Identifying Business Ideas

Unit 5
Ideas for Business
Every new business starts with an idea

Existing business
Entrepreneur
(new products/
(new idea) modifications)

Internal External
inspiration inspiration
Internal Sources of Ideas for Entrepreneurs
• Entrepreneur looks at what they enjoy doing – may be
Interests and hobbies able to turn their hobby into a successful business e.g.
enjoy baking, open a bakery

• The eureka moment – a thought or event provokes an

Unexpected events idea for a good or service. Trying to solve a problem can
result in a surprising result e.g. Lucozade

• Entrepreneurs may be frustrated about the lack of a

Frustration product on the market.

• An entrepreneur may have particular skills or knowledge

Skills and knowledge that can be turned into a business e.g. person with good
history knowledge starts doing walking tours
Internal Sources of Ideas for Existing Firms
• People from different areas of the business
Brainstorming come together to think of as many ideas as
possible.

• Intrapreneurship means that ideas come

Intrapreneurship from employees, through suggestion
schemes or boxes e.g. Xbox

Research and • A specialised department in the business

that develops new goods or services and
development new ideas for existing products.
 Brainstorm

In pairs/groups –
brainstorm one feasible
improvement that could
be made for the school
and explain it to the
class
External Sources of Ideas for Entrepreneurs

• Family & friends: Ideas can come from

complaints, frustrations, casual conversation etc.
These can help entrepreneurs spot a gap in the
market.

• Networking: Meeting people and building

professional relationships, sharing business ideas
and info. E.g. at organised networking events and
functions.
External Sources of Ideas for Existing Firms

• Competitors: A business might copy or adapt an competitor’s

good/service and create it’s own product e.g. knock off airpods

• Customer feedback: Listening to customer feedback allows

businesses to adapt and make changes to meet consumer
needs/wants
External Sources of Ideas for Entrepreneurs
& Existing Firms
Media Market trends
• Ideas for products can come • A business keeps an eye on
from the media such as TV, market trends to identify new
newspapers and social media goods and services to satisfy
e.g. selfie sticks consumer needs e.g. Protein
Bars, Vegan foods

State agencies Import substitution

• State agencies such as • When an Irish business or
Enterprise Ireland provide entrepreneur makes a
information on worldwide product that is currently
markets and growth imported e.g. Club Orange
statistics. instead of Fanta
Market Research For Business Ideas
Def: Market research.. The process of collecting and analysing
information about the target market. It’s used by the business to
identify trends and marketing decisions.

Reasons for conducting market research:

1
• To find out the size of the market

2
• To identify competitors

3
• To find out consumer needs and wants

4
• To identify trends
 Businesses must decide..
What How long will it
information will take to
be researched? complete?

Who will collect

the information?

How will the

How much will it
data be
cost?
collected?
Stages in Market Research
After answering those questions the next step is to..

• The information must be

Gather gathered and compiled.

• The information must be

Analyse studied in detail to identify
trends and statistics.

• A report is compiled and

Report given to the appropriate
decision-makers.
 Types of Market Research: Primary/Field
1. Observation
Def: Primary research..
gathering first-hand
information from the
market place by going
4. Mystery 1. Primary 2. Focus
(field) groups into the market place
shoppers
Research and making direct
contact with potential
customers

3. Surveys
Primary/Field Research
1. Focus Groups: Groups of consumers/potential customers meet and
discuss a firms product/experiences.
Adv: can get detailed info on consumer habits/attitudes
Disadv: expensive & time consuming

2. Surveys: interview with consumers, face to face, via phone, online

Adv: can get detailed info from consumers
Disadv: non-response rate can be high, might have to give incentives
Primary/Field Research
3. Mystery shoppers: Anonymous shoppers evaluate customer
services and store operations. Can check out competitors also.
Adv: encourages staff to always provide high quality customer service
Disadv: info gathered depends on the shoppers tastes/preferences

4. Observation: watching consumer behaviour and learning from their

reactions e.g. reactions to a window display
Adv: consumers unaware their being watched so behaviour is genuine
Disadv: shows how they behave but not necessarily why
Primary/Desk Research
Advantages
1 Specific Information
The business can obtain very specific market information relevant to its own
products.
2 Better Analysis
The information collected can be examined and analysed by the business according to
its own needs.
3 Timing
The information collected is recent, which makes it very accurate.
4 Confidentiality
The information gathered is owned by the business and is not shared with other
businesses. This gives the firm an advantage over its competitors.
Primary/Desk Research

Disadvantages

1 Time-consuming
It can take a long time to plan, conduct and analyse primary research data.

2 Cost
It is more expensive than secondary research because the business is involved in all stages
of the process from design to analysis.
3 Inaccurate Feedback
Responses can be untrue or biased and can therefore provide the business with
inaccurate information.
4 Business Resources
Many of the firm’s resources are tied up in data collection and analysis. This can take
business resources away from other important areas.
 Types of Market Research: Secondary/Desk
1. Business
Reports Def: Secondary
research.. Gathering and
2. Government reviewing existing
5. Media publications information that’s
Secondary
(Desk)
already been collected
Research e.g. through reports,
online, books etc.
4. Commercial Shopper Insight Film: Part 2 - Market Research - YouTube
Research 3. Internet
Agencies
Secondary/Desk Research
1. Business reports: can use reports made by other organisations to
increase their knowledge e.g. competitors annual report
Adv: many reports available for free
Disadv: time consuming to read and it may not be relevant

2. Government publications: e.g. Census, Enterprise Ireland report on

export markets.
Adv: detailed and accurate at the time, reliable source
Disadv: can be difficult to find sometimes
Secondary/Desk Research
3. Internet: Google, social media, consumer forums etc.
Adv: mostly free
Disadv: can be difficult to check what is valid, a lot of info available

4. Media: Newspapers, TV, magazines etc give an insight into markets

Adv: wide range of info from a wide range of sources available
Disadv: info you’re looking for may not be available at the time
Secondary/Desk Research
Advantages
1 Cheaper than Primary Research
Large amounts of information can be accessed free of charge.

2 Faster than Primary Research

The information already exists so it can be faster for the business to find and process the
information.

3 Large Volume of Information

The information available is extensive and covers a wide range of topics.

4 Accurate
Many sources are available online, which means that results can be cross-checked for
accuracy.
SECONDARY RESEARCH
Disadvantages

1 Non-specific
A lot of information is available, but it may not be exactly what the user needs.

2 Outdated
Information that has not been collected recently may be outdated and inaccurate.

3 Copyright
Some secondary sources may be subject to copyright; and reproducing data without
permission can lead to costs and possible legal consequences.

4 Information Overload
If there is too much information it needs to be filtered for the business’s needs, which can
take time.
Benefits of Market Research
1. Identify the target market
• The people at whom the product is aimed.
2. Reduce costs
• Save time and money by avoiding making items consumers won’t buy.
3. Evaluate an advertising campaign
• Was the firm’s advertising campaign effective?
4. Forecast future trends
• Market research helps to identify future trends.
5. Identify problems
• It enables the business to take action before the issues damages their
reputation.
 Development Process of a New Product
The development of new products needs to be well thought out and planned if
they hope to be successful. This requires 7 stages:
You need to
know these all in
the right order!

Eggxactly Ltd: https://www.youtube.com/watch?v=4rvne5GT7-s

Skoda Kodiaq: https://www.youtube.com/watch?v=koq9VthOcTE
 Stage 1: Idea Generation
When a business identifies potential business ideas through internal and
external sources of ideas such as:

• The R&D department

• Brainstorming
• Family & friends
• Customer feedback etc.

Ideally they’ll come up with multiple ideas and can choose the most
promising
 Stage 1: Idea Generation
Case Study: Eggxactly Case Study: Skoda Kodiaq

John Seddon came up with the idea for Employees in Skoda’s R&D department
a wireless egg cooker following brainstormed ideas for new car models
constant complaints from his daughter for the company to develop.
that he over cooked her boiled eggs.

James thought cooking eggs should be

as simple as making toast and set out to
do that.
 Stage 2: Product Screening
All ideas are evaluated and those that are thought to be
impractical/unworkable/the weakest are dropped.

Ideas most likely to be successful go on for further development, this

may include a SWOT analysis.

Screening saves a company time and money as they will not further
develop products with little potential.
 Stage 2: Product Screening
Case Study: Eggxactly Case Study: Skoda Kodiaq

John found other people struggled to Skoda’s screening process found a gap
make eggs the right consistency too, in the market for large SUVs which the
this showed some hope that his company didn’t produce already.
invention would be well received and
was worth pursuing.
 Stage 3:Concept Development
Here the idea is turned into an actual product to appeal to customers.

A USP (unique selling point) is identified to differentiate it from other

products on the market.
 Stage 3:Concept Development
Case Study: Skoda Kodiaq
Case Study: Eggxactly
Skoda developed a large 7 seater SUV
James experimented with cooking
to attract new customers to the brand.
elements and decided on a soft stretchy
They had new features such as
one instead of water – this was clearly
umbrellas in the front doors and
unique as no water was needed. It also
ice-scrapers under the fuel cap
provided consistency when cooking the
(unique).
eggs.
 Stage 4: Feasibility Study
A feasibility study is carried out to investigate if the product is
commercially viable or profitable. They need to see:

• Will it meet government regulations?

• What are the costs involved? (Do a BEP)
• Is there demand for this product?
• Can we physically make the product?
 Stage 4: Feasibility Study
Case Study: Eggxactly Case Study: Skoda Kodiaq

Following James’ appearance on the Skoda looked at many factors such as:
Dragons Den 10,000 potential the capacity of it’s production plant,
customers registered their interest in size of the market segment, if
buying his product on his website once production costs would be in line with
it’s finally launched. This would make it other models etc. They found the
financially viable. product was likely to be successful and
viable.
 Stage 5: Prototype Development
A sample product or mock-up is produced to see:

• Can the product be made?

• What materials are best suited for this product?
• Does it appeal to customers?
• Is it meeting standards?
• Can any adjustments/improvements be made?
• Are there any product/design issues?

Many prototypes can be made before overcoming flaws/issues.

 Stage 5: Prototype Development
Case Study: Eggxactly Case Study: Skoda Kodiaq

James made several prototypes to Skoda made 47 prototypes each taking

prove the technology worked. Each a month to build. Each prototype tested
prototype became smaller and more different features such as boot space,
refined and proved that the concept seat numbers, dashboard features etc.
would work.
 Stage 6: Test Marketing
The product is launched into a small section of the market e.g. locally
not nation wide, for customers to use and evaluate.

Businesses can evaluate customer reactions and make any further

changes needed.
 Stage 6: Test Marketing
Case Study: Skoda Kodiaq
Case Study: Eggxactly
It’s difficult to test market a car but
Following changes to the design and
Skoda did a Kodiaq roadshow in Ireland
production process James launched a
to allow customers to see the car first
‘market acceptance test’ with a limited
hand and give feedback to the
supply of the product prior to large
dealerships, who then fed back to
scale production.
Skoda.
 Stage 7: Product Launch
The product is launched to the entire market and full-scale production
begins.

A marketing campaign usually accompanied the product launch.

Pricing and distribution channels are established with a hope of the

product being a success.
 Stage 7: Product Launch
Case Study: Eggxactly Case Study: Skoda Kodiaq

James launched his egg cooker in 2012. Skoda launched the Kodiaq in 2016
receiving pre-orders for 50% of their
projected sales.
Break Even Analysis
One of the 7 stages of product development is a feasibility study (used
to see if the product can be made and sold for a profit).

A break even analysis is a part of this step. This will show you:
• The fixed costs: costs that don’t change with level of production
• The variable costs: costs that do change with level of production
• The break even point: when your neither making a profit or a loss
• The margin of safety: the difference between forecast sales and the
BEP (how far can sales fall before reaching the BEP)
 Break Even Analysis: Formulae
Total Revenue: quantity sold x unit price

Total Costs: fixed costs + variable costs

Contribution Per Unit: selling price – variable cost per unit

Break Even Point (BEP): (fixed costs ÷ contribution per unit) = units

Profit at Forecast Output: Total revenue – total costs

Margin of Safety: target output – break even point = units

Break Even Analysis
Sample Break Even Analysis Question
Sample Break Even Analysis Solution
Selling Price per
unit – Variable
1. Calculate BEP: Costs per unit
 Sample Break Even Analysis Solution
2. Calculate Profit at Forecast Output:
Total revenue – total costs
Total Revenue:
forecast output
x selling price

3. Calculate Margin of Safety:

Forecast output (sales) – BEP (units)
Total costs: Fixed
costs + variable
costs
 Sample Break Even Analysis Solution
4. Draw table (7 across + 4 down)
Sales SP TR FC VC TC Profit
(units) (units x sp) (units x vc) (fc + vc) (tr – tc)
0 €20 €0 €300,000 €0 €300,000 - €300,000
(no sales) (0 x €20) (€300,000 + (€0 -
€0) €300,000)
30,000 €20 €600,000 €300,000 €300,000 €600,000 €0
(in between) (30,000 x €20) (€10 x 30,000) (€300,000 + (€600,000 -
€300,000) €600,000)

40,000 €20 €800,000 €300,000 €400,000 €700,000 + €100,000

(target sales) (40,000 x €20) (€10 x 40,000) (€300,000 + (€800,000 -
€400,000) €700,000)
 Sample Break Even Analysis Solution The height of
the vertical axis
5. Draw the chart: = the biggest
Break Even Analysis for Moore LTD
TR Profit @ full capacity number in your
TR box
TC
Costs/Revenue (€ ‘000)

b) Profit at forecast output

a) Break Even Point

c) Margin
of safety

FC Needs to go
at least as far
as target
output

Output (‘000 units)

Now Try This.. (2016 HL)
Limitations of Break Even Analysis
• It assumes that all products manufactured will
Sales
be sold.

• It assumes that selling price per unit remains

Selling price
the same for all items sold.

• It assumes that there is always 100% quality

Faulty products
100% of the time.

• It assumes the business knows all its costs and

Classification of costs
can categorise them into fixed and variables.

• It does not take into account the effect a

Changes in selling price
change in price may have on sales.
Key Terms
• internal sources of business ideas • development process of a new products
• brainstorming • idea generation
• research and development (R&D) • product screening
• external sources of business ideas • concept development
• networking • feasibility study
• import substitution • prototype development
• market research • test marketing
• primary (field) research • product launch
• observation • unique selling point (USP)
• consumer panels • break-even chart
• survey • break-even point
• mystery shopper • fixed costs
• secondary (desk) research • variable costs
• commercial research agencies • margin of safety