. Give several reasons for starting a new business from scratch
rather than buying a franchise or an existing business.
 Finding Startup Ideas
3 Distinguish among the different types and sources of
startup ideas.
• Business ideas are not all equal, and they originate from many
different sources.
• By recognizing the nature and origin of startup ideas, the
entrepreneur can broaden the range of new ideas available for his
or her consideration.
{A}. met someone talented, and we started a company together.
{B}. Hobbies, talents, and interests Read more.
{C}. Past work experience/ spin-off from
employment.
{D}. Customer surveys and Market gap analysis
{E}. Brainstorming
 Types of Startup Ideas
• Exhibit 3-2 shows the three{3} basic types of ideas that develop into
startups:
TYPE {A}. ideas to enter new markets,
TYPE {B}. ideas based on new technologies, and
TYPE {C}. ideas to offer new benefits.

Three{3} basic types of ideas that develop into startups:

 Type A: startup ideas are concerned with products or services
that exist but are not present in all markets.

 Type B: ideas involve new or relatively new technology.

 Type C: ideas are based on new and improved ways of performing

old functions.
 Sources of Startup Ideas
• However, there are other important sources.
• As shown in the exhibit, the NFIB study found that
personal interests and hobbies represented 16 percent of
the total, and chance happenings accounted for 11
percent.
• Ideas for a startup can come from virtually(Almost)
anywhere, but we will focus on four possible sources:
Personal Experience, Hobbies, Accidental Discovery,
and Deliberate Search, Family and friends, Research
and development, Current trends, Mass media,
Travel,
 Continue……….
 PERSONAL EXPERIENCE
The primary source of startup ideas is personal experience, either
at work or at home.
Knowledge gleaned from a present or former job often allows a
person to see possibilities for modifying an existing product,
improving a service, or duplicating a business concept in a
different location.
Or personal contacts may open up conversations with suppliers
who are interested in working with you or customers who have
needs that are not currently being met.
These insights may lead you to an opportunity with tremendous
potential.
 Continue……….
HOBBIES AND PERSONAL INTERESTS
• Sometimes hobbies grow beyond being leisure activities to
become businesses.
• For instance, people who love skiing might start a ski equipment
rental business as a way to make income from an activity that they
enjoy, and those who love books might explore concepts that lead
to new bookstore businesses.
• Hobbies and personal interests certainly add passion to the startup
process.
ACCIDENTAL DISCOVERY
• Another source of new startup ideas—accidental discovery—
involves something called serendipity,(Luck) or a gift for making
desirable discoveries by accident.
• Serendipity A gift for making desirable discoveries by accident.
 Continue……….
• DELIBERATE SEARCH
Startup possibilities may also emerge from an entrepreneur’s
deliberate(intended or planned) search for new ideas.
In fact, this kind of exploration(Find out) may be especially
useful because it stimulates a readiness of mind, which
motivates prospective entrepreneurs to be more receptive
to new ideas from any source.
A deliberate search often involves looking for change-based
opportunities, but it may take a number of other paths.
3-3
Sources of Startup Ideas

3–19
 Using Internal and External Analyses to
Evaluate an Opportunity
• In his book Making Sense of Strategy, Tony Manning
points out that there are two general approaches to
evaluating business opportunities: inside-out and outside-
in. (Int & Ext)
• In other words, entrepreneurs can evaluate their own
capabilities and then look at new products or services they
might be able to offer to the market (inside-out),
• or they can first look for needs in the marketplace and then
relate those opportunities to their own capabilities
(outsidein).
• This is the path that we recommend and that we will
discuss in greater detail later in this section. See the next
 Evaluating Entrepreneurial Opportunities
• Outside Analysis
According to recent research, entrepreneurs are more successful when
they study context(Situation) in order to identify business ideas and
determine which of these are most likely to lead to success.
 Identify business ideas and determine which ideas qualify(Right)
as opportunities.
{1}. General Environment
–A broad environment, encompassing(to completely cover)
factors that influence most businesses in a society.
{2}. Industry Environment
–The combined forces that directly impact a given firm and its
competitors.
{3}. Competitive Environment
–The environment that focuses on the strength 3–21 of
 {1}. THE GENERAL ENVIRONMENT
• The general environment has a number of important segments, as
shown in Exhibit 3-5.
• Forces in the Macroeconomic Segment include changes in the rate of
inflation, interest rates, and even currency exchange rates, all of which
promote or discourage business growth.
• The Sociocultural Segment represents societal trends that may affect
consumer demand, opening up new markets and forcing others into
decline.
• In the Political/Legal Segment, changes in tax law and government
regulation.
• The Global Segment reflects international developments that create
new opportunities to expand markets, outsource, and invest abroad.
• As people and markets around the world become increasingly
connected, the impact of the global segment on small business
opportunities is increasing.
 Continue……….
• The Technological Segment is perhaps most important to
small businesses, since developments in this segment
spawn (To develop or Begin)—or wipe out—many new
ventures.
• With features like population size, age structure, ethnic
mix, and wage distribution, the Demographic Segment
plays an import role in shaping opportunities for startups.
• Some people believe that evaluation of the general
environment is appropriate only for large firms that have
a corporate staff to manage the process, but small
businesses can also benefit from such analysis.
 {2}. THE INDUSTRY ENVIRONMENT
• An entrepreneur is even more directly affected by the startup’s
industry than by the general environment. In his classic book
Competitive Advantage, Michael Porter lists five factors that
determine the nature and degree of competition in an industry:
• New competitors. How easy is it for new competitors to enter the
industry?
• Substitute products/services. Can customers turn to other
products or services to replace those that the industry offers?
• Rivalry. How intense is the rivalry(Competition) among existing
competitors in the industry?
• Suppliers. Are industry suppliers so powerful that they will
demand high prices for inputs, thereby increasing the company’s
costs and reducing its profits?
• Buyers. Are industry customers so powerful that they will force
companies to charge low prices, thereby reducing profi ts?
{3}. THE COMPETITIVE ENVIRONMENT

• Within any given industry, it is important to determine the

strength, position, and likely responses of rival businesses.
• In fact, experts insist such analyses are critical to effective
business plans.
• Every business plan should answer several questions about the
competition:
• 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?
 Continue……….
• This analysis helps an entrepreneur to evaluate the nature and
extent of the competition and to fine-tune future plans. It can
also help to identify business opportunities based on the
competitive situation.
• Fine-tune: to make very small changes to something such as
plan, so that it works as well as possible.
 Evaluating Opportunities… (cont’d)
 Inside-Out Analysis
 Assessing the firm’s internal competitive potential.
 RESOURCES AND CAPABILITIES
• In order to assess the internal potentials(Possible) of a
business, the entrepreneur must understand the difference
between resources and capabilities.
• Resources: are those basic inputs that a firm uses in its
business, including cash for investment, useful technologies,
access to equipment, and capable employees.
• Companies have both tangible and intangible resources.
• Tangible resources : are visible and easy to measure.
• An office building, computer equipment, and cash reserves are
all tangible resources.
 Continue……….
• These are very different from Intangible Resources, which are
invisible and difficult to assess.
• Intangible assets include intellectual property rights such as
patents and copyrights, as well as an established brand and
firm reputation.
• The terms are often used interchangeably, but resources
technically are not the same as capabilities.
• Whereas resources are singular in nature, Capabilities The
integration of various organizational resources that are
deployed(employed) together to the firm’s advantage.
• Like a keyboard, which is of no practical value until it is
integrated into a system of computer components, resources
cannot provide competitive advantage until they are bundled
into some useful configuration(Layout).
 Continue……….
 Core Competencies
• Once entrepreneurs have an accurate view of their resources
and capabilities, they are ready to identify core competencies.
• Core competencies are those resources and capabilities that
provide an enterprise with a competitive advantage over its
rivals.
• Entrepreneurs who can identify core competencies and apply
them effectively are in the best position to help their ventures
achieve a competitive advantage and superior performance.
Integrating Internal and External Analyses
• Strengths, Weaknesses, Opportunities, and Threats (SWOT)
Analysis
– A type of assessment that provides a concise(Short)
overview of a firm’s strategic situation.
– Helps identify opportunities that match the venture.
• Seeking Reasonable Understanding
– Will the opportunity lead to others in the future?
– Will the opportunity build skills that open the door to new
opportunities in the future?

3–30
Selecting Strategies That Capture Opportunities

Broad-Based
Broad-BasedStrategy
Strategy Cost-Based
Cost-BasedStrategy
Strategy

Strategies
Strategies That
That Capture
Capture
Opportunities
Opportunities

Differentiation-Based
Differentiation-Based Focus
Focus
Strategy
Strategy Strategy
Strategy

3–31
 Selecting Strategies That Capture Opportunities
• Strategy
– A plan of action that coordinates the resources and
commitments of an organization to achieve superior performance.
• Broad-Based Strategy Options
Firms competing in the same industry can adopt very different
strategies.
• Cost-based Strategy: requires the firm to become the lowest-
cost producer within the market.
• The sources of cost advantages are varied, ranging from low-cost
labor to efficiency in operations.
• Many people assume that cost-based strategies will not work for small
companies, and this is often true.
• However, cost-advantage factors are so numerous and varied that, in
some cases, small businesses may be able to use them with great success.
 Continue……….
• Differentiation-based Strategy
• The second general option for building a competitive advantage
is creating a Differentiation-based Strategy, A plan of action
designed to provide a product or service with unique
attributes(Quality or feature) that are valued by consumers.
• A fi rm that can create and sustain an attractive differentiation
strategy is likely to be a successful performer in the
marketplace.
• For the strategy to be effective, the consumer must be
convinced of the uniqueness and value of the product or service
—whether real or perceived.
• A wide variety of operational and marketing tactics, ranging
from design to promotion, can lead to product or service
differentiation.
 Focus Strategies
• If one firm controlled the only known water supply in the
world, its sales volume would be huge.
• This business would not be concerned about differences in
personal preferences concerning taste, appearance, or
temperature.
• It would consider its customers to be one market.
• Focus Strategy : A plan of action that isolates an enterprise
from competitors and other market forces by targeting a
restricted market segment.
• To get started, these businesses might focus their resources
on a fragment(piece) of the market that was small enough to
escape the interest of major players (for example, filtered
water delivered to individual homes).
 Focus Strategies (cont’d)
• Advantages
– Protects from direct competition.
– Allow development of unique expertise
• Disadvantages
– The focus strategy is imitated (take,copy or follow).

3–35
 Focus Strategies
•Focus strategies can be implemented in any of the
following ways:
– Limiting focus to a single division of customers.
– Emphasizing a single product or service.
– Limiting the market to a single geographical region.
– Concentrating(Focus) on superiority of product or service.

3–36
 Key Terms
• Opportunity Recognition • Tangible Resources
• Entrepreneurial Alertness • Intangible Resources
• Competitive Advantage • Capabilities
• Type A Ideas • Core Competencies
• Type B Ideas • SWOT Analysis
• Type C Ideas • Strategy
• General Environment • Cost-based Strategy
• Industry Environment • Differentiation-based
• Competitive Environment Strategy
• Resources • Focus Strategy
• Strategic Decision

3–37
 Discussion Questions
1. What is the difference between a good idea and a good
opportunity?
2. Why might an entrepreneur prefer to launch an entirely new
venture rather than buy an existing firm?
3. What are the three basic types of startup ideas?
4. What is SWOT analysis?
5. What are the two basic strategy options for creating a
competitive advantage?
6. Explain what is meant by the term focus strategy.
7. What are the advantages and disadvantages of a focus
strategy?