INFORMATION
TECHNOLOGY
ENTREPRENEURSHIP
CLASS SIX: IDEA GENERATION AND OPPORTUNITY ANALYSIS
(BUILD OR BUY?)
Elikem Nutifafa Kuenyehia
Management 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
•
•
•
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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
•
•
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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!!!