spe3002 entrerpeneurship - selecting and evaluating a busine

Mohd. Khata Bin Jabor email: [email protected] slide 1

SPE3002/SPK5002COMMERCE AND

ENTREPRENEURSHIP

WEEK 1225 SEPTEMBER - 31 OCTOBER 2006


AGENDA

Selecting and Evaluating a Business


LEARNING OUTLINEOpportunity Recognition? Ideas vs. ConceptsGlobal TrendsDifferentiating OpportunitiesHarvest Issues

Continue..


LEARNING OUTLINEGoals for EntrepreneursConcept of FeasibilitySuccess CriteriaRecipe for SuccessFactors Venture Failures


Remember what is the definition of ENTREPRENEURSHIP

It is the process of recognizing, seizing, pursuing and

exploiting opportunities without regard to the resources

you currently control.


OPPORTUNITY RECOGNITIONWhat is an opportunity?How do you recognize opportunities?How do you screen opportunitiesHow are concepts different from ideas?What is a business concept?Is the business concept worthwhile?How do you define a superior opportunity and concept?


OPPORTUNITY RECOGNITION

An opportunity is not an idea nor is it a

business concept.


An Opportunity is External

It is not a solution hunting for a problemIt is in the environmentIt is a need to be fulfilledIt is a want to be addressedIt is a fear to be relievedIt is time limited


Ideas vs ConceptsIdeas are often seeing a need, want or fear and saying, “Lets meet that”Ideas are sometimes a technology hunting for an application or “opportunity”Concepts are when you put a technology together with the customer and understand the business an revenue models that lead to sales.


The Concept

Resources NeededMoney Made

Distribution & Marketing

Products &Services

Customers Groups


ON IDEAS

If a man makes a better mousetrap than his neighbor, though he builds his house in the woods, the world will make a beaten path to his door.

Ralph Waldo Emerson


ON CONCEPTSThe manufacturer who waits for the world to beat a path to his door is a

great optimist. But the manufacturer who shows this

“mousetrap” (and its value) to the world, keeps the smoke coming out

his chimney.O.B. Winters


Entrepreneur’s Bet

Programmer’s adageBoy Scout MottoBe risk averse. Don’t stretch too much, too fastKnow your concept


Concepts are builtusing ideasentrepreneurial creativityin real time, take time and address real problems.

DEFINITIONS OF OPPORTUNITY


Good ideas are not always good opportunities nor viable concepts.Opportunities yield measurable net benefits to the entrepreneur and to society.



Concepts are builtusing ideasentrepreneurial creativityin real time, take time and address real problems.



Opportunities are also situationalThe Window of Opportunity

Opportunities take form in real world conditions

Changing conditionsLeads and lagsKnowledge gapsChaos and/or confusionInconsistenciesUncertainties


THE WINDOW OF OPPORTUNITY

Market Size(RevenuePotential)

Time (Years)


Some Global TrendsSocialPoliticalEconomicTechnologicalDemographicGlobalLocal


FIRM

Competition

SuppliersCustomers

SubstitutesSocial

Political/LegalTechnological

Global

DemographicsIndustry

EnvironmentEconomic

Macro-Environment


EconomicConditions

DemographicTrends

Socio-CulturalTrends

Political/LegalTechnological

GNP Trends PopulationGrowth

LifestyleChanges

Legislation

Govt. Spending Age Distribution FamilyFormations

Welfare

Interest Rates PopulationShifts

Health Trends Housing

UnemploymentLevels

Immigration EnvironmentalConcerns

Agriculture

Income Levels Birth Rates Education


Heuristic Model forOpportunity Identification

etc.

MarketDemands

EnvironmentalForces

CulturalForces

PersonalExperiences

Technology

SocialForces

PersonalAttributes

Elaborate

EvaluateEureka! Go ahead orQuit

VISION

PREVISION

Modify

DEVELOPMENT DECISION


Alertness Model

Persondoes nothave alertness

Personhas alertness

Maximization

OptimizationAssessment

OpportunityFunding

NoOpportunityFunding

PERSON SITUATIONCOGNITIVEBEHAVIOR

OUTCOME

No AbilityNo Gain

AbilityNo Gain

No AbilityGain

AbilityGain


Person-Place FrameworkRight Person

Right Situation

Assessment BreakMeans-EndsFrame

CreateNewFrame

Perceptionof ViableOpportunity

(has entre-preneurialalertness)

(person hasability to grasp and has potentialfor gain)

1) Perceptual- attend to new info.- put self in position

to get exposure to new info, etc.

- veridical perception2) Reasoning- tolerance of

ambiguity- interpretation of

information- presented frame

only or best way- why these ends- why these means


IDEAS VS CONCEPTS

Avoid spending too much time and money on “Trombone oil or Space Shuttle docking ideas”

You may turn out the best product in the world, but the entire world needs only about a pint a year or five in a generation. These are great ideas, but poor business opportunities or concepts.


ANSWERIs this really an adequate business opportunity and concept?Is this one I/we want to pursue?What resources are required to exploit it?How do I/we acquire them?How do I/we manage the operation?How and when do I/we harvest?


DIFFERENTIATING OPPORTUNITIES

Revenue Potential

Concepts

Small Big

Obvious

Not Obvious

Most small businesses

Highlycompetitive

Black holesHigh

potentialventures


Market Realities Impact Opportunities

Supply

Demand

$/UnitPrice Cost

Quantity/Time Period


MARKET & OPERATIONAL ISSUES

Size, market share, growth rate, and penetration rateThe 4 P’s and Position

The CustomerGross Margin

Sustainable ?The Competition

Cost ArchitectureThe OperationsThe Value Chain


Fixed and Variable Costs, Contribution Margins, Prices

Production, marketing, distributionBarriers, Porter’s 5 forces, EgoLegal considerations (structure, tax, etc.)Talent or Social Capital

SUSTAINABLE ADVANTAGE VERSUS INNOVATION


Profitability Positive Cash flow ROI on Required I Investor Demands/Expectations Value at exit Life style issues

Personal wantsFamily issues

HARVEST ISSUES


OrganizationOrganization

Opportunities

Existing

NewNew

OrganizatioOrganizationn

Changing Opportunities Mean Changing/Shifting the Organization


Team, Founder(s) Fit with Opportunity Track Record Gaps in Capabilities & Competencies Values and Ethics Personal Goals and Objectives

MANAGEMENT TEAM ISSUES


Goals for EntrepreneursFinancialSocialPersonalPoliticalShift with Life Cycle

Of FirmOf Entrepreneur


Technology Service Team, talent, fit Channels of distribution and marketing Pricing Opportunistic, adaptive

DIFFERENTIATION ISSUES


The Myth of First to Market

It is really the first to market acceptance in a specific market niche.


Principles of Innovative Opportunity Seeking

Systematically analyze all sourcesGo out: look, ask, & listenKeep it simple, stay focusedStart small (specific) BUTAim for leadershipBe market focused, be market driven


More Principles of Innovative Opportunity Seeking

Don’t:Be cleverDo too much at onceInnovate for the future

Focus on opportunity, not risk


In Summary then what have I been trying to say to you for the ninety minutes or so?


CONCEPT of FEASIBILITYCOMPELLING INTERESTCUSTOMER OPPORTUNITIESCUSTOMERSVENTURE CONCEPTSFINANCIAL RESOURCESENTREPRENEURIAL TEAMVENTURE EVALUATION


COMPELLING INTEREST

“Choose a job you love, and you will never have

to work a day in your life.”

Confucius


CUSTOMER OPPORTUNITIES

“The secret of life is to be ready for the

opportunity when it comes.”

Benjamin Disraeli


CUSTOMERS

“I cannot give you the formula for success, but I

can give you the formula for failure...which is: try to

please everyone.”

Herbert Bayard Swope


VENTURE CONCEPTS

"Vision is the art of seeing things invisible.”

Jonathan Swift


FINANCIAL RESOURCES

"Happiness is a positive cash flow.”

Fred Adler


ENTREPRENEURIAL ASSESSMENT

"The true entrepreneur acknowledges that he or

she cannot succeed alone."

Dr. An Wang


VENTURE EVALUATION

"Confidence is what you feel before you comprehend

the situation."

Old Proverb


SUCCESS

"Success, as I see it, is a result, not a goal."

Gustavae Flaubert


SUCCESS CRITERIAIT IS NOT ONLY MONEY!!!

GrowthProfitabilityTechnological InnovationMarket ImpactInstitutionalization of Success


Final Words About Opportunities

I was seldom able to see an opportunity

until it ceased to be one.Mark Twain


AWARENESS OF OPPORTUNITY

Divergent or imaginative thinkers tend to note opportunities or problems. Curiosity and attention are essential for noticing what’s wrong or what is an opportunity.


Think of these issues when you we discuss issues ...


Recipe for SuccessGreat Value Proposition

Technically Feasible Product

Protectable Intellectual Property

Sustainable Competitive Advantage

Large Potential Market

Proven Business Model


Causes of New Venture Failure

MarketSmall size of the potential marketNo clear product differentiationMisunderstood customer needsLack of channel supportCompetitive response


Causes of New Venture FailureTiming

Too late in the market – me tooToo early in the market – missionary marketing

FinanceLow Return On Investment (ROI)


Causes of New Venture FailureTechnology

Right featuresPerformance

OrganizationalPromoter conflicts -- different aspirationsPoor fit between products and organization (DNA)

spe3002 entrerpeneurship - selecting and evaluating a busine

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