INFORMATION TECHNOLOGY

ENTREPRENEURSHIP

CLASS SIX: IDEA GENERATION AND OPPORTUNITY ANALYSIS

(BUILD OR BUY?)

Elikem Nutifafa KuenyehiaManagement consultant & Corporate Lawyer

Agenda for class 6

• Recap of class 5• Guest Speaker: Ehi Benitie, Chief

Technology Strategist, Rancard Solutions

• Idea generation• Opportunity analysis• Build or buy?

Idea Generation

• The first step in establishing an entrepreneurial venture

• Success as an entrepreneur depends on how well the idea is executed

Sources of Ideas

• Consumer insights• Competitive response• Personal or professional experience• Hobbies or interest• Franchises• Media• Exhibitions• Brainstorming

A good idea ≠ success

It must be developed into a good concept

Criteria for a good concept

• Consumer taste• Number of potential buyers• Purchasing power of potential buyers• Return on investment• Individual values and interest• Value proposition• The entrepreneur’s resources & skills

Researching the opportunity

• Market research• Customer research

– Concept validation

• Industry analysis• Competitive analysis• Trade area analysis

Market research

Helps you understand; • macro/micro economic environment • competitive set• Potential customers• Marketing channels

Customer research

• Define the customer• Have conversations with potential

customers• Speak to potential suppliers

Know your customers’ needs

• Observable needs; explicit needs people can and are willing to tell you about

• Tacit needs; customers know the need but are unwilling to voice it

• Latent needs; hidden needs that people may be unconscious of

Concept validation

• Expose target customers to the concept and get their reactions

• Commission prototypes where necessary and show them to the customer

• Create a concept board or concept sheet where prototypes are not possible (readable in less than a minute)

• Encourage the customer to use it and to comment on how to improve it

• Data must be as objective as possible

Objective of concept validation

• To determine if the product or service meets an unmet need

• To determine if the product or service meets needs the customer did not know he had

• To determine if the product or service meets customer needs in a way that exceeds or is at least equal to what is provided by the competition

Concept validation-capturing the customer’s voice

• Conversations with the customer– One-to-one– Focus groups

• Questionnaires – Rank products and services on a number of

attributes– Purchase intent (probability of purchase)

• Definitely would buy• Probably would buy• Neutral• Probably would not buy• Definitely would not buy

Concept validation-capturing the customer’s voice

– Purchase frequency (how often would you expect to buy

• Everyday• Every week• Once a year• Twice in my lifetime

– Purchase magnitude (how many will you expect to buy)

• One• A dozen• A crate• A carton

Advantages/disadvantages of concept validation

Advantages • Prevents costly mistakes down the line• Gives the entrepreneur opportunities to

feed back customer insights into his products/services

Disadvantages• Time consuming• Opponents may beat you to the market

when they know your intentions

Industry analysis

Michael Potter’s five forces framework• Rivalry

– Numerous or equally balanced competitors– Slow industry growth– Lack of differentiation or switching costs for

customers– High exit barriers

• Barriers to entry– Economies of scale– Product differentiation– Capital requirements

Industry analysis II

– Switching costs– Government policy

• Threat of substitute products or services• Buyer power

– Discounts– Additional services– High quality

• Supplier power– More concentrated suppliers’ industry– Fewer substitute products available

Competitive analysis

• How do the major players in the industry make their profits?– Their strengths and weaknesses– Their target customer, key customers and

positioning– Their sales, volume, market share and growth– Their pricing and marketing strategy– Product lines and distribution channels– Their business models– Management style and goals, their ethos– Their entire value chain

Advantages of competitive analysis

• Shows opportunity areas in the industry

• Helps anticipate potential problems

• Helps in structuring the entrepreneur’s business and business strategy

Trade area analysis

• Which part of the country to locate in– Proximity to markets– Proximity to raw materials– Labour supply– Business climate– Population growth trends, density and shifts– Competition– Transportation networks and other

infrastructure

Trade area analysis II

• Where to locate in a particular city, town or village– Customer traffic– Adequate parking– Visibility– Competition– Cost– Size and layout

Build or buy?

Pros of buying vs building

• Faster route to entrepreneurship

• Experience of the previous owner can be leveraged

• Easier to find finance

Difficulties of buying vs building

• Cultural/Employee related issues

• Customer and supplier relationships may not be inherited

• Business may be overpriced

Due diligence!!!

Due diligence guidelines

• Ask, ask, ask

• When you hear an answer, make sure you also see the answer

• Use the Colombo method

• When co-investing, do your own due diligence

• Painstakingly review all information about all aspects of the company

Franchising

A form of licensing by which the owner (the franchisor) of a product, service or business method obtains distribution through affiliated dealers (the franchisee)

Advantages for the franchisor

• Fast growth

• Economies of scale

• Cashflow

• Motivation & market knowledge

• Does not dilute ownership

Disadvantages for the franchisor

• Loss of control over operation

• Loss of contact with customers

• Free riding

• Sharing income stream

Advantages for the franchisee

• Safety net hence lower risk of failure

• Support in terms of training, R&D, etc

• Economies of scale

Disadvantages for the franchisee

• Lack of control

• Quasi-employment

• Can be expensive in the long run

• Limit on exit strategy

Build or buy? II

• Mom & Pop/ life style entrepreneurs– Informal systems– Not concerned about growth

• High growth entrepreneur– Seeks exponential growth– Formal systems for cashflow planning,

financial management, strategic planning, marketing

Questions????

Thank you!!!