UNIT - II

Entrepreneurial Idea and

Innovation
 Topics Covered
Introduction to Innovation
Entrepreneurial Idea Generation and Identifying
Business Opportunities,
Management skills for Entrepreneurs and managing
for Value Creation,
Creating and Sustaining Enterprising Model &
Organizational Effectiveness
 Innovation

Innovation is the process and outcome of

creating something new, which is also of value.

Innovation involves the whole process from

opportunity identification, ideation or invention to
development, prototyping, production marketing
and sales, while entrepreneurship only needs to
involve commercialization (Schumpeter).
 What is innovation?
Schumpeter argued that innovation comes
about through new combinations made by
an entrepreneur, resulting in
 a new product,
 a new process,
 opening of new market,
 new way of organizing the business
 new sources of supply
 What is innovation?

Gary Hamel argued that today’s market place is

hostile to incumbents, who now needs to
conduct radical business innovation:
 Radically reconceiving products and services, not
just developing new products and services
 Redefining market space

 Redrawing industry boundaries

 Dimensions of innovation

There are several types of innovation

Process, product/service, strategy,

which can vary in degree of newness:

Incremental to radical,

and impact:
continuous to discontinuous
 Drivers for innovation

 Financial pressures to reduce costs, increase efficiency, do more

with less, etc
 Increased competition
 Shorter product life cycles
 Value migration
 Stricter regulation
 Industry and community needs for sustainable development
 Increased demend for accountability
 Demographic, social and maket changes
 Rising customer expectations regarding service and quality
 Changing economy
 Greater availability of potentially useful technologies coupled
with a need to exceed the competition in these technologies
 Defining a Business Idea
“Today’s successful companies live and die according
to the quality of their ideas”
- Warren Buffet

“Innovation is the specific instrument of

entrepreneurs, the means by which they exploit
change as an opportunity for a different business”
- Peter Drucker

Entrepreneurship, 2e
© Oxford University Press 2011
 Sources of Business Ideas
Past work experience
Hobbies and interests
Strengths and abilities
Friends and family
Distribution channels
Travel
Books and magazines
Current trends
Research & development
Existing product or services
Government policies and priorities
Day dreaming
The web
Forced Relationship (try watch with headphone)
Brainstorming
Problems and complaints
Entrepreneurship, 2e
© Oxford University Press 2011
 Methods of Generating Ideas
This involves a process including first generating the ideas and
then scrutinizing of the ideas.
 Focus Groups: It consists of 6-12 members belonging to
various socio-economic background. Group is facilitated by a
moderator to have an open in-depth discussion. It can be in
either a directive or an non-directive manner.
 Brainstorming: This technique was originally adopted by
Alex Osborn in 1938 in an American company for encouraging
creative thinking in groups of six to eight people. According to
Osborn, brainstorming means using the brain to storm the
problem. It involves 4 basic guidelines
(a) Generate as many ideas as possible.
(b) Be creative, freewheeling and imaginative.
(c) Build upon piggyback, extend, or combine earlier ideas.
(d) Withhold criticism of others' ideas.
There are two underlying principles; i) all ideas are encouraged
without criticism and evaluation, ii) Quantity over Quality
 Methods of Generating Ideas
Problem Inventory analysis: It is slightly
different from focus group method that it not only
generates ideas but identify the problems.
This method should better be used for generating and
identifying new ideas for screening and evaluation.
 Identification and Classification of Ideas
There are many ways to categorize different businesses
ideas. Let's categorize them into three general types:
Innovative, Commoditized, and Hybrid which is a mix of
the two.
Innovative Business Ideas
 The great thing about these kinds of ideas is that they lead the way for
everyone else. They create whole new markets and for a short time get
a lead over other kinds of businesses. They tend to also have potential
to grow rapidly, and for that reason, are attractive investments for
venture capital and seed investors.
 The problem with innovative businesses is that precisely because they
are new, and their products are also new, no one really knows what the
demand for them will be, and how well they will ultimately grow, or
whether they will not find market acceptance.
 E.g. Apps, gadgets, smart phones, tablets, or other electronic devices.
Identification and Classification of Ideas
Commoditized Business Ideas
 There are many types of businesses which have been around for
a long time that do not have to innovate, and can still be great
businesses. Just think about the different businesses in any city.
Every city needs restaurants, cleaners, dentists, mechanics,
people to fix homes, etc. The list goes on.
 The core differences between these types of businesses and
innovative businesses are that these tend to be service-based
business with a local focus.
 But the great thing is that there is no risk of demand. There is
definitively demand for these kinds of businesses as long as the
entrepreneur can provide the service with quality.
 Identification and Classification of Ideas
Hybrid Businesses
 Hybrid business ideas are the kinds of ideas which borrow a
little bit from both, the commoditized types of ideas and the
innovative. Here are some examples.
 E.g Restaurants that serve fusion cuisine. They are traditional
types of businesses, but with a new twist on their main product
which is the food.
 e.g. Websites to find school tutors. These kinds of sites take a
local service that has been around for a long time, and make it
easier to find tutors. Eg Jio & Facebook deal
As you see, no idea is perfect. You have to choose
between the extra costs and slow growth of traditional
types of businesses. Or you have to accept the higher
risk of failure for technology based businesses. 
 Individual Creativity: Role and Process
A thorough observation of the entrepreneurial process
shows that creative thinking is the must have skill of an
entrepreneur for the creation of new ideas. Creativity
allows a person to devise interesting processes, which
gives so many advantages to entrepreneurs.
It is of four types:

1. Creating new ideas for competitive advantage

The whole process of entrepreneurship is rooted in creation
and exploration of new ideas. When an entrepreneur is
able to generate a new idea that is feasible as well as
efficient, it gives that person an edge over the competition.
https://medium.com/@developercreativehub/why-do-entrepreneurs-need-creativity-4618d20f6ea
 Individual Creativity: Role and Process
2. Thinking the unthinkable
Creativity requires imagination to produce the most
obscure ideas. Imagination is needed to cross the
boundaries and to think outside the box. This allows
entrepreneurs to think beyond traditional solutions,
come up with something new, interesting, versatile,
and with success potential.
3. Finding similar patterns in different areas
Creativity enables people to connect dissimilar and
unrelated subjects and make successful
entrepreneurial ideas. Merging different fields creates
interesting intersections that creates new niches.
 Individual Creativity: Role and Process
4. Developing new niches through creativity and
entrepreneurship
In entrepreneurship, it is important that new aspects of
traditional business are explored. This can be in the
form of changing the method of manufacturing the
product or delivering the service or how are they
supplied to the user.
Basic elements of the creative process
Seven steps are:
Step 1: Preparation
The first stage, of course, is the preparation of some basic
ideas to hold onto. There has to be some inspiration that
“forces” or “prepares” the entrepreneur to move forward.
The creative process starts with identifying a problem and
then researching for related information. This is done in
an effort to start looking for a viable solution.
Step 2: Thinking outside the box – going beyond the
comfort zone
Can we achieve anything if we are not willing to go beyond
our comfort zone? One has to leave the comfortable arena,
go beyond and take a risk. Rewards come with efforts.
 Basic elements of the creative process
Step 3: Creativity isn’t magic
Despite the immensely amazing things creativity can
achieve, it is definitely not magical. Creativity is
simply approaching things with a different
perspective. The simplest approach to creative
thinking can be copying different elements,
transforming them, combining them and eureka! 
Step 4: Incubation
During the incubation stage, ideas that have the
potential to solve a problem tend to flourish. This
stage is characterized by the unconscious thought
process of refining an idea. 
 Basic elements of the creative process
Step 5: Illumination
Incubation leads to clarity of ideas. This is the “solution
finding” stage. Now the creativity process leads to the
knowledge of some practical ideas that can be put to
work. It is like a “light bulb” moment, hence it’s called
illumination.
Step 6: Verification
This stage determines whether the “found” solution
even has the potential to work or not. The idea can
either be accepted as such, modified with minor or
major changes, or rejected altogether, requiring that
the whole process be done again.
 Basic elements of the creative process
Step 7: Evaluating the idea
The major success of an entrepreneurial endeavor lies
in critically examining the viability of an idea. Critical
thinking enables an entrepreneur to self-judge in
order to evaluate the idea. It is defined as a self-
directed, self-disciplined, self-monitored and self-
corrective process of evaluating an idea.
 IDEA TO BUSINESS OPPORTUNITY

The entrepreneurial process is a major hurdle for every new and

existing entrepreneur to overcome. From getting the right idea to
eventually building a successful business or not, all steps, actions,
and decisions made by every entrepreneur would have to be highly
calculated in the smartest possible way.
Five Steps are following:
1. Finding The Right Business Idea
Identifying and evaluating the right opportunity is the first step to
setting out as an entrepreneur. Without a business idea, you can’t
start a business, and without a business, you cannot be termed an
entrepreneur. You must do a market research to know what people
really need. You must also look at your inner talents to figure out if
whatever you’ve chosen to start up is a good fit for you.
 IDEA TO BUSINESS OPPORTUNITY
2. Developing the business plan
The next step is to make a business plan that suits you best.
Having a plan doesn’t entirely mean drafting a thorough
business plan detailing several chapters and more. If writing
a business plan seems difficult, you can draw up your plan by
following a sample business plan template, or highlighting
the things you want to achieve, and how, then consulting the
services of a professional to draw out a business plan for you.
3. Raising Your Seed Funding
Getting funds for your business will be one of the hardest
things you do as an entrepreneur.  You could raise seed
funding by getting an investment from angel investors,
grants, a bank loan, micro-finance banks, family and friends.
 IDEA TO BUSINESS OPPORTUNITY
4. Getting Paying Customers
 Here’s the real cracker. If you cannot get paying customers for
your business at the lowest cost possible, your business will die
out. No business can stay afloat without customers. The different
factors you need to consider are both your customer acquisition
costs and your customer retention costs.
5. Success or Maybe Failure
The entrepreneurial process could result in successes or failures. If
your business model didn’t work, then you never really failed, but
only identified one way that doesn’t work. It’s important that if
your small business fails, you should take a step back and revisit
the events that led to its failure. Highlight what went wrong and
what worked.
“Entrepreneur never fail but enterprise fail”
 Opportunity Assessment
 An opportunity assessment plan is NOT a business plan. It
should be shorter, have focused on the opportunity not the
venture. It is having four components:
It should include:
1. Description of product and service.
 Market need for the products or service.
 Competitive advantage and USP of the product
 Strength and Weaknesses of competitor
 Patent or IPR requirement
2. An evaluation of the opportunity
 What is the size, past trend and future growth of the market?
 Anticipated growth of the industry
 What is the profile of your customer?
 Opportunity Assessment

3. Entrepreneurial Self Assessment

Why does this opportunity excite you?
How does it fit into your background and experience?
Why will you be successful in this venture?
4. What need to be done to translate opportunity
into a viable venture?
Examine each critical step
Identify sequence of activity
How much time and money will each step require?
Identify the source of finance?
 Entrepreneurial Ability

No Ability to do Ability to do

(B) (A)

Will to do Passenger Star / Ideal

(Train him) (Keep Motivation

High)

(D) (C)

No will to do Deadwood May Run

(Either bear the (Involve, Counsel and

burden or off load it) Motivate)
 Identify Business Opportunity in current scenario

Information Technology
Organic Farming
Healthcare Sector
Ayurveda and traditional medicine
Social Venture
…….Students can add more
 Challenges of new venture start-up

Money
Neglecting Marketing and Sales
Lack of Planning
Finding Right People
Scaling up
Competitors
Lack of Mentoring
Good Idea but poor Management
Time Management
 Reason of Failure

Lack of experienced management

Untrained Manpower
Poor Financial Management
Lack of business linkages
Incorrect pricing
Short term outlook
Lack of good team
Not able to grab opportunity
 Management skills for Entrepreneurs and
managing for Value Creation
 Entrepreneurship is the art of starting a business, basically
a startup company offering creative products, processes, or
services.
 an entrepreneur is a creator or a designer who designs new
ideas and business processes according to the market
requirements and his/her own passion.
 Innovation is the specific tool of entrepreneurs, the means
by which they exploit change as an opportunity for a
different business or service.
 Developing an entrepreneurial mindset doesn’t feel like a
natural, or easy, thing to do.
There are challenges (keeping customers happy,
managing money, etc.), so If you are considering
becoming an entrepreneur
There are several essential skill sets that you can
develop to increase your entrepreneurial success.
These skill-sets can be broken down into three
groups: Entrepreneurship Skills, Technical
Skills and Management Skills
Entrepreneurial Skills

 INNOVATION
“It’s the introduction of novelty in a given market or industry, such as
new products, services, methods, sources of supply or organization.
Innovation doesn’t always mean creating something new: innovators
often take something that already exists, improves it, change it, make
it better and make it the best for their customers. Innovative ideas are
what will make a startup competition.
 Change oriented leadership
Because the world is changing so rapidly change-oriented leadership
is essential. A change-oriented leader tries to promote exploration of
new and be hidden potential in people, things, or situations. Change-
oriented leaders work towards a better future, but they may not know
at the outset what that future is.
Technical skills
 Communication skills:
Communication is a way to make interaction between people.
communication skills will assist entrepreneurs in sharing their
ideas and presenting them clearly .
 Research and Development (R&D
research and development (R&D) include activities that companies
undertake to innovate and introduce new products and services. It
is often the first stage in the development process. The goal is
typically to take new products and services to market.
The R&D cycle often begins with ideation and theorizing, followed
by research and exploration and then into design and
development.
 Management skills

 Marketing skills:
Marketing is a vital process for entrepreneurs because no venture
can become established and grow without a customer market.
The process of acquiring and retaining customers is at the core of
marketing.
 Finance:
Entrepreneurial finance is the study of value and resource
allocation, applied to new ventures. It addresses key questions
which challenge all entrepreneurs: how much money can and
should be raised; when should it be raised and from whom;
what is a reasonable valuation of the startup; and how should
funding contracts and exit decisions be structured.
Creating and Sustaining Enterprising Model
& Organizational Effectiveness
According to Merriam-Webster, effectiveness is
‘the power to produce a desired result’.
In an organizational context, however,
effectiveness is harder to define.
The effectiveness of an organization depends on its
mission & goals, internal efficiency, strategic
positioning, and many more factors.
 The picture below shows three organizations. Which
organization would you qualify as more effective? Each of
them makes a tangible positive impact, either on their
shareholders, their users, their workers, or the
environment. This makes each of them effective – in
different ways.
 Organizational Effectiveness Models

Organizational effectiveness
Effectiveness models
means…

Goal model …accomplishing its goals

Internal process model …high-quality internal processes

…obtaining resources needed for high

Resource-based model
performance

…satisfying strategic constituencies that

Strategic constituency model
hold sway over the organization 

…satisfying stakeholders of the

Stakeholder model
organization

Competing values model …the presence of simultaneous opposites

Abundance model …flourishing and virtuousness

 The goal approach gauges effectiveness by measuring to what
degree the organization reaches the goals it set out to achieve.
This is the most traditional way of measuring organizational
effectiveness. Goals can include product or service quality and
quantity, financial goals, shareholder value, societal impact, or all
of these. The goal approach is less actionable as it measures
output but does not provide information about the input or the
process.
 The internal process model looks not at the outcome but at
what happens inside of the organization. This approach assesses
effectiveness through the smooth functioning of organizational
operations. This is achieved through information management,
documentation, and continuous consolidation.
 The resource-based model looks at the input as a measure of
effectiveness. According to the Resource-Based View (RBV), firms
achieve a competitive advantage by exploiting resources that are
valuable, rare, and hard to imitate or copy.
 The strategic constituency model assesses effectiveness by
measuring the degree to which it satisfies those in the
environment who can threaten the organization’s survival – i.e.,
its strategic constituencies or interest groups. Each constituency
has a degree of power and pursues different goals.
 A similar approach is the stakeholder approach. This includes
strategic constituencies but also those who are indirectly affected
by the organization but may not have power over it (e.g., families
of workers, activists, and communities).
 The competing values model is based on Cameron and
Quinn’s competing values framework. This approach measures
effectiveness by the ability of an organization to simultaneously
promote competing values.
 The abundance model proposes that effectiveness equates to
unleashing the highest potential of human systems. This is about
bringing forward positive values and virtuousness. To do this
effectively, there has to be a balance between positive and
negative values. For example, excellence and flourishing cannot
exist without difficult challenges and struggle. Both positive and
negative elements and emotions are required to push the
potential of human systems.
How to measure organizational effectiveness
 Venture Capital

Venture capital (VC) is a form of private equity

financing that is provided by venture capital firms
or funds to startups, early-stage, and emerging
companies that have been deemed to have high
growth potential or which have demonstrated high
growth (in terms of number of employees, annual
revenue, or both).
 Angel Investors

An angel investor (also known as a private investor,

seed investor or angel funder) is a high net worth
individual who provides financial backing for
small startups or entrepreneurs, typically in
exchange for ownership equity in the company.
Angels typically fund a startup at the seed stage of a
company. There is a higher risk associated with angel
investments as they are dealing with an unproven
business model.
 Angel Investing Vs Venture Capital

Basis Angel Investing Venture Capital

Size Individual Group
Support Start up at Early Stage Later Stage
Source Invest Own Money Invest People Money
Amount Usually upto 1 million $ Usually more than 1 million
$
Help Mentoring No Mentoring
Network May use their Business Only financial support
Network
Risk Bear More Risk Bear less Risk as AI
Involvement Involve in new start up Usually in existing start ups
Fund Manager No dedicated fund manager Dedicated Fund Manager
 Crowd funding

Crowd funding is the use of small amounts of capital

from a large number of individuals to finance a new
business venture.
Crowd funding makes use of the easy accessibility of
vast networks of people through social media and
crowd funding websites to bring investors and
entrepreneurs together, with the potential to
increase entrepreneurship by expanding the pool of
investors beyond the traditional circle of owners,
relatives and venture capitalists.
 Crowd funding

Suitable for Social Enterprise

Usually collect small amount of money
No control over company operations
No involvement in decision making
Eg. Kickstarter & Indiegogo
 Crowd Funding Types

Donation Based
 Not received anything. Eg YOUCARING, FriendFund
Reward Based
 Received free priority service. Eg Kickstarter & Indiegogo
Equity Based
 Received share & Ownership in the Startup. Eg FUNDNEL,
SEEDRS, CAPBRIDGE
Debt Based
 Received fixed incentive eg. FundedHere, CROWDO,
MoolahSense