Entrepreneurship & Innovation: 3 Edition

Inside the entrepreneurial mind : From ideas to reality
Entrepreneurship & Innovation
Chapter : 2
3rd Edition
Hashem Abuamira
Creativity & Innovation :
Hashem Abuamira Page 0

Creativity & Innovation :
1. Creativity: the ability to develop new ideas and to discover new ways of looking at
problems and opportunities; thinking new things.
2. Innovation: the ability to apply creative solutions to problems or opportunities to enhance
or to enrich people’s lives; doing new things
**Innovation is evolutionary , developing market-sustaining ideas that elaborate on exiting

products , processes , and services.
Entrepreneurs succeed by thinking and doing new things or old things in new ways:
 Some create innovations reactively in response to customer feedback or changing

market conditions .
 others create innovations proactively, spotting opportunities on which to capitalize.
 Innovation is evolutionary, developing market-sustaining ideas that elaborate on exiting
products, processes, and service
 Some entrepreneurs stumble onto their ideas by accident, but are clever enough to spot
the business opportunity they offer.
 More often, creative ideas arise when entrepreneurs look at something old and think
something new or different .
Entrepreneurship :
Entrepreneurship: the result of a disciplined, systematic process of applying creativity and

innovation to the needs and opportunities in the marketplace.
It involves applying focused strategies to new ideas and new insights to create a product or a
service that satisfies customers’ needs or solve their problems .
Successful entrepreneurship is a constant process that relies on creativity, innovation, and

application in the marketplace .
Failure : part of the creative process :
Most ideas don’t work and most innovations fail
For every 5,000 to 10,000 new drug discoveries:
250 get to preclinical trials

5 make it to clinical trials
1 or 2 are reviewed by the FDA
Only 1 gets to market.
Failure is part of the creative process.
Entrepreneurship requires business owners to be :
 Bold enough to try their new ideas.

 Flexible enough to throw aside those that do not work.
 And wise enough to learn what will work based on their observations of what did not .
Creativity essential to survival :
Creativity is an important source of building a competitive advantage, which is:
 Is the leverage that a business has over its competitors. This can be gained by offering
clients better and greater value.
 Creativity is a necessity for survival.
 When developing creative solutions to modern problems, entrepreneurs must go beyond
merely relying on what has worked in the past
 Companies that fail to become engines of innovation are more likely to lose ground to
their more creative competitors and ultimately become irrelevant and close their doors.
 Entrepreneurs must always be on guard against traditional assumptions and
perspectives about things ought to be because they are certain killer of creativity
Can we learn to be creative? Yes!
By overcoming paradigms and by suspending conventional thinking long enough to consider

new and different alternatives

Creative thinking :
 Creative thinking, or lateral thinking, is a thought process that involves looking at a

situation or object in new ways.
 Research on the operation of human brain shows that each hemisphere of the brain
processes information differently and that one side of the brain tends to be dominant
over the other .
 The human brain develops asymmetrically, and each hemisphere tends to specialize in
certain functions:
 The left brain is guided by linear, vertical thinking (from one logical conclusion to the
next).
 The right brain relies on kaleidoscopic, lateral thinking ( considering a problem from all
sides and jumping into it at different points).
 The left brain handles language, logic, and symbols

 The left brain processes information in a step-bystep fashion, but the right brain
processes it intuitively –all at once, relying heavily on images.
 The right brain takes care of the body’s emotional, intuitive, and spatial functions .
 Left-brain vertical thinking is narrowly focused and systematic, proceeding in a highly

logical fashion from one point to the next.
 Right-brain lateral thinking is somewhat unconventional, unsystematic, and unstructured,
like the image of a kaleidoscope, whirling around to form one pattern after another.
Right-brained , creative thinkers :
It is this right-brain driven , lateral thinking that lies at the heary of the creative process.
Those who have learned to develop their right– brained thinking skills tend to:
1. Always ask: “Is there a better way?”

2. Challenge custom, routine, and tradition.
3. Are reflective.
4. Are prolific thinkers:
Generating lots of ideas increases the likelihood of coming up with a few highly creative ideas.
5. Realize that there may be more than one “right” answer.

6. Know that mistakes are pit stops on the way to success.

7. Recognize that problems are springboards for new ideas.

8. Play mental games, trying to see an issue from different perspectives
9. Understand that failure is a natural part of the creative process.
10. Have “helicopter skills.
” the ability to rise above the daily routine to see an issue from a broader perspective and then
swoop back down to focus on an area in need of change .
11. Relate seemingly unrelated ideas to a problem.
Left brained or right brained :
 Entrepreneurship requires both left-and right-brained thinking.

 Right-brained thinking draws on divergent reasoning, the ability to create a multitude of
original, diverse ideas.
 Left-brained thinking counts on convergent reasoning, the ability to evaluate multiple
ideas and to choose the best solution to a problem.
Barriers to creativity :
1) Searching for the one “right” answer
2) Focusing on “being logical”
3) Blindly following the rules
4) Constantly being practical
5) Viewing play as frivolous.
 A playful attitude is fundamental to creative thinking

 There a close relationship between the “haha” of humor and the “aha” of discovery
 Play gives us the opportunity to reinvent reality and to reformulate established ways of
doing things.
 Children learn when they play, and so entrepreneurs.
 Watch children playing , and you will see them invent new games, create new ways at
looking at old things, and learn what works and what does not work in their games.
6) Becoming overly specialized. Myopic thinking is a common killer of creativity; being narrowly
focused and limited by the status quo.

 Because experts are so immersed in what they know, they often are victims of myopic
thinking
 That is why creative companies include non-experts in creative problems solving or idea
generation sessions.
 They (non-experts) are free to ask questions and offer ideas that challenge the status quo
and traditional solutions.
 Creative thinker tend to be explorers, searching for idea outside their areas of specialty
7) Avoiding ambiguity
Ambiguous situations force us to stretch our minds beyond their normal boundaries and to
consider creative options we might otherwise ignore.
8) Fearing looking foolish
 Creative thinking is no place for conformity.

 New ideas rarely are born in a conforming environment.
 People tend toward conformity because they do not want to look foolish .
 The fool’s job is to whack (overcome) at the habits and rules that keep us thinking in the
same old ways.
9) Fearing mistakes and failure
 Creative people realize that trying something new often leads to failure .
 But do not see failure as end .
 It represents a learning experience on the way to success.
 It signals entrepreneurs when to change their course of action.
 Many entrepreneurs failed numerous times before finally succeeding.
10) Believing that “I’m not creative”
 Some people limit themselves because they believe that creativity belongs Einstein and
Beethoven of world.
 Some people who are considered as geniuses, visionaries, and inventors actually are no
smarter and have no innate creative ability than the average person
 However, they have learned to think creatively and are persistent enough to keep trying
until they succeed.
 Successful entrepreneurs recognize that “I am not creative” is merely an excuse for
inaction
 reative thinker tend to be explorers, searching for idea outside their areas of specialty.

By avoiding these metal locks, entrepreneurs can unleash their own creativity and the
creativity of those around them as well
Successful entrepreneurs are willing to take some risks, explore new ideas, play little, ask what
if ?
Spurring the imagination :
Questions to Spur the Imagination include:
 Is there a new way to do it?

 Can you borrow or adapt it?
 Can you give it a new twist?
 Do you merely need more of the same?
 Do you need less of the same?
 Is there a substitute?
 Can you rearrange the parts?
 What if you do just the opposite?
 Can you combine ideas?
 Can you put it to other uses?
 What else could you make from this?
 Are there other markets for it?
 Can you reverse it?
 Can you eliminate it?
 Can you put it to another use?
 What idea seems impossible, but if executed, would revolutionize your business?
Enhancing organizational creativity :
Entrepreneurs can stimulate their own creativity and encourage it among workers by:
 Include creativity as a core company value, and make it an integral part of the company’s
culture; part of the mission statement .
 Hire for creativity.
 Include creativity as a core company value.
 Create an organizational structure that nourishes creativity.
 Embrace diversity.
 Expect creativity.
 Expect and tolerate failure.
 Incorporate fun into the work environment.

 Encourage curiosity.
 Design a work space that encourages creativity.
 View problems as opportunities.
 Provide creativity training.
 Provide support.
 Develop a procedure for capturing ideas.
 Talk and interact with customers.
 Reward creativity.
 Model creative behavior.
 Monitor emerging trends and identify ways your company can capitalize on them.
 Look for uses for your product or service in other markets.
 Don’t forget about business model innovation.
Hire for creativity :
Factor : Percentage of inc. :
Retaining great talent 77%
Recruiting great 72%

talent
Developing new 72%
business processes
Creating an 61%
environment in which
it is acceptable to fail
Collaborating with 58%
the right business
partners
Investing in search 31%
Enhancing individual creativity :
1. Allow yourself to be creative.

2. Forget the “rules.”
3. Give your mind fresh input every day: listen to a new radio station, take a walk through a park or
shopping center.
4. Take up a hobby: provide an avenue to escape your regular routine, give the mind fresh input that can
be a source of creative ideas.
5. Travel and observe: visiting other countries is a creativity stimulant. Travelers see new concepts and
engage in new experiences that can spark creative ideas .

6. Observe the products and services of other companies, especially those in completely different
markets.
7. Recognize the creative power of mistakes.
8. Notice what is missing.
9. Look for ways to turn trash into treasure.
10. Keep a journal handy to record your thoughts and ideas.
11. Listen to other people.
12. Listen to customers.
13. Get adequate sleep. Sleep restores both our bodies and brains.
14. Watch a movie.
15. Talk to a child.
16. Do something ordinary in an unusual way.
17. Keep a toy box in your office.
18. Take note of your “pain” points. Entrepreneurs often create innovations to solve problems they
themselves face Observing pain points that result from missing products or services or flaws can be a
source of business idea.
19. Do not throw away seemingly “bad” ideas. Impractical, too costly, or too silly to work
20. Collaborate with others. Two or more people usually are more creative than one person working alone
21. Read books on stimulating creativity or take a class on creativity.
22. Doodle.
23. Take some time off.
24. Be persistent
The creative process :
Although new ideas may appear to strike like a bolt of lightning, they are actually the result of
the creative process.
The creative process involves seven steps:
1-preparation . 2-investigation . 3-transformation .
4-incubation . 5-illumination . 6-verification .
7-implementation .
 ‫احفظوهم بالترتيب ضروري‬

1-Preparation :
To get your mind ready for creative thinking:
 Adopt the attitude of a lifelong student. Look at every situation you encounter as an
opportunity to learn .
 Read … a lot … and not just in your field of expertise. Reading books, magazines, and
papers covering a variety of subject matter is a great way to stimulate our creativity .
 Clip articles of interest to you and save them. Over time, you will build a customized
encyclopedia of information from which to draw ideas and inspiration
 Develop your listening skills.
 Join professional or trade associations and attend their meetings. There, you have the
chance to interact with others who have similar interests; learning how other people
solved a particular problems
 Eliminate creative distractions. Interruptions from cell phones, emails, and visitors can
crush creativity.
 Take time to discuss your ideas with other people.
2-Investigating :
This requires one to develop a solid understanding of the problem or a situation .
3-transformation :
 Involves viewing both the similarities and the differences among the information collected.
 Two types of thinking are required:
 Convergent: the ability to see the similarities and the connections among various and often
diverse data and events.
 Many innovations come from connecting things where other people do not make connections
 Divergent: the ability to see the differences among various data and events.
 How can you transform information into purposeful ideas?
 Evaluate the parts of the situation several times, trying to understand the “big picture” by
looking for patterns that emerge.
 Rearrange the elements of the situation. By looking at the components of an issue in a
different order or from a different perspective, you may be able to see the similarities and the
differences among them more readily.
 Remember that several approaches can be successful. If one fails, jump to another.

4-Incubation :
 Allow your subconscious to reflect on the information collected.

 Refers to the need to have time to reflect on the information collected, and may include:
 Walking away from the situation: in the car, in bed, on walk

 Daydreaming
 Relaxing and playing, regularly
 Dreaming during sleep
 Working on the problem in a different environment. Somewhere other than the office
5-Illumination :
It occurs at some point during the incubation stage when the spontaneous breakthrough
causes the light bulb to go on .
It comes without warning .
In this stage, all the previous stages come together to produce the creative idea
6-Verification :
 Validate the idea as accurate and useful.
 The goal is to subject the idea to the test of cold, hard reality.
 Is it really a better solution to a particular problem or opportunity?
 Will it work?
 Is there a need for it?
 If so, what is the best application of this idea in the marketplace?
 Does this product or service fit into our core competencies?
 How much will it cost to produce or to provide?
 Can we sell it at a reasonable price that will produce a profit?
 Will people buy it?
7-implementanion :
To transform the idea into reality

Techniques for improving the creative process :
 Teams of people working together usually can generate more and more creative ideas
 Five techniques that are especially useful for improving the quality of creative ideas from
teams:
Brainstorming, mind mapping, force-field analysis, TRIZ, and rapid prototyping .
Brainstorming :
Brainstorming is a process in which a small group of people interact with very little structure.
The goal is to create a large quantity of novel and imaginative ideas.
The goal is to create an open, uninhibited atmosphere that allows members of the group to
freewheel ideas
Participants should suggest any ideas that come to mind without evaluating or criticizing them.
As group members interact, each idea sparks the thinking of others, and the spawning of ideas
becomes contagious
Brainstorming guidelines :
1. Keep the group small- Just five to eightmembers

2. “Two pizza rule: if a brainstorming group can eat two pizzas, it is too big.
3. Make the group as diverse as possible.
4. Do aerobic exercise before the session, such as walking, bicycling, swimming,
running
5. Emphasize that company rank is irrelevant.
6. Every member of the brainstorming team is on equal ground
7. Have a well-defined problem: why, how, what.
8. Provide relevant background material about the problem to be solved.
9. Limit the session to 40 to 60 minutes.
10. Take a field trip.
11. Appoint a recorder to write every idea on a flip chart or board so everyone can
see it.
12. Throw logic out the window.
13. Encourage all ideas from the team.

14. Shoot for quantity of ideas over quality of ideas.

15. Use a circular or U-shaped seating pattern.
16. Forbid criticism.
17. Encourage idea “hitch-hiking.” – building new ideas on those already suggested
18. Dare to imagine the unreasonable.
Protecting your ideas
 Once entrepreneurs come up with innovative ideas for a particular product or service that has market
potential, their immediate concern should be to protect them from unauthorized use .
 Counterfeit goods pose a real threat to businesses that have created intellectual property and their
customers who use the product based on that intellectual property .
 The World Trade Organization estimates that between 5 and 7 percent of all goods traded globally are
counterfeit .
1-Patent:
A grant from the Patent and Trademark Office (US) to the inventor of product, giving the
exclusive right to make, use, or sell the invention for 20 years from the date of filing the
patent application.
Most patents are granted for new product inventions (called utility patent)
2-Design patent:
extending for 14 years beyond the date the patent is issued, are given to inventors who
make new, original, and ornamental changes in the design of existing products that
enhance their sales .
The six steps to a patent :
1- Establish the invention novelty .

An invention is not patentable if it is known or has been used in the US or has been described in a
printed publication.
2- Document the device

 To protect their patent claims, inventors should be able to verify the date on which they first
conceived the idea for their inventions
 Inventors should document a device by keeping dated records (including drawings) of their
progress on the invention and having knowledgeable friends witness these records.

3- Search existing patents

 To verify that the invention truly is new, not obvious, and useful, an inventor must conduct a
search of existing patents on similar products
 The purpose of the search is to determine whether the inventor has a chance of getting a
patent.
4- Study search results

 Once the patent search is finished, inventors must study the results to determine their
chances of getting a patent
 To be patentable, a device must be sufficiently different from what has been used or described
before and must not be obvious to a person having ordinary skill in the area of technology
related to the invention.
5- Complete a patent application

 If an inventor decides to seek a patent, she or he must file an application describing the
invention .
 The patent application must include specific claims, which describes the invention- what it
does and how it works- and any drawings that are necessary to support the claims.
6- File the patent application

Before issuing a patent, an examiner studies the application to determine whether the invention
warrants a patent (27.5 months). ‫ مهم تحفظوهم بالترتيب‬
3-Trademark:
Any distinctive word, symbol, design, name, logo, slogan, or trade dress a company uses to
identify the origin of a product or to distinguish it from other goods on the market.
 A trademark serves as a company signature in the marketplace

 A trademark can be more that just a company’s logo, slogan, or brand name; it can also
include symbols, shapes, colors, smells, or sounds.
Components of a product’s identity are part of its trade dress:
 The unique combination of elements that a company uses to create a product’s image
and to promote it, such as color schemes, décor, design
 For product, it may be the packaging, For a service, it may be the decor or environment
in which a service is provided.

4-Service mark:
The same as a trademark except that it identifies the source of a service rather than a product.
5-Copyright:
An exclusive right that protects the creators of original works of authorship such as literary, dramatic,
musical, and artistic works. Copyrighted material is denoted by the symbol ©.
 The primary weapon an entrepreneur has to protect patents, trademarks, and copyrights is the
legal system.
 Before engaging in a legal battle consider:
 Can the opponent afford to pay if you win?
 Do you expect to win enough to cover your legal costs?
 Can you afford the loss of time, money, and privacy involved?
 ‫الصورة مهمة‬
Conclusion :
 The creative process is a tenant of the entrepreneurial experience.

 Success, and even survival itself, requires entrepreneurs to tap their creativity.
 The seven steps of the creative process transform an idea into a business reality.
 Creativity results in value, and value provides a competitive advantage.
 Entrepreneurs protect their creative ideas with patents, trademarks, service marks, and
copyrights to sustain a competitive edge.

Conducting a feasibility analysis and designing a business model
Chapter : 3
3rd Edition
Hashem Abuamira

New business planning process :

1)Idea assessment 2) feasibility analysis 3) business model
4) business plan 5) strategic plan 6) launching the business
 For many entrepreneurs, the easiest part of launching a business is coming up with an
idea for a new business concept or approach .
 However, business success requires much more than just a great new idea .
 In addition to coming up with a business idea and launching a business , five critical
steps guide the process of going from idea generation to growing a successful business .
 Following these steps increases the entrepreneur’s chances for launching a successful
and sustainable business .
 Once entrepreneurs develop ideas for new business, the next step is to assess these
ideas .
 An idea assessment is the process of examining a need in the market, developing a

solution for that need, and determining the entrepreneur’s ability to successfully turn the
idea into a business .
 The best business ideas start with a group of customers with a common problem or need
.
 Entrepreneurs often identify multiple possible business ideas for any given market need .
 The idea assessment process helps an entrepreneur more efficiently and effectively
examine multiple ideas to identify the solution with the most potential .
 Examining multiple business ideas ensures that the entrepreneur does not lock in one
and overlook others that have an even greater chance for success .

 After identifying the most promising idea using the idea assessment process, the
entrepreneur subjects it to feasibility analysis to determine whether they can transform
the idea into a viable business .
 A feasibility analysis is the process of determining whether an entrepreneur’s idea is a

viable foundation for creating a successful business .
 A feasibility study answers the question: should we proceed with this business idea?
 Its role is to serve as a filter, screening out ideas that lack the potential for building a
successful business, before an entrepreneur commits the necessary resources to
develop and test a business model or to build a business plan .
 If the idea passes the feasibility analysis, the entrepreneur moves on to next step of the
new business planning process .
 If the idea fails to pass muster, the entrepreneur drops it and moves on to the next idea .
 The business model answers the question: How would we proceed with this business
idea?
 Developing a business model helps the

entrepreneur to fully understand all that will be required to launch and build the business
.
 It is the step in the planning process in which the entrepreneur tests the concept and
uses what it learned from the real customers to refine the business model before the
entrepreneur commits the resources to grow the business to its full potential .
Fisrst step : Idea assessment

 Idea assessment: The process of examining a particular need in the market, developing a
solution for that need, and determining the entrepreneur’s ability to successfully turn the
idea into a business.

 Successful entrepreneurs understand that the process of going from ideas to the launch
of a new business venture is like a funnel. How? When an entrepreneur observes a
need in the market, using the creative process generates many business ideas that might
address this need .
 Each step in the new business planning process narrows down the number of ideas until
the entrepreneur is ready to launch a business that he or she carefully researched and
tested .
 Use an idea sketch pad to ask key questions addressing:
1.Customers. 2.Offering. 3.Value proposition.
4.Core competencies. 5.People.
1)Customers:
 Start with a group of customers who have a clear need that is not being addressed.
 This may be a need that no business is currently addressing, or it may be a need that no
business is fully or adequately meeting for these customers .
2) Offering :
 Describe your idea for a product or service to offer the customers

 Are you offering a product, a service, and experience, or a combination of one or more of
these?

 What are its key features?

 Describe it in detail and sketch out an image of it if you can .
3) Value proposition:
 Why your product or service will be important to the customers

 Why would your offering be valuable to the user/buyer
 How does it address the need these customers currently have that is not being met?
4) Core competencies :
 Does your offering include any technologies or unique features that will help differentiate
it from competitors?
 Is it based on intellectual property that you can protect?
5) People:
 Identify the key people on the team who will launch this business
 Who are the founding entrepreneurs of this venture?
 Do they have the skills and knowledge needed to successfully turn the idea into a start-
up venture?
 By placing answers to these questions on the sketch pad, entrepreneurs can clearly
visualize gaps or weaknesses in their ideas .
 If the idea shows promise based on the idea sketch pad, they move ahead to the next
step of conducting a feasibility analysis.
Second step : feasibility analysis

After conducting the idea assessment, an entrepreneur scrutinizes the idea further through a
feasibility analysis (FA)
FA consists of four interrelated components :
1. An industry and market FA
2. A product or service FA

3. A financial FA
4. An entrepreneur FA
1.Industry and market feasibility analysis :
When evaluating the feasibility of a business idea, an analysis of the industry and targeted
market segment serves as the starting point for the remaining three components .
The focus in this phase is two-fold:
1) To determine how attractive an industry is overall as a home for a new business .
2) To evaluate the possible niches a small business can occupy profitably .
The first step in assessing industry attractiveness is to paint a picture of the industry in broad
strokes, assessing it from a macro level .
Assess industry attractiveness using six macro forces:
1. Sociocultural 2. Technological 3. Demographic
4. Economic 5. Political and legal 6. Global
1.Sociocultural factors
Social and cultural change can lead to dramatic changes that can create whole new industries
and fundamentally transform existing industries
Example: In the 1970s and 1980s, women began entering the workforce at much higher rates
than had been the case previously; this led to:
a.Dramatic increase in the size of the American workforce
b. Women competed for jobs that previously had been dominated by male workers
c. Daycare industry

d. Women’s business attire
e. Restaurant industry
f. Growth in auto industry
2.Technological factors
Technological breakthroughs lead to the development of new products and entirely new
industries .
Example: internet changed how people consume information. News became available online,
there was a dramatic decrease in the number of people reading print newspaper .
3.Demographic factors
4.Economic factors :
Many companies struggle during economic downturns, some businesses are able to grow .
Example: Business in the e-learning industry thrived during the great recession Web-based
learning provides customers with opportunities to improve their education and skills at an
affordable price
6.Global factors
Open global markets allow business to seek customers and suppliers from all corners of the
world .
Entrepreneurs should ask the following questions to evaluate the six foundational macro trends
to determine the attractiveness of an industry:
How large is the industry?
How fast is it growing?
Is the industry as a whole profitable?

Is the industry characterized by high profit margins or razor-thin margins?
How essential are its products or services to customers?
What trends are shaping the industry’s future?
What threats does the industry face?
What opportunities does the industry face?
How crowded is the industry?
How intense is the level of competition in the industry?
Is the industry young, mature, or somewhere in between?
Porter`s five forces model :

After evaluating the macro environment, the entrepreneur changes focus to the more
immediate competitive environment .
A useful too for analyzing a specific industry’ attractiveness within the competitive environment
is the Five Forces Model developed by Michael Porter .
The five forces interact with one another to determine the setting in which companies compete
and, hence, the attractiveness of the industry:
1. Rivalry among companies in the industry
2. Bargaining power of suppliers
3. Bargaining power of buyers
4. Threat of new entrants
5. Threat of substitute products or services

1.Rivalry among companies :
The strongest of the five forces ***
Industry is more attractive when:
 Number of competitors is large, or, at the other extreme, quite small (< 5)
 Competitors are not similar in size or capacity
 Industry is growing fast
 Opportunity to sell a differentiated product or service exists
2. Bargaining power of suppliers :
The greater the leverage of suppliers of key raw material or components, the less attractive the
industry.
 Many suppliers sell a commodity product
 Substitutes are available
 Companies find it easy to switch from one supplier to another or substitute product
(Switching costs are low)
 Items account for a small portion of the cost of finished products
3. Bargaining power of buyers :
Buyers’ influence is high when number of customers is small and cost of switching to a
competitor’s product is low.
 Customers’ switching costs to competitors’ products are high .
 Number of buyers is large .

 Customers want differentiated products rather than purchase commodity products they
can obtain from any supplier .
 Customers find it difficult to collect information on suppliers’ costs, prices, and product
features (for comparison) .
 Items companies sell to the industry account for a small portion of customers’ finished
products .
4. Threat of new entrants :
The larger the pool of potential new entrants, the less attractive an industry is.
Industry is more attractive to new entrants when:
 Advantages of economies of scale are absent .
Economies of scale exist when companies in an industry achieve low average costs by
producing huge volume of items (e.g., computer chips) .
Economies of scale is the cost advantage that arises with increased output of a product .
 Economies of scale occur whenever a firm's marginal costs of production decrease.

They can result from changes on a macroeconomic level, such as reduced borrowing
costs or new infrastructure, or from improvements on a business-specific level .
 Capital requirements to enter are low .
 Cost advantages are not related to company size .

 Buyers are not loyal to existing brands .
 Government does not restrict the entrance of new companies, through their regulatory
and international trade policies .
5. Threat of substitute :
Substitute products or services can turn an industry on its head.
For example, many makers of glass bottles have closed their doors in recent years. Why?
Another example: printed newspaper readership rate decline. Why?

Industry is more attractive to new entrants when:
 Quality substitutes are not readily available

 Prices of substitute products are not significantly lower than those of the industry’s
products
 Buyers’ switching costs are high
Five forces matrix :

 After surveying the power of these five forces exert on an industry, entrepreneurs can evaluate
the potential for their companies to generate reasonable sales and profits in particular is industry
They can answer the question:
 Is this industry a good home for my business?
 The following table provides a matrix that allow entrepreneurs to assign quantitative scores to
the five forces influencing industry attractiveness
2.pruduct or service feasibility analysis :
A product or service feasibility analysis

determines the degree to which a product or
service idea appeals to potential customers

and identifies the resources necessary to

produce it.
Two questions are addressed:
1. Are customers willing to purchase our product or service?
2. Can we provide the product or service to customers at a profit?
1.Are customers willing to purchase our product or service?
To answer this question, entrepreneurs need feedback from potential customers. Conduct:
 Primary research:
Collect data firsthand and analyze it.
 Secondary research:
Gather data that already has been compiled and analyze it.
 Primary research :
Primary research tools include:
 Customer surveys and questionnaires :

 Buy, would not buy
 Small people; use the Web
 Focus groups :
 Involves enlisting a small number of potential customers (8 to 12) to give feedback on
specific issues about your product or service.
 Listen carefully for what focus group members like and do not like about your product
or service: name packaging, ….

 Prototypes
 Is an original, function model of a new product that entrepreneurs can put into the
hands of potential customers so that they can see it, test it, and use it.
 Prototypes point out potential problems in a product design, giving inventors the
opportunity to fix them even before they put it into customer hands .
 For example, makers of computer software frequently put prototypes of new products
into customers hands as they develop new products or improve existing ones
 In-home trials .
 Involves sending researchers into customers homes to observe them as they use the
company product or service; expensive .
 “Windshield” research (driving around and observing the competition) :

 Involves driving around and observing customers interacting with similar kinds of
businesses and learning what customers like and do not like about those businesses.
 Secondary research :
secondary research tools include:
1. Trade associations and business directories.

2. Industry databases .
3. Demographic data .
4. Forecasts .
5. Articles .
6. Local data .
7. Internet.
3.Financial feasibility analysis :
A broad financial analysis that examines the basic economic feasibility is sufficient
This component of feasibility analysis answers the question:
 Can this business generate adequate profits?

The four major elements to be included:
1. Initial capital requirements : an estimate of how much start-up capital is required to

launch the business.
2. Estimated earnings (net income, profit) : Entrepreneurs should forecast the earning
potential of the proposed business .
3.Time out of cash: the total cash it will take to sustain the business until the business
achieves break-even cash flow.
4. Return on investment: This aspect combines the estimated earnings and the capital
requirements to determine the rate.
1.Initial capital requirements:
An entrepreneur needs capital to start a business .
Some businesses need large amounts of capital, but others do not .
Service business require less capital to launch than do manufacturing or retail businesses .
Start-up companies often need capital to:
 purchase equipment, buildings, technology, and other tangible assets .

 hire and train employees .
 promote their product and services .
 establish presence in the market .
2.Estimated earning:
Forecasting the earning potential of the proposed business
The amount of money that it is possible for a business to make after expenses have been paid or:
 a company’s total revenue less its operating expenses, interest paid, depreciation and taxes.
Example:
 Suppose that a product manufacturer makes $1000000 in total revenue

 The product costs $200000 to make
 Administrative and payroll expenses are $250000
 $50000 depreciation on manufacturing equipment $200000 taxes
 What is his earning?= $300000

3- Time out of cash:
 A common cause (main reason) of business failure is running out of cash before the business
breaks even and can support itself through the cash flow from operations.
Cash flow break-even point:
The point at which sales revenue equals fixed and variable costs and cash flow is neither positive nor
negative.
 The entrepreneur should estimate the total cash it will take to sustain the business until it
achieves break-even cash flow .
4- Return on investment:
Combining the estimated earnings and the capital requirements to determine the rate of return the
venture is expected to produce :
 Return on investment: The benefit (profitability measure) to an investor resulting from an

investment of some resource .
 One simple measure is the rate of return on the capital invested, which is calculated by: Dividing
estimated earnings the business yields by the amount of capital invested in the business.
 Return on investment = Net income / Investment Where: Net income = gross profit − expenses
Gross.
 profit=company’s total revenue (total sale) – costs of goods sold.
or
 Return on investment = (gain from investment – cost of investment) / cost of investment
or
 Return on investment = (revenue − cost of goods sold) / cost of goods sold
4.entrepreneur feasibility :
Is this idea right for me?

Assess entrepreneurial readiness: knowledge, experience, and skills necessary for

entrepreneurs to be successful.
Entrepreneurs can gain the knowledge and skills they need from:
 Previous jobs, formal education, interests and hobbies .
Another way to ensure the necessary knowledge and skills are in place is through:
 building a team
**Performing an entrepreneurial self-assessment can help evaluate entrepreneurial readiness.
Assess whether the business will be able to generate enough profit to support everyone’s
income needs.
Third step : developing & testing a business model

The business model answers the question:
How would we proceed with this business idea?
Developing a business model helps the entrepreneur to fully understand all that will be required
to launch and build the business .
It is the step in the planning process in which the entrepreneur tests the concept and uses what
it learned from the real customers to refine the business model before the entrepreneur
commits the resources to grow the business to its full potential .
When building a business model, the entrepreneur addresses a series of key questions:
1. What value does the business offer customers?
2. Who is my target market?
3. What do they expect of me as my customers?
4. How do I get information to them, and how do they want to get the product?
5. What are the key activities to make all this come together, and what will they cost?
6. What resources do I need to make this happen, including money?
7. Who are the key partners I will need to attract to be successful ?

Phase 1 : Business Model Canvas The canvas consists of nine elements :
1-Customer segments 2-Value proposition
3-Customer relationships 4-Channels
5-Key activities 6-Key resources
7-Key partners 8-Revenue stream
9-Cost structure
1-Customer segments
 A good business model always starts with the customer .

 The entrepreneur’s first step is to identify a segment of customers who have a clearly
defined need .
 Narrowing the target market enables a small company to focus its limited resources on
serving the needs of a specific group of customers rather than attempting to satisfy the
desires of the mass market .
 Creating a successful business depends on an entrepreneur’s ability to attract real

customers who are willing and able to spend real money to buy its products or
services .
 A big mistake is: everything to everybody .
 Small companies usually are much more successful focusing on a specific market
niche or niches where they can excel at meeting customers’ special needs or wants .
 Who is it specifically?
It may be a market niche, mass market, segmented market based on age, gender, geography
2-Value proposition
 The value proposition is the collection of products and/or services the business will offer
to meet the needs of the customers .
 It is all the things that will set the business apart from its competitors, such as pricing,
quality, features, product availability .
 Most value propositions for new businesses come from fundamental macro trends
within the economy, demographics, technology, or sociocultural as discussed earlier .
 Listen to customers.

3-Customer relationships
 Not every business provides the same type of customer service .

 For example, several business models provide meals to customers .
 The vending business offers quick, convenient, and impersonal service .
 At the other extreme, fine dining restaurant works closely and personally with customers
to ensure they get exactly what they want.
4-Channels
 Refer to both communication channels (promotion) and distribution channels (product

placement) .
 Communication channels define how the customers seek out information about this type
of product: Web sites, social networks, blogs, advertisements .
 Distribution channels define the most effective way to get products to the customers
for this type of business:
 Through web sites such as Amazon (ordering online from the comfort of their living room)
 Others may want to see the product, touch it
5-Key activities
To build a basic checklist of what need to be done to open the business and what activities are
necessary to ensure its long-term success.
6-Key resources
What are the human, capital, and intellectual resources needed for the business to be
successful?
Checklist
7-Key partners
 Include suppliers, key outsourcing partners, investors, industry partners, advisers, and
all other external businesses or entities that are critical to make the business model work
 Entrepreneurs cannot expect to become successful all by themselves

8-Revenue stream
The entrepreneur must determine how the value proposition will generate revenue .
9-Cost Structure
The entrepreneur must identify the fixed and variable costs necessary to make the business
model work.
Phase 2 : Test the value proposition
The second phase is to test the problem that the entrepreneur thinks is being solved by the
business through its core value proposition using primary research data .
Ask customers:
 Do we really understand the customer problem the business model is trying to address?
 Do these customers care enough about this problem to spend their hard-earned money
on our product?
 Do these customers care enough about our product to help us by telling others through
word-of-mouth?
Phase 3 : Business prototyping
 The third phase is to test your solution to the problem in

the market .
 One technique involves business prototyping, in which
entrepreneurs test their business models on a small scale
before committing serious resources to launch a business
that might not work .
 Entrepreneurs test their business models on a small scale
before committing serious resources to launch a business
that might not work.
 Recognizes that a business idea is a hypothesis that
needs to be tested before taking it full scale.
 Test early versions of a product or service using a lean
start-up: a process of rapidly developing simple
prototypes to test key assumptions by engaging real
customers .

 Begin the lean start-up process using a minimal viable

product: the simplest version of a product or service with
which an entrepreneur can create a sustainable business.
Phase 4 : Pivots
Pivots: the process of making changes and adjustments in the business model on the
basis of the feedback a company receives from customers.
1. Product pivot: changes to the product to enable it to better meet the needs and wants of
the customer .
2. Customer pivot: changes in the target customer description .
3. Revenue model pivot:changes in the way the firm generates revenue .

Crafting a business plan and building a solid strategic plan
Chapter : 4
3rd Edition
Hashem Abuamira

Forth step : The business plan
The road map :
 It is a planning tool that builds on the foundation of the idea assessment, feasibility
analysis, and business model .
 It provides a more comprehensive and detailed analysis than the first three steps in the
new business planning process .
 It describes in greater detail how to turn the model into a successful business .
 The primary goals of a business plan are:
1. To guide entrepreneurs as they launch their businesses .
2. To help them acquiring the necessary financing to launch .
Benefits of creating a business plan :
 A written summary of :
✓An entrepreneur’s proposed business venture .
✓The operational and financial details .
✓The marketing opportunities and strategy .
✓The managers’ skills and abilities .
 The business plan serves as an entrepreneur’s road map on the journey toward building
a successful business .
 It describes which direction the company is taking, what its goals are, where it wants to
be, and how it intends to get there .
 A business plan is the best insurance against launching a business destined to fail or
mismanaging a potentially successful company.

Essential functions of a business plan :
A business plan serves two essential functions:
1.Guiding the company by charting its future course and defining its strategy for following it.
 It provides a battery of tools:

 A mission statement Goals, objectives, budgets, financial forecasts Target markets, and
entry strategies
2. Attracting lenders and investors who will provide needed capital.
 A business plan must prove to potential lenders and investors that a venture will be able
to repay loans and produce an attractive rate of return.
 To get external financing, the plan must pass three test with potential lenders and
investors :
1. The Reality Test: proving that:
 A market really does exist for your product or service.
You can actually build or provide it for the cost estimates in the plan.
2. The Competitive Test: evaluates:
 A company’s position relative to its competitors.
Management’s ability to create a company that will gain an edge over its rivals.
3. The Value Test: proving that:
 A venture offers investors or lenders an attractive rate of return or a high probability of

repayment.

1.The Reality Test
There two components of the reality test:
A. External component
B. Internal component
 The external component involves providing that a market for the product or service
really does exist. It focuses on industry attractiveness , market niches, potential
customers, market size, degree of competition
 The internal component of the reality test focuses on the product or service itself: it
is truly different from what competitors are already selling? Does it offer customers
something of value?
2.The Competitive Test
 It has two components: external and internal ➢The external component evaluates the
company’s relative position to its key competitors
✓How do the company’s strengths and weaknesses match up with those of the competition .
✓Do these reactions threaten the new company’s success and survival .
✓A value proposition that is properly constructed answers the following questions:
 Who is our target market?

 What current options exist for this market?
 What do/will we offer the target market
 What is the key problem it solves?
 Why is it better than other options the target market has to choose from?
 The internal component focuses on management’s ability to create a company that will
gain an edge over existing rivals. The plan must prove the quality, skill, an experience of
the venture’s management team .

3.The Value Test
▪ To convince the lenders and investors to put their money into the venture, a business plan
must prove to them that it offers a high probability of repayment or an attractive rate of return .
Why take a time to build a business plan ??
 Although building a plan does not guarantee success, it does increase your chances of
succeeding in business.
 A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh,
and dangerous territory. Don’t attempt the trip without a map!
Key elements of a business plan :

1.Title Page and Table of Contents
 A business plan should contain a title page with the company’s name, logo, and address
as well as the names and contact information of the company founders .
 The date on which the plan was issued can be included on the title page .
 Business plan readers appreciate a table of contents that includes page numbers so that
they can locate the particular sections of the plan in which they are interested.
2.Executive Summary
 to summarize the presentation to each potential financial institution or investors, the

entrepreneur should write an executive summary .
 The executive summary should be concise-a maximum of one page
 It should summarize all of the relevant points of the proposed deal .
 After reading the executive summary, anyone should be able to understand the entire
business concept, the attributes that differentiate the company from competition, and
the financing that is being required .
 executive summary is a written version of “the elevator pitch”: imagine yourself on an
elevator with a potential lender or investor .

A good elevator pitch provides:
1. Context: what does your company do in easy-to-understand words?

2. Benefit: what benefit or advantage does your company offer customers?
3. Target customers
4. Point of differentiation: how is your company different from other companies that provide
similar products, services, or solutions?
5. Clincher: can you leave the listener or reader with a memorable, bottom-line sound bite
about your company?
Note: The executive summary should be the last
3.Mission and Vision Statement
 A mission statement expresses an entrepreneur’s vision for what his or her company is
and what it is to become .
 It is the broadest expression of a company’s purpose and defines the direction in which it
will move .
 Every good plan captures an entrepreneur’s passion and vision for the business, and the
mission statement is the ideal place to express them .
 It should clearly state the product or service sells, its target market, and the basic nature
of the business (manufacturing, consulting, service) .
 Mission statement should be limited to no more 25 words .
4.Product or Service Description
 Describe the benefits customers get from the product or service .

 A feature is a descriptive fact about a product or service (e.g. ergonomically designed,
more comfortable handle).
 A benefit is what the customer gains from the product or service feature (e.g. lower
energy bills, faster access to the internet).
5.Business and Industry Profile
 The entrepreneur should inform lenders and investors about the industry in which a
company competes
 This section should provide readers with an overview of the industry or market segment
in which the new venture will operate
 Industry data such as key trends, market size and its growth or decline.

6.Competitor Analysis
 Who are the company’s key competitors?

 What are there strengths and weaknesses?
 What are their strategies?
 How successful are they?
 What distinguishes the entrepreneur’s product or service from others already in the
market, and how will these differences produce a competitive edge?
Note: firsthand competitor research is particularly valuable.
7.Marketing Strategy
 Providing that a profitable market exists involves two steps:
1. Show customer interest Proves that target customers actually need or want the
product or service.
2. Document market claims Supports market size and growth rates with facts.
Note: both steps should have been part of the business modeling process and should be part of
the business plan .
It should address:
 Target market
 Advertising and promotion
 Market size and trends
 Location
 Pricing
 Distribution
8.Plan of Operation
 To complete the description of the business, an entrepreneur should construct an

organization chart identifying the business’s key positions and the people who occupy
them .
 Describes how the business operates, including space requirements, inventory
management, staffing plans, and accounting processes and policies
 Description of ownership

9.Pro Forma (projected) Financial Statement
 An outline of the proposed company’s financial statements of the proposes venture .

 Preparation of projected financial statements for the operation for the next year using
operating data (if available), published statistics, and research .
10.The Loan or Investment Proposal
 It should state the purpose of the financing, the amount requested, and the plans for
repayment, or, in case of investors, an attractive exit strategy (such as the option to cash
out through an acquisition or a public offering).
 All sources of funding for the business from all intended sources including money the
entrepreneur is investing into the business schedule.
 The repayment or exit strategy .
 realistic timetable for implementing the proposed plan .
 An assessment of the risks facing the new venture, and to describe the plans to avoid
them.
11. Entrepreneurs’ and Managers’ Resumes
Tips for a good business plan :
 First impressions count! Use an attractive cover.

 Checks for errors.
 Make it visually appealing.
 Include a table of contents with page numbers.
 Make it interesting!
 Show that it will make money.
 Use spreadsheets for realistic financial forecasts.
 Include cash flow projections.
 Keep the plan “crisp,” long enough to say what it should
 Tell the truth.

What lenders and investors look for in a business plan :
 The “5 Cs” of Credit :
1. Capital
2. Capacity
3. Collateral
4. Character
5. Conditions
1.Capital
✓A small business must have a stable capital base before any lender will grant a loan .
✓The most common reasons banks give for rejecting small business loan applications are
undercapitalization (insufficient funding or capital) or too much debt .
✓Investors want to make sure entrepreneurs have invested enough of their money into the
business to survive the start-up period .
2. Capacity (cash flow)
✓Lenders and investors must be convinced of a company’s ability to meet its regular financial
obligations and to repay the bank loan, and that takes cash .
3. Collateral
✓Include any assets an entrepreneur pledges to a lender as a security for repayment of the
loan.
4. Character
✓Lenders and investors must be satisfied with the entrepreneur character .
✓An evaluation of character frequently based on intangible factors such as honesty,

competence, polish, determination, knowledge, experience, and ability.

5. Conditions
✓The conditions surrounding a loan request affect the owner’s chance of receiving funds.
✓Factors such as potential growth in the market, competition, location, form of ownership, and
loan purpose
The pitch : presenting the paln
 The time allotted for presenting is usually less than 20 minutes, so it’s important to rehearse and
be prepared.
 A basic presentation should cover:
1. Your company and its products and services.

2. The problem to be solved.
3. A description of your solution to the problem.
4. Your company’s business model.
5. Your company’s competitive edge.
Tips for making the pitch :
 Prepare
 Practice your delivery and then practice
some more.
 Demonstrate enthusiasm about the business
but don’t be overly emotional.
 Focus on communicating the dynamic
opportunity your idea offers and how you plan
to capitalize on it.
 Hook investors quickly with an up-front
explanation of the new venture, its
opportunities, and the anticipated benefits to
them.
 Use visual aids.
 Follow the 10/20/30 rule for PowerPoint
presentations.

 Explain how your company’s products or

services solve some problems and emphasize
the factors that make your company unique.
 Offer proof.
 Hit the highlights.
 Keep the presentation “crisp.”
 Avoid the use of technical terms that will be
above most of the audience.
 Remember to tell lenders and investors how
they will benefit.
 Be prepared for questions.
 Anticipate questions and prepare for them in
advance.
 Focus your answers on what’s important to
lenders and investors.
 Follow up with every lender and investor to
whom you make a presentation

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Inside the entrepreneurial mind : From ideas to reality

Entrepreneurship & Innovation

Creativity & Innovation :

Hashem Abuamira Page 0

Creativity & Innovation :

**Innovation is evolutionary , developing market-sustaining ideas that elaborate on exiting

 Some create innovations reactively in response to customer feedback or changing

Entrepreneurship: the result of a disciplined, systematic process of applying creativity and

Successful entrepreneurship is a constant process that relies on creativity, innovation, and

Failure : part of the creative process :

Most ideas don’t work and most innovations fail

For every 5,000 to 10,000 new drug discoveries:

250 get to preclinical trials

Hashem Abuamira Page 1

5 make it to clinical trials

1 or 2 are reviewed by the FDA

Only 1 gets to market.

Failure is part of the creative process.

Entrepreneurship requires business owners to be :

 Bold enough to try their new ideas.

Creativity essential to survival :

Creativity is an important source of building a competitive advantage, which is:

Can we learn to be creative? Yes!

By overcoming paradigms and by suspending conventional thinking long enough to consider

Hashem Abuamira Page 2

 Creative thinking, or lateral thinking, is a thought process that involves looking at a

 The left brain handles language, logic, and symbols

 Left-brain vertical thinking is narrowly focused and systematic, proceeding in a highly

Right-brained , creative thinkers :

1. Always ask: “Is there a better way?”

5. Realize that there may be more than one “right” answer.

Hashem Abuamira Page 3

7. Recognize that problems are springboards for new ideas.

11. Relate seemingly unrelated ideas to a problem.

Left brained or right brained :

 Entrepreneurship requires both left-and right-brained thinking.

1) Searching for the one “right” answer

2) Focusing on “being logical”

3) Blindly following the rules

4) Constantly being practical

5) Viewing play as frivolous.

 A playful attitude is fundamental to creative thinking

Hashem Abuamira Page 4

8) Fearing looking foolish

 Creative thinking is no place for conformity.

9) Fearing mistakes and failure

10) Believing that “I’m not creative”

Hashem Abuamira Page 5

Spurring the imagination :

Questions to Spur the Imagination include:

 Is there a new way to do it?

Enhancing organizational creativity :

Hashem Abuamira Page 6

Hire for creativity :

Factor : Percentage of inc. :

Retaining great talent 77%

Recruiting great 72%

Enhancing individual creativity :

1. Allow yourself to be creative.

Hashem Abuamira Page 7

The creative process :

The creative process involves seven steps:

1-preparation . 2-investigation . 3-transformation .