Entrepreneurial Mindset

Module 2: Innovation, Ideation, Concept Generation & Evaluation

Opportunity Identification: The Search for New Ideas

Opportunity identification is central to the domain of entrepreneurship.

"At its core entrepreneurship revolves around the questions of why, when, and how opportunities for the
creation of goods and services in the future arise in an economy. Thus, opportunity recognition is the
progenitor of both personal and societal wealth".

It has been argued that understanding the opportunity identification process is one of the primary
challenges of entrepreneurship.

This module is a study of the creative pursuit of new ideas and the innovative process.

Let's begin with some productive sources of innovative ideas!

Sources of Innovative Ideas

Entrepreneurs, ever alert to opportunities that can be found in the external and internal environments
around them, often spot potential opportunities that others simply cannot recognize. Where do they find
inspiration? All of the following places:

TRENDS

Trends signal shifts in the current paradigm (or thinking) of the major population. The close observation
of trends--whether societal, technological, economic, or governmental--and the valuable insights that
emanate therefrom constitute an abundant source of potential entrepreneurial ideas.

• Societal trends - aging demographics, health and fitness growth, senior living, COVID-19
pandemic
• Technology trends - mobile technology, e-commerce, Internet advances
• Economic trends - higher disposable incomes, dual wage-earner families, performance pressures
• Government trends - increased regulations, petroleum prices, terrorism

UNEXPECTED OCCURRENCES

Successes or failures that, because they were unanticipated or unplanned, often prove to be major
sources of innovation. Example: the infamous 9/11 terrorist attack on the United States is a good
example of an unexpected occurrence: it produced an influx of innovative solutions to new homeland
security challenges. Another is the COVID-19 pandemic. Its unexpected occurrence led to the
development of new vaccines, test kits, and innovative products and services.
INCONGRUITIES

Incongruities exist in the gap between expectations and reality. For example: when Fred Smith proposed
overnight mail delivery, he was told, "If it were profitable, the US Post Office would be doing it." It turned
out Smith was right. An incongruity existed between the assumption that a new, faster level of mail
service would never make economic sense, given that mail delivery was, at the time, a three-day affair.
So Smith started FedEx.

PROCESS NEEDS

Venture capitalists often refer to process needs in the marketplace as "pain" and to innovative solutions to
those needs as "pain killers." When the need is to do something better, innovative new medical devices,
healthier food, more effective medicines, and time-saving devices can be the result.

INDUSTRY AND MARKET CHANGES

Continual market shifts in the marketplace caused by changes in consumer attitudes, advancement in
technology, and growth in the structure, design, or definition of markets or industries are sources of
emerging opportunity. An example can be found in the health care industry, where in-patient care has
undergone radical changes, and at-home health care and preventive medicine have replaced
hospitalization and surgery as primary focus areas.

DEMOGRAPHIC CHANGE

Changes in population size, age, education, occupation, geographic locality, and similar demographic
variables often catalyze new entrepreneurial opportunities. For example, as the average population age
in Florida and Arizona has increased (due to the influx of retirees), land development, recreation, and
health care industries all have profited.

PERCEPTUAL CHANGES

Perceptual changes in people's interpretation of facts and concepts may be intangible but meaningful.
The perceived need to be healthy and physically fit has created a demand for both health foods and
health facilities throughout the country. People's desire to better use their personal time has been a boon
to the travel industry which, capitalizing on consumers' desires to "see the world" while they are young
and healthy, has led to increasing interest in time-share condominiums and travel clubs.

KNOWLEDGE-BASED CONCEPTS

Inventions, which are products of new thinking, new methods, and new knowledge, often require the
longest period between initiation and market implementation because of the need for testing and
modification. For example, cell phone technology has advanced to include not just phone service but
cameras, Internet access, and music. This has revolutionized the way we use cell phones today.

Entrepreneurial Imagination and Creativity

Entrepreneurs blend imaginative and creative thinking with systematic, logical process ability. This
combination is a key to successful innovation.

Potential entrepreneurs are always looking for unique opportunities to fill needs and wants.
They develop an ability to see, recognize, and create opportunity where others find only problems.

It has been said that the first rule for developing entrepreneurial vision is to recognize that problems are
to solution what demand is to supply. Analysis that blends creative thinking with systematic inquiry such
that problems are looked at from every possible angle is a hallmark of the entrepreneurial imagination.

• What is the problem?

• Whom does it affect?
• How does it affect them?
• What costs are involved?
• Can it be solved?
• Would the marketplace pay for the solution?

Entrepreneurs continually and imaginatively cycle through these types of questions!

The Role of Creative Thinking

It is important to recognize the role of creative thinking in the innovative process. Creativity is the
generation of ideas that results in the improved efficiency or effectiveness of a system. Two important
components of creative problem solving are process and people.

Process is goal oriented: it is designed to attain a solution to a problem.

People are the resources that determine the solution.

The process remains the same, but the approach that people take toward problem solving varies:
sometimes they will adapt a solution, and, in other times, they will formulate a highly innovative solution.

TWO APPROACHES TO CREATIVE PROBLEM SOLVING:

The Adaptor

• Employs a disciplined, methodical approach

• Is concerned with solving, rather than finding problems
• Attempts to refine current practices
• Is capable of extended detail work
• Is sensitive to group cohesion and cooperation.

The Innovator

• Approaches tasks from unusual angles

• Discovers problems and avenues of solution
• Questions basic, assumptions related to current practices
• Has little regard for means; is more interested in ends
• Has little tolerance for routine work
• Has little or no need for consensus; often is insensitive to others
Nature of the Creative Process

Creativity is a process that can be developed and improved. Everyone is creative in some degree.
However, as is the case of with many abilities and talents, some individuals have a greater aptitude for
creativity than others. Also, some people have been raised and educated in an environment that
encouraged them to develop their creativity. They have been taught to think and act creatively. For
others, the process is more difficult because they have not been positively reinforced; if they are to be
creative, they must learn how to implement the creative process.

In the video, James Taylor cited five (5) stages in the creative process but, generally, the creative process
has four commonly agreed-on phases or steps (phases 4 & 5 are combined). We will use the 4 stages in
this course.

Phase 1: Background or Knowledge Accumulation

Successful creations are generally preceded by investigation and information gathering. This usually
involves extensive reading, conversations with others working on the field, attendance at professional
meetings and workshops, and a general absorption of information relative to the problem or issue under
study. Additional investigation in both related and unrelated fields is sometimes involved.

This exploration provides the individual with a variety of perspectives on the problem, and it is particularly
important to the entrepreneur, who needs a basic understanding of all aspects of the development of a
new product, service, or business venture.

People practice the creative search for background knowledge in a number of ways. Some of the most
helpful are to:

• Read in a variety of fields

• Join professional groups and associations
• Attend professional meetings and seminars
• Travel to new places
• Talk to anyone and everyone about your subject
• Scan magazines, newspapers, and journals for articles related to the subject
• Develop a subject library for future reference
• Carry a small notebook and record useful information, and
• Devote time to pursue natural curiosities.

Phase 2: Incubation Process

Creative individuals allow their subconscious to mull over tremendous amounts of information gathered
through the preparation phase (Phase 1). This incubation process often occurs while they are engaged in
activities totally unrelated to the subject or problem. It happens even when they are sleeping.

Getting away from a problem and letting the subconscious mind work on it allows creativity to spring forth.

Some of the most helpful steps to induce incubation are to:

• Engage in routine, "mindless" activities (ex. cutting grass, painting the house)
• Exercise regularly
• Play (sports, board games, puzzles)
• Think about the project or problem before falling asleep
 • Meditate or practice self-hypnosis, and
• Sit back and relax on a regular basis.

Phase 3: Idea Experience

This phase of the creative process is often the most exciting, because it is when the idea or solution the
individual is seeking is discovered.

Sometimes referred to as the "eureka factor", this phase is also the one the average person incorrectly
perceives as the only component of creativity.

There are times when the idea appears as a bolt out of the blue. In most cases, however, the answer
comes to the individual incrementally. Slowly, but surely, the person begins to formulate the solution.

Following are ways to speed up the idea experience:

• Daydream and fantasize about your project

• Practice your hobbies
• Work in a leisurely environment
• Put the problem behind, and
• Take breaks while working.

Phase 4: Evaluation and Implementation

This is the most difficult step of a creative endeavor and requires a great deal of courage, self-discipline,
and perseverance. Successful entrepreneurs can identify ideas that are workable and that they have the
skills to implement.

More important, they do not give up when they ran into temporary obstacles. Often they will fail several
times before they successfully develop their best ideas. In some cases, entrepreneurs will take the idea
in an entirely different direction or will discover a new and more workable idea while struggling to
implement the original one.

Some of the most useful suggestions for carrying out this phase are:

• Increase you energy level with proper exercise, diet, and rest
• Educate yourself in the business-planning process and all facets of business
• Test your ideas with knowledgeable people
• Take notice of your intuitive hunches and feelings
• Educate yourself, and
• View the problems you encounter while implementing your ideas as a challenge.

Developing Your Creativity

You can do several things to improve your creative talents: one of the most helpful is to become aware of
some of the habits and mental blocks that stifle creativity.

Of course, your development will be more effective if you regularly practice exercises designed to
increase your creative abilities.
So let's find out what you can do to improve your creativity!

What color is the sky when you dream? Do you consider yourself to be creative?

Creativity has been defined as having the quality or power of creating.

People are innately creative. Really.

Let your creativity come out!

Here are some methods to boost your creative juices!

• Brainstorm! This is the best way to generate creative ideas. Just follow some important rules in
brainstorming: shout out or write down every solution that comes to mind, off-the-wall ideas are
welcome, criticize nothing, and organize later.
• Opposites attract. Here's an interesting concept: synectics - this involves putting two
"nonsensical" things together to see what happens,
• THINKubate. A created word by Gerald Haman the "THINKubator"- a playground where
business people, entrepreneurs, and the like can go to escape the humdrum environment of
offices and "cant doers".
• Trigger great ideas. Triggers are everyday items that can be used to stimulate the brain:
abstract photos, inspiring quotes, uncompleted ideas, tips, and so on.
• Connect. Every person you meet or place you visit might be an opportunity waiting to happen.
The key is to be prepared for that opportunity when it arises.
• Always celebrate failure. Try and try again. What doesn't kill you only makes you stronger.
Dare to be great!
• Make them laugh. Humor is a great way to relieve stress. Humor and laughter encourage
creativity.
• Sweat it. Exercise gets the creative juices flowing.
• Remember your wildest dreams. Dreams are a great place to start when in comes to
unleashing creativity.

Recognizing Relationships

If you wish to improve your creativity, it helps to look for different or unorthodox relationships among the
elements and people around you. This activity involves perceiving in a relational mode.

For example, look at the image below.

This image does not tell you anything in WORDS but, in your mind you will realize a relationship among
the shape, color, and symbols. The red color could mean stop (so you will look at the sign), the black
arrows give emphasis to what the message being relayed to the onlooker, and the opposite direction of
the black arrows tell you that there exists two opposite flows or direction.

If you see this sign along the road, creativity will allow you to recognize the relationship between this sign
and the road. You mind will creatively understand that you are being warned that the road you are in
accommodates two directions without the use of traditional words. That is recognizing relationship. Being
able to recognize relationships more and more means your creativity is getting better!

Developing a Functional Perspective

If expanded, the principle of perceiving in a relational mode helps develop a functional perspective
toward things and people. A creative person tends to view things and people in terms of how they can
satisfy his or her needs and help complete a project. For example, a homemaker who cannot find a
screwdriver often will use a butter knife to tighten a loose screw, a cereal manufacturer will add fruit to its
product to create a new product line that appeals to a health-conscious market.

If you wish to become more innovative and creative, you need to visualize yourself in complementary
relationships to the things and people of the world. You must learn to look at them in terms of how they
complement attempts to satisfy your own needs and to complete your projects.

You must begin to look at things and people in unconventional ways and from a different perspective.
You can do it!

Using your Brains

Ever since split-brain studies were conducted in 1950s and 1960s, experts on creativity, innovation, and
self-development have emphasized the importance of developing the skills associated with both
hemispheres of the brain.

The RIGHT hemisphere helps an individual understand analogies, imagine things, and synthesize
information.

The LEFT hemisphere helps the person analyze, verbalize, and use rational approaches to problem
solving.

Although these two brain hemispheres process information differently and are responsible for different
brain activities and skills, they are integrated through a group of connecting nerve fibers called the
corpus callosum.

The creative process involves logical and analytical thinking in the knowledge accumulation, evaluation,
and implementation stages. In addition, it calls for imagination, intuition, analogy conceptualization, and
synthesizing in the incubation and the idea creation stages.

So to become more creative, it is necessary to practice and develop both right- and left-hemisphere skills.

Eliminating Muddling Mindsets

A lot of mental habits block creative thinking. It has been estimated that adults use only 2% - 10% of their
creative potential.
Many people tend to make quick judgements about new things, people, and ideas. Another inclination is
to point out the negative components of a new or different idea because of the psychological discomfort
associated with change.

These habits, or muddling mind-sets, tend to hinder creative thought processes, and different thought
processes must be used to enhance creative thinking.

The following are common muddling mind-sets:

EITHER/OR THINKING

Because of the speed of change in the modern world, personal lives are filled with a great deal of
uncertainty and ambiguity. People often get bogged down with striving for an unreasonable amount of
ambiguity in his or her work and life. Many exceptionally creative people thrive in an uncertain
environment and find it exhilarating.

SECURITY HUNTING

Many people try to make the right decisions or take the correct action every time. In doing so, they rely
on averages, stereotypes, and probability theory to minimize their risks. Although this strategy often is
appropriate, at times a creator or innovator must take some calculated risks, sometimes these risks result
in the innovator being wrong and making mistakes. Yet by recognizing this as a part of the innovation
game, the creative person learns from mistakes and moves on to create bigger and better things.

STEREOTYPING

It is ironic that, although averages and stereotypes are fabricated abstractions, people act and make
decisions based on them as if these were data entities that exist in the real world. For example, one
could hypothesize that the average homemaker is female, 38 years old, and 5'4" tall, weighs 120 pounds,
and has 2 children, and a part-time job. If this is an acceptable stereotype of a homemaker then, it would
be difficult to accept outside that description. Creativity experts argue that people must alter their thinking
to enhance their creativity; only new patterns of thinking will lead to new ideas and innovation.

PROBABILITY THINKING

In their struggle to achieve security, many people also tend to rely on the theory of probability thinking to
make decisions. An overreliance on this decision-making method can distort reality and prohibit one from
taking calculated risks that may lead to creative endeavors.

Arenas of Creativity

Remember, people are inherently creative. Some act on that creativity all of the time while others stifle it,
and most of us fall somewhere in between the two. The reality is that people often do not recognize when
or how they are being creative. Also, they fail to recognize the many opportunities for creativity that arise
within their jobs on a daily basis.

The path to creativity begins by first recognizing all of the ways in which we are or can be creative.
People in organizations can channel their creativity into seven (7) different arenas:
1. Idea creativity - thinking up a new idea or concept, such as an idea for a new product or service
or a way to solve a problem.
2. Material creativity - inventing and building a tangible object such as a product, an
advertisement, a report, or a photograph.
3. Organization creativity - organizing people or objects and coming up with a new organizational
form or approach to structuring things. Examples could include organizing a project, starting a
new type of venture, putting together or reorganizing a work group, and changing the policies and
rules of a group.
4. Relationship creativity - an innovative approach to achieving collaboration, cooperation, and
win-win relationships with others.
5. Event creativity - producing an event such as an awards ceremony, team outing, or annual
meeting. The creativity here also encompasses decor, ways in which people are involved,
sequence of happenings, setting, and so forth.
6. Inner creativity - changing one's inner self; being open to new approaches to how one does
things and thinking about oneself in different ways; achieving a change of heart or finding a new
perspective or way to look at things.
7. Spontaneous creativity - acting in a spur-of-the-moment manner, such as coming up with a witty
response, a quick and simple way to settle a dispute, or an innovative appeal when trying to close
a sale.

Innovation and the Entrepreneur

In entrepreneurship, creativity is never alone--it always connects to INNOVATION.

Innovation is a key function in the entrepreneurial process. It is how the entrepreneur either creates
new wealth-producing resources or endows existing resources with enhanced potential for creating
wealth.

INNOVATION is the process by which entrepreneurs convert opportunities (ideas) into marketable
solutions. It is how they become catalysts of change.

We say that the innovation process starts with a good idea. The origin of an idea is important, and
the role of creative thinking may be vital to that development. A major difference exists between an
idea that arises from mere speculation and one that is the product of extended thinking, research,
experience, and work. More important, a prospective entrepreneur must have the desire to bring a
good idea through the development stages.

Thus, innovation is a combination of the vision to create a good idea and the perseverance and
dedication to remain with the concept through implementation.

The Innovation Process

Most innovations result from a conscious, purposeful search for new opportunities. This process
begins with the analysis of the sources of new opportunities.

Peter Drucker (management guru) has noted that because innovation is both conceptual and
perceptual, would-be innovators must go out and look both the right and the left sides of their brains.
 They look at figures. They look at people. They analytically workout what the innovation must be to
satisfy the opportunity.

Then, they go out and look at potential product users to study their expectations, values, and needs.

Most successful innovations are simple and focused. They are directed toward a specific, clear, and
carefully designed application. In the process, they create new customers and markets.

Today's mobile technology (cell phones) is a good example. Although this technology is highly
sophisticated, it has become easy to use and it appeals to a specific market niche: people who want
their technology all in one and on the go.

Types of Innovation

There are four basic types of innovation. These extend from the totally new to modification of existing
products or services. Let's look at them:

INVENTION

It is the creation of a new product, service, or process--often one that is novel or untried. Such concepts
are said to be "revolutionary".

Examples: Thomas Edison's lightbulb, the airplane by the Wright brothers

EXTENSION

Creating a new use or different application of an already existing product, service, or process.

Examples: Mark Zuckerburg - Facebook, Ray Kroc - McDonald's

DUPLICATION

An innovation that is a replication of an existing product, service, or process. The duplication however, is
not simply copying but adding the entrepreneur's own creative touch to enhance or improve the concept
and beat the competition.

Examples: Pizza Hut (pizza parlor), Wal-Mart (department stores)

SYNTHESIS

This is the combination of existing concepts and factors into a new formulation or use. It involves taking
several ideas or items already invented and finding a way that they can form a new application.

Examples: Starbucks (coffee shop +hangout place for work and socialization), Toyota Prius (hybrid car
that runs both on gasoline and electricity)
Major Misconceptions of Innovation

The entire concept of innovation conjures up many thoughts and misconceptions; it seems that everyone
has an opinion as to what innovation entails. The following are some of the commonly accepted
innovation misconceptions and reasons why these are misconceptions and not facts.

• Innovation is planned and predictable. This statement is based on the old concept that
innovation should be left to the research and development (R&D) department under a planned
format. In truth, innovation is unpredictable and may be introduced by anyone.
• Technical specifications must be thoroughly prepared. This statement comes from the
engineering arena, which drafts complete plans before moving on. Though preparation is good,
but it sometimes takes too long. Quite often, it is more important to use a try/test/revise
approach.
• Innovation relies on dreams and blue-sky ideas. The creative process is extremely important
to recognize innovative ideas. However, accomplished innovators are very practical people and
create from opportunities grounded in reality--not daydreams.
• Big projects will develop better innovations than smaller ones. This statement has been
proven false time and again. Larger firms are now encouraging their people to work in smaller
groups, where it often is easier to generate creative ideas.
• Technology is the driving force of innovation success. Technology is certainly one source for
innovation, but it is not the only one. Numerous sources exist for innovative ideas. Moreover, the
customer or market is the driving force behind any innovation. Market-driven or customer-based
innovations have the highest probability of success.

Assessment of Entrepreneurial Opportunities

During the past two decades, the number of new venture start-ups has been consistently high. One
proof is the significant and increasing number of new firms as well as patent applications.

The reason that entrepreneurs start new ventures are numerous. One study reported seven
components of new venture motivations:

1. the need for approval

2. the need for independence
3. the need for personal development
4. welfare (philanthropic) considerations
5. perception of wealth
6. tax reduction and indirect benefits, and
7. following the entrepreneurial mindset

Although researchers agree that many reasons exist for starting a venture, the entrepreneurial
motivations of individuals usually relate to:

• the personal characteristics of the entrepreneur

• the environment
• and the venture itself

The complexity of these factors makes the assessment of new ventures extremely difficult.
Entrepreneurs who successfully started a business "were more aggressive in making their business
real; that is, they undertook activities that made their businesses tangible to others; they looked for
facilities and equipment, sought and got financial support, formed a legal entity, organized a team,
bought facilities and equipment, and devoted full time to the business.

Individuals who started businesses seemed to act with a greater level of intensity. They undertook
more activities than those individuals who did not start their businesses. The pattern of activities
seems to indicate that individuals who started firms put themselves into the day-to-day process of
running an ongoing business as quickly as they could and that these activities resulted in starting
firms that generated sales and positive cash flow. "

Pitfalls in Selecting New Venture

So, are you ready to create your own entrepreneurial venture? Well, not so fast!

The first key area of analysis is the selection of a new venture. This stage of transition--from an idea
to a potential venture--can be the most critical for understanding new-venture development.
Following are six of the most important pitfalls commonly encountered in the process of selecting a
new venture.

1. LACK OF OBJECTIVE EVALUATION. Many entrepreneurs lack objectivity. The way to avoid
this pitfall is to subject all ideas to rigorous study and investigation.
2. NO REAL INSIGHT INTO THE MARKET. Many entrepreneurs do not realize the importance of
developing a marketing approach in laying the foundation for a new venture. They show a
managerial short-sightedness. Also, they do not understand the lifecycle that must be considered
when introducing a new product or service. No product is instantaneously profitable, nor does its
success endure indefinitely. Entrepreneurs must not only project the lifecycle of a new product,
they must also recognize that introducing the product at the right time is important to its success.
Timing is critical. Action taken too soon or too late will often result to failure.
3. INADEQUATE UNDERSTANDING OF TECHNICAL REQUIREMENTS. The development of a
new product often involves new techniques. Failure to anticipate the technical difficulties related
to developing or producing a product can sink a new venture. Entrepreneurs cannot be too
thorough when studying the project before initiating it. Encountering unexpected technical
difficulties frequently poses time-consuming and costly problems.
4. POOR FINANCIAL UNDERSTANDING. A common difficulty in the development of a new
product is an overly optimistic estimate of the funds required to carry the project to completion.
Sometimes entrepreneurs are ignorant of costs or are victims of inadequate research and
planning. Quite often they tend to underestimate development cost by wide margins. It is not
unusual for estimates to be less than half of what is eventually required.
5. LACK OF VENTURE UNIQUENESS. A new venture should be unique. Uniqueness refers to the
special characteristics and design concepts that draw the customer to the venture, which should
provide performance or service that is superior to that of competitive offerings. The best way to
ensure customer awareness of differences between the company's product and competitors'
products is through product differentiation. Pricing becomes less of a problem when the
customer sees the product as superior to its competitors. A product that is unique in a significant
way can gain the advantage of differentiation.
6. IGNORANCE OF LEGAL ISSUES. Business is subject to many legal requirements. One is the
need to make the workplace safe for employees. Second is to provide reliable and safe products
 and services. A third is the necessity for patents. trademarks, and copyrights to protect one's
inventions and products. When these legal issues are overlooked, major problems can result.

Critical Factors for New Venture Development

Before you get too excited about starting a venture, there other factors to consider.

A number of critical factors are important for new venture assessment. One way to identify and evaluate
them is with a checklist. In most cases however, the assessment must be tailor-made for the specific
venture.

A new venture goes through three specific phases:

1. prestart-up - begins with an idea for the venture and ends when the doors are opened for
business.
2. start-up - commences with the initiation of the sales activity and the delivery of products and
services and ends when the business is firmly established and beyond short-term threats to
survival.
3. post start-up - lasts until the venture is terminated or or the surviving organizational entity is no
longer controlled by an entrepreneur.

During the prestart-up and start-up stages of a new venture, five factors are most critical to its survival:

• Uniqueness
• Investment (capital)
• Growth of sales
• Product availability
• Customer availability

Why New Ventures Fail?

If we already know what we need in starting a venture, why do many new ventures still fail?

Well, based on a research study, there are 3 major categories of causes for failure: product/market
problems, financial difficulties, and managerial problems.

A. Product/market Problems

• poor timing
• product design problems
• inappropriate distribution strategy
• unclear business definition
• overreliance on one customer

B. Financial Difficulties

• initial undercapitalization
• assuming debt too early
 • venture capital relationship problems

C. Managerial Problems

• concept of a team approach

• human resource problems

The Traditional Venture Evaluation Process

A critical task in starting a business is conducting a solid analysis of the feasibility of the product/service in
getting off the ground. Entrepreneurs must put ideas through feasibility analyses to discover if their
proposals contain any fatal flaws.

Many types of analyses can be used but, we will only look into three.

1. Profile Analysis Approach

2. Feasibility Criteria Approach
3. Comprehensive Feasibility Approach

Profile Analysis Approach

A profile analysis is a tool that enables entrepreneurs to judge a business venture's potential by sizing up
the venture's strengths and weaknesses along a number of key dimensions or variables. A single
strategic variable seldom shape the ultimate success or failure of a new venture. In most situations, a
combination of variables influences that outcome. It is important, therefore, to identify and investigate
these variables before committing resources tp launch a new venture.

The internal profile analysis presents a framework, in checklist format, for determining the relative
strengths and weaknesses of the financial, marketing, organizational, and human resources available to a
new venture. Through careful profile analysis, entrepreneurs can mitigate for possible weaknesses that
may inhibit the growth of their ventures, avoiding many of the mistakes that can lead to venture failure.

The SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis is a useful tool.

Feasibility Criteria Approach

Another evaluation method, the feasibility criteria approach, is a criteria selection list based on the
following questions, from which entrepreneurs can gain insights into the viability of their venture:

• Is it proprietary? The product does not have to be patented, but it should be sufficiently
proprietary to permit a long head start against competitors and a period of extraordinary profits
early in the venture to offset start-up costs.
• Are initial production costs realistic? Most estimates are too low. A careful, detailed analysis
should be made so that no large unexpected expenses arise.
• Are the initial marketing costs realistic? This answer requires the venture to identify target
markets, market channels, and promotional strategy.
• Does the product have potential for very high margins? This is almost a necessity for a
fledgling company. Gross margins are one thing the financial community understands. Without
them, funding can be difficult.
• Is the time required to get to market and to reach the break-even point realistic? In most
cases, the faster the better? In all cases, the venture plan will be tied to this answer, and an error
here can spell trouble later on.
• Is the potential market large? In determining the potential market, entrepreneurs must look 3 -
5 years into the future, because some markets take this long to emerge. The cellular phone for
example, had an annual demand of approximately 400,000 units in 1982; today, the number of
smartphones sold in any given quarter is many times higher than that.
• Is the product the first of a growing family? If it is, the venture is more attractive to investors.
If they do not realize a large return on the first product, they might on the second, third or fourth.
• Does an initial customer exist? It is certainly impressive to financial backers when a venture
can list its first ten customers by name. Pent-up demand signals that the first quarter's results are
likely to be good, and the focus of attention can be directed to later quarters.
• Are the development costs and calendar times realistic? Preferably, they are zero. A ready-
to-go product gives the venture a big advantage over competitors. If costs exist, they should be
complete ,detailed, and tied to a month-by-month schedule.
• Is this a growing industry? Industry growth is not absolutely essential if profits and company
growth can be substantiated, but it means less room for mistakes. In a growing industry, good
companies do even better.
• Can the product--and the need for it--be understood by the financial community? If
financiers can grasp the concept and its value, the chances for funding will increase.

The criteria selection approach provides a means of analyzing the internal strengths and weaknesses
that exist in a new venture by focusing on the marketing and industry potential critical to assessment.
If the new venture meets fewer than 6 of these criteria, it typically lacks feasibility for funding.

If the new venture meets 7 or more criteria, it may stand a good chance of being funded.

Comprehensive Feasibility Approach

A more comprehensive and systematic feasibility analysis, a comprehensive feasibility approach,

incorporates external factors in addition to those included in the criteria questions cited previously.

Factors involved in a comprehensive feasibility approach are: technical, market, financial,

organizational, and competitive. Although all of these factors are important, two merit special
attention: TECHNICAL and MARKET.

A. TECHNICAL FEASIBILITY

The evaluation of a new venture idea should start with identifying the technical requirements--the
technical feasibility--for producing a product or service that will satisfy the expectations of potential
customers. The most important of these are:

• Functional designs of the product and attractiveness in appearance

• Flexibility, permitting ready modification of the external features of the product to meet
customer demands or technological and competitive changes
 • Durability of the materials from which the product is made
• Reliability, ensuring performance as expected under normal operating conditions
• Product safety, posing no potential danger under normal operating conditions
• Reasonable utility, an acceptable rate of obsolescence
• Ease and low cost of maintenance
• Standardization through elimination of unnecessary variety among potentially
interchangeable parts
• Ease of processing or manufacture
• Ease in handling and use

The results of this investigation provide a basis for deciding whether a new venture is feasible from a
technical point of view.

B. MARKETABILITY

Assembling and analyzing information about the marketability of a new venture are vital for judging its
potential success. The major areas in this type of analysis are:

1. Investigating the full market potential and identifying customers for the goods or service.
2. Analyzing the extent to which the enterprise might exploit this potential market, and
3. Using market analysis to determine the opportunities and risks associated with the venture.

To address these areas, a variety of informational sources must be found and used. For a market
feasibility analysis, general sources would include the following:

• General economic trends, various economic indicators such as new orders, housing starts,
inventories, and consumer spending.
• Market data, customers, customer demand patterns
• Pricing data, range of prices for the same, complementary, and substitute products; base
prices; and discount structure
• Competitive date, major competitors and their competitive strengths

The comprehensive feasibility analysis approach is closely related to the preparation of a thorough
business plan.