FW1 - Mental Imagery
FW11-YOUR BUSINESS IDEA
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287 days before opening
This course provides you with a new tool for assessing your business idea value.
The aim of the previous courses and notably the creativity course was to bring you to the point of having a business idea. We can expect that you have gotten a first business idea.
You have now to check this first business idea.
Lesson: 0,5 hour
External readings: 1,5 hours
Do it yourself: 1 hour
Total: 3 hours
Our objectives are:
- to give you some tools for validating a business idea.
-To indicate the ideas that you should have better to avoid.
- to indicate the ideas that are going nowhere or that can be prohibited.
-To introduce the idea of franchising.
1-WHAT IS A BUSINESS IDEA
Most of the new business just produce an existing good and service and start their operations in an existing market.
Obviously, if your idea is just to produce an existing product and to sell it in an existing market, it 's not a good idea. A large company can copy for extending some production line but a small business has few chances to succeed if it is unable to bring something new whatever it could be.
11-The competitive advantage principle.
It means that your good or service must have a competitive advantage either because it fills up a new need, either because it has a lower price, either because its brings better quality or service.
A competitive advantage can come from:
-A new good or service: If a new good satisfies a need, it has a competitive advantage.
-A new technique for producing the good or service: It can result in a lower price or a better quality.
-A new organization: It can also result in a lower price and a better quality.
-A new market: It can be a geographical market, for example due to a new location. It can be also a new segment added to an existing market: For example, your product target a younger customer or due to a better service a new bracket of income.
In short, whatever the product, you must add creativity. The economics module showed you that creativity and knowledge are the only real economic values.
12-A new good or service:
A new good or service is definitely innovative and unique. Most of the economic progress comes from the discovery of new goods and services as the telephone, the electricity, the TV, the car and so on.
Is this new good an invention or an innovation? This first question is quite important.
An invention looks very good but unfortunately, it's not the easy way for starting a business.
Firstly, your invention must fill up a need that other people have: What need does your invention meet? Inventors are very creative people and they had fun in inventing. Too often they do not care about the need. They love their invention and they become quite blind toward common reality. Our society is fueled with inventions that do not serve any needs and which are just good for fun.
Secondly your invention must have a potential market: Many inventions fill up a need. Unfortunately, they are not marketable.
Real life example
It was just the case of the book keeping machine I had invented. It corresponded to a need. Unfortunately, it had no market since illiterates were deprived of solvency !
Thirdly, you have to get a patent. There are a lot of files to complete and a patent attorney currently asks several thousands $ to make up the application and follow the patent process.
Then, you have to realize a prototype and it can cost an undefined amount of money. Once you have the prototype, you have to test its. It means that you are obliged to engage big money without knowing if your new product will meet a real market!
Finally, you must be conscious that most often a new product requires new machines for its manufacturing process and consequently large investments and a big capital. What is more the process could be very length and be sure that you cannot perform it within one year. May be you will need two or three years.
In my opinion, if your business idea is a real invention , you should have better to get the patent and then to sell it and to get royalties from a big corporate.
Down earth advice
You perform all the process for getting a patent. Then you negotiate with a technical college for realizing quite for free the prototype. Once you have the prototype you can market a big company for selling your patent.
Beside the royalties, you can ask a part of the stock to benefit from the development of your invention.
More often, an innovation is an improvement brought to an existing product.
For example, you change the weight or the shape in using new materials. You change the color. You add new functions and so on.
Sometimes, the innovation can also be patented. In most cases, you can also realize by yourself a little prototype. You test it and if it works you go ahead. There is now some easy ways to realize a prototype:
Once again go to www.sbaer.uca.edu and click on "The national collegiate inventors and innovators alliance" Then click on "Rapid prototyping". There is a process open to people who are yet engaged in scholarship.
In this case, an innovation is a good support for starting a new biz. What is more, you know that there is an existing market.
13-A new technique for manufacturing the product.
In this case, the product is the same but you invent a new machine or a new material along the manufacturing process.
We find again the same problem as for a new product: Invention or innovation. However, there is a difference. In this case, there are a lot of plants or factories that could benefit from your invention or innovation.
14-A new organization
You bring a new organization either in the manufacturing process or in the distribution.
For example, Ford has not invented the car but he has invented the assembly line that is to say a new organization. It resulted in a lower price and a large increase of the global market.
This new organization provides you with a competitive advantage: either you offer a lower price, either you offer a better quality for example a better service.
15-A new market
You find a new market or a market where demand currently exceed supply.
For a retailer, who sells the same products as his competitors, a new location can be a competitive advantage. Another way is to be open all the night. In the two cases, he has gotten a new market and a competitive advantage. For example, the Internet becomes by itself a new market for home based business.
2-ASSESSMENT OF YOUR BIZ IDEA
The aim of the previous lessons was to bring you to the point of having an idea. You have this idea. What is its value?
For the present moment, you only need to check if your idea can get a competitive advantage. It does not mean that it is a good idea. It just means that it's worth to go on in making more studies. Other crucial questions such as the market size, the profitability and the competition should be studied in further lessons because they require more studies. We must advance step by step.
To value your idea, we shall use two easy tools that I have invented for you: the idea assessment matrix and the risk assessment matrix. As most of the tools used in business management, these two matrix are mainly based on rules of thumb and have no scientific meanings!
21-Idea assessment matrix
1-Look at the following table: The first column just describes what your idea is. The second column indicates a note for each category of idea and the third column enables you to position your own idea according to its category. Consequently, you get a first note.
For example, if your idea is a new product, you get 8. If it's an existing product you get 0!
IDEA --------------------NOTE ----------------------YOUR IDEA
New product --------------8-----------------------------?-----
Existing product ----------0-----------------------------?------
You have noted your idea.
2-Proceed now as follow:
-If you target a new location: Add 5 to an "Existing product".
-If you target a new segment whatever it can be: Add 4 to an "Existing product+ new organization"; Add 3 to an "Existing product + innovation"; Add 2 to an "Existing product+ innovation +organization"; Add 1 to a "New product"
Do not matter about this grid. It's the result of a quite complex reasoning. Anyway, as a result, your global note must be ranked between 0 and 10.
For example, if your idea is positioned on "Existing product + new organization" you have gotten 2 as your first note. If thanks to this new organization, you can get a new segment, you add 4 and your global note is 6.
3-Report now your global note in the following matrix:
Below 5: Your idea is a bad one
5 and 6: It's a medium idea
7 and 8 : It's a good idea
9 and 10: It's a great idea
Of course as for any tool, you must also exercise your judgment: May be you have gotten a great idea about the steel industry or the space exploration but it requires huge capital requirement and you will never be able to collect the money!
Do not be stuck with a bad idea. You should lose your time. Instead of losing your time, go back to the creativity module and search for another idea. Of course your vision must remain unchanged.
However this easy to use matrix must be completed by a risk assessment matrix.
22-Risk assessment matrix
Let 'us imagine that you have discovered a new product in order to cure a health disease. You get 8 as first note. What is more thanks for this new product which is not too much expansive, you can target a new segment of deprived people. You add 1 and you get 9. Fine! you have gotten a great idea!
Unfortunately, there is just a little problem: your new product is a medicine plant which is cropped in a Columbian jungle infested with "bandoleros"! Ok it was a great idea but you have better to look for another one!
It means that beside the financial or commercial risks that you are ready to assume, there are some specific risks. For example, Banks, currency traders and jeweler' are currently exposed to hold up. It's not only a matter of insurance. It's a matter of life or death.
You have to assess these risks because, as in our previous example, they can transform a great idea in a bad one.
For assessing these risks you will proceed as follow:
1-Firstly, you identify their high or low probability.
2-Secondly, you estimate the impact of each risk. You can distinguish the accident, the disaster and the catastrophe. With an accident, your biz will go on as usual. A disaster implies a long recovery and a catastrophe means that your business is terminated.
3-Once you have finished this analyze, you draw up your risk assessment matrix. Look at the next drawing.
As you can see, it's a easy to use tool. You write in each square the risks you have listed according to their probabilities and their impacts.
Down earth advice:
If most of your risks are situated in the upper right square: highest probabilities and highest impacts, you should have better to choose another business idea! It's the first lesson of this drawing!
23-Regulation assessment matrix
In the present world , there are everywhere so many regulations that we are obliged to consider them before going forward:
Let's suppose, you have a great idea; it does not present any specific risk beyond the commercial or financial risks that you are ready to assume; time seems magnificent; you make up extensive and costly studies and at the end, when you are beginning to implement your biz, just imagine a little grumbling bureaucrat who just says : " No , I do not allow you to make that!"
It means that you have to drawn up a regulation assessment matrix just like you have done with the risks:
-Firstly, you have to get information's about the regulations existing or forecasted in your country and in your business project sector. It must be a hard work because these regulations are so complicated that even the civil servant are more often unable or unwilling to explain you. Do not read it by yourself, it could drive you mad! Each time, you are uncertain, put a lawyer in your corner!
-Secondly you identify the low and the heavy regulations: A low regulation means that you can cope with it. If you have not a licence driver, it's easy to get it. On the contrary, heavy regulations means that you meet a barrier: for example let's suppose that a State diploma is required for doing a specific business. If you have not this diploma you can give up your great idea!
-Thirdly you drawn up the following matrix and your position you idea.
If your idea is located in the upper square, you have better to search another one. It would be worthless to go on in exploring an idea that sure you could not realize.
There are some sites about regulations:
For the United kingdom, Go to www.inlandrevenue.gov.uk . For others countries you have better to check with your chamber of Commerce or finally with an attorney
24-Presentation of your biz idea
Once you have gotten a good idea, you have to describe it and in some way this description is by itself a final validation test:
One idea which cannot be described in a simple sentence is a no mature idea or worst a bad idea!
Your idea must be contains in ten to fifteen words. No more!
Once again, you have to take notice of our advices regarding some sectors that are not friendly for a new business.
31-Ideas that you have better to avoid
-Agriculture, breeding and food industries.
You risk constant problems with hygiene, environment or human and animal health norms.
Consumer protection covers drugs, food and beverage,tobacco and so on. As these regulations become more and more complex, we recommend you to be careful with the idea to start a business in these areas.
-Potential detrimental environment effects.
Be aware of any business which could result in detrimental environment effects.
Associations and people are more and more sensitive about ecological threats and any business resulting in pollution must be carefully scrutinized.
Except the gems and gold mining or trading, the business based on raw materials have in general a poor yield despite the big investments they usually require.
Remember that the only profitable raw material is the one between your ears!
-Industries based on unskilled labor force
Never base a business on the exploitation of non-qualified workers or workers of low potential: The value of something is equal to the intelligence and knowledge it contains. The value of a company is equal to the value of the people who work there. The value of an illiterate worker is negative.
A non qualified worker will bring you no value whatsoever, but you can be sure he will bring you a whole host of problems. Machines that are out of order due to maintenance errors, accidents in the workplace, constant problems with factory inspectors.
32-Ideas that you must absolutely prohibit.
-Start a business in a rogue State:
If you live in a poor country that is nevertheless democratic and honest, develop your export activities.
On the other hand, if you live in a corrupt country (totalitarianism, lack of freedom, regulations, tax oppression etc) leave it and create your company abroad.
Do not forget the following notions: The market is a world market. A corrupt country is a jail cut off from the world market. In a jail, your idea will come up against the walls of impossibility. Consequently, escape from the jail and join the world market!
Drugs, prostitution, sale of weapons, corruption must be combated.
These activities always lead to misfortune and, more often than you might think, to sudden death!
If you are really unable to find a new idea, you have the possibility to explore franchising. Franchising consists mainly in selling a good or a service in using a trademark invented by a central supplier.
A franchise avoids you to check a new idea but before to buy the franchise, you have to follow the same steps as for any business.
Of course the central supplier often provides you with a package including financial projections and so on but you have better to check by yourself.
There are many web sites about franchising and I have selected the followings:
Go to www.sba.gov . Click on "Starting your business" and then on "workshop" and finally on "workshop franchise"
Go to www.entrepreneur.com and click on "Franchise zone". You will find here most of the available franchises with their required price.
Your business idea must offer a competitive advantage either because it fills up a new need, either because it has a lower price, either because its brings better quality or service.
A competitive advantage comes from:
-A new good or service: If a new good has a competitive advantage.
-A new technique for producing the good or service: It can result in a lower price or a better quality.
-A new organization: It can also result in a lower price and a better quality.
-A new market: It can be a geographical market, for example due to a new location. It can be also a new segment added to an existing market: for example, your product target a younger customer or due to a better service a new bracket of income.
In short, whatever the product, you must add creativity
According to these principles, you can assess your business idea in using the idea assessment matrix, the risk assessment matrix, and the regulation assessment matrix.
Beware of primary sectors such as agriculture or mining that imply many threats, poor creativity, vast number of unskilled labor and heavy regulations. Prohibit any illegal or criminal activities!
Remember that franchising can be a solution if you are deprived of any new idea.
DO IT YOURSELF
1-Drawn up your idea assessment matrix, your risk assessment matrix and your regulation assessment matrix. Following our advices, it could take no more than one hour (It does not take in account the time for collecting the regulations).
Once your idea is validated, describe it in one sentence.
2-If you have the need to a patent, you must immediately set up the application in going to the following site:
If you are living in the US, go to the official site of patent: United States patent and trademark office: www.uspto.gov . You can file your application on line. Click on ""Apply to a patent on line". This site gives also a list of registered patent attorney.
Remember that applying for a patent is a very difficult task. Of course, you can do it by yourself but if you have some money I recommend you to get an attorney.
3-Once your idea is validated, you have achieved a hard task. Now you have to establish a first sketch of your business. It's the next course and a crucial module.
You will send your business idea with your first sketch by the end of the next course.
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