ED UNIT II - Part - II

MODULE II
• Sources of Innovative Ideas:

• Methods of generating ideas,
• opportunity identification,
• setting-up new ventures,
• acquiring existing business,
• franchising,
• business model,
• components of business
IDEA GENERATION
• The process of constructing through the idea,

innovating the concept, developing the
process, and bringing the concept to reality.
SOURCES OF IDEA GENERATION
Internal Sources
R & D (Research and Development)
Employees
External Sources
Customers
Distributors and Suppliers
Competitors
Others (Online Communities, Trade Magazines, Shows
and Seminars, Government agencies, Advertising
agencies),
INTERNAL SOURCE OF IDEA GENERATION
Research and Development
Employees
External Sources
Customers
Distributors
Competitors
Others
• Online Communities
• Trade Magazines
• Shows and Seminars
• Government agencies
• Advertising agencies
Methods of Idea Generation
• Focus groups
• Brainstorming
• Problem inventory analysis
• Creative Problem Solving
• Reverse brainstorming
• synetics
• Gordon Method
• Check list method
• Free Association Method
• Forced Relationship
• Collective Note Book Method
• Scientific Method
• Value Analysis
• Focus groups: Group of individuals providing
information in a structured format
Brainstorming :
Think about the topic. Then write, write,.
What ever comes into your brain-even if it
doesn’t have to do with the topic.
Problem inventory analysis :
• Consumers are provided with a list of
problems in a general product category.
They are then asked to identify and discuss
products in this category that have the
particular problem.
• This method is often effective since it is
easier to relate known products to suggested
problems and arrive at a new product idea
then to generate an entirely new idea by
itself.
Creative Problem Solving:
Creative problem solving is a method for
obtaining new ideas focusing on the
parameters.
Reverse brainstorming:
• Similar to brainstorming, but criticism is

allowed and encouraged as a way to
bring out possible problems with the
ideas.
Synectics:
Synectics is a creative process that forces
individuals to solve problems through
one of four analogy mechanisms:
personal, direct, symbolic and fantasy.
This forces participants to consciously
apply preconscious mechanisms
through the use of analogies in order to
solve problems.
Gordon Method:
Gordon method is a method of

developing new ideas when the
individuals are unaware of the problem.
In this method the entrepreneur starts by
mentioning a general concept associated
with the problem. The group responds
with expressing a number of ideas
Checklist method :
Developing a new idea through a list of

related issues is checklist method of
problem solving.
Free association method:
Developing a new idea through a chain of

word association is free association
method of problem.
Forced relationship:
Forced relationship is the process of

forcing relationship among some product
combination. It is technique that asks
questions about objects or ideas in an
effort to develop a new idea.
Collective notebook method
It is method in which ideas are generated

by group members regularly recording
ideas.
Scientific method:
This is a more structured method of

problem solving, including principles and
rules for concept formation, making
observations and experiments, and finally
validating the hypothesis.
Value analysis
Value analysis is developing a new idea by

evaluating the worth of aspects of ideas.
Attribute listing
This is an idea finding technique that

requires the entrepreneur to list the
attributes of an item or problem and then
look at each from a variety of viewpoints.
Matrix charting
Matrix charting is a systematic method of

searching for new opportunities by listing
important elements for the product area
along two axis of chart and then asking
questions regarding each of these
elements.
Big dream approach
Developing a new idea by thinking about

constraints is big-dream approach of
problem solving.
OPPORTUNITY IDENTIFICATION
It identifies entrepreneur's personality traits,

social networks, and prior knowledge as
antecedents of entrepreneurial alertness to
business opportunities. Entrepreneurial
alertness, in its turn, is a necessary condition
for the success of the opportunity
identification triad: recognition, development,
and evaluation.
OPPORTUNITY IDENTIFICATION
Just as the success of marriage depends on the compatibility, or say
suitability of the partners husband and wife in the same way, the success of
business enterprise also depends on the suitability of entrepreneur and
enterprise. The dynamics of suitability and/or non-suitability between the
entrepreneur and enterprise can be better explained and understood by
the following Table
Dynamics of Combinations The Result
Both entrepreneur and enterprise are good Successful
Entrepreneur is not good but enterprise selected is good Failure
Both entrepreneur and enterprise are not good or say suitable Failure
(Immediate)
Entrepreneur is good but enterprise selection is not good Failure
BUSINESS OPPORTUNITIES IN VARIOUS SECTORS:
While thinking about business opportunities, I am reminded of the
statement of Douglas Mac Arthur given as opening quotation “There is no
security on this earth – only opportunity”.
Regarding the availability of business opportunities, the views of Thomas J.

Watson also seem quite worth citing: “Opportunity never knocks on the
door. You have to knock on opportunities available everywhere in and
around us”.
The various business opportunities for example, discussed in next slides :

Tourism :
• Tourism has emerged as number one largest
smokeless and fast growing industry in the
world due to its ample promises and
prospects.
• For example tourism industry contributes to
more than 70% of the national income of
some of the countries like Malaysia and
Singapore.
Automobile:
• India’s strong sales of Automobiles have made
her the second fastest growing automobile
market after China in the world and India
emerges as a hot spot for automobiles and
auto-components.
• there are still many segments untapped and
unserved those, entrepreneurs can focus on in
India’s automobile and auto components
sector in future.
Textiles:
• India is famous for its textiles since long time.
the style of apparel is unique from region to
state, thus, offering a diversified market for
apparel/textile products in the country.
• In view of this, India holds good potential to
grow as a preferred location for
manufacturing textiles taking into account the
huge demand for garments.
Social ventures:
• Like many other developmental activities,
entrepreneurship development is also context-
specific. The recent social issues providing a
different entrepreneurial called ‘social
entrepreneurship’.
• There is myriad of social issues or problems in
the countryside in India, thus, offering
opportunity to young entrepreneurs to plunge
into this sector.
Software:
• India is known for its largest pool of world class
software engineer’s world over. Indian
entrepreneurs can set higher targets in
hardware pool of software development.
• With more overseas companies outsourcing
contracts to India, business to business
solutions and services emerge as potential
activities for the knowledge-based
entrepreneurs in future.
Engineering Goods:
• India continues to be one of the fastest
growing exporters of engineering goods,
growing a rate of 30.1 percent.
• Entrepreneurs must capitalize on the booming
demand for products from the engineering
industry.
Franchising:
• As a boon of New Economic Policy 1991 of the
Government of India, India is now well connected
with the world economies. Hence, franchising with
leading brands to spread across the country could
also offer ample opportunities for young
entrepreneurs especially in services sector like
education and health.
• With many small towns developing at a fast pace in
India, there is vast scope for spreading franchising
business in the countryside in future.
Education and Training:
• As a boon of New Economic Policy 1991 of the
Government of India, India is now well connected with
the world economies. Hence, franchising with leading
brands to spread across the country could also offer
ample opportunities for young entrepreneurs
especially in services sector like education and health.
• Need-based educational programmes with innovative
teaching methods can help in a big way make
education develop and flourish as an industry in the
country.
Food Processing:
• India’s mainstay is agriculture. Entrepreneurs
can explore many options in the food grain
cultivation and marketing segments.
• broadly, food processing industries include
cannery, meat packing plant, slaughterhouse,
sugar industry, vegetable packing plants, and
industrial rendering etc.
Corporate Demands:
• There will be a good demand for formal attire
with more companies opening their offices in
India. People who can meet this demand in a
cost-effective way can make a good business.
With corporate gifting getting very popular,
this is also a unique business to explore in
growing urban culture in India.
Ayurveda and Traditional Medicine:
• India is well known for its herbal and
Aryurvedic products. With increasing
awareness about the ill effects of allopathic
medicines, there will be a huge demand for
cosmetics, natural medicines and remedies in
coming time.
Organic Farming:
• Organic farming has been in practice in India for
long time. That the importance of organic
farming will assume increasing importance in
the country is evident by the fact that increasing
number of consumers especially foreigners have
been preferring to only organic products.
Therefore, the prospective entrepreneurs can
focus on business opportunities in this
promising sector of the country.
Media:
• With the huge growth of this segment, any
business in this field will help entrepreneurs
reap huge benefits.
• Television, advertising, print and digital media
have seen a boom in business in the recent
times and is likely to grow more in coming
times.
Packaging:
• There is a huge demand from various sectors
like agriculture, automotive, consumer goods,
healthcare, and infrastructure and packaging
sectors for plastics.
• With China invading the markets with cheap
plastic goods and packaging materials, there is
a good opportunity to develop good packaging
material to meet domestic and foreign
demand.
Floriculture:
• India’s floriculture segment is small and
unorganized. There is a lot to be done in this
lucrative sector. The global trade in
floriculture products is worth $9.4 billion. This
is a huge market to be tapped considering the
rising demand for fresh flowers. More
awareness and letter farming and
infrastructure can boost exports of flowers in
coming times
Healthcare sector:
• India’s healthcare sector dismal till the other
day has now good prospects to develop in
future. The private sector, that is, individual
entrepreneurs can play a vital role in
developing this sector.
• With medical tourism also gaining momentum,
the sector can attract foreigners who are
looking for cost effective treatment in
countries like India.
Biotechnology:
• After the software sector, biotechnology opens
a huge potential for entrepreneurs in India.
Global evidences confirm that agriculture
biotechnology has a major impact on
agricultural productivity.
• It is expected that with increase in investment
in research and development in India, agro-bio
technology will further develop and in turn,
Indian agriculture will develop.
Energy Solutions:
• In a power starved nations like ours, the need to develop
cost-effective and power-saving devices is gaining ever
increasing significance. There is huge demand for low-
cost sustainable energy saving devices as well. Prime
ministers Manmohan Singh & Modi had urged the
industry to see the huge business opportunity and set up
‘Solar Valleys’ on the lines of the Silicon Valleys. These
solar valleys can become hubs for solar science, solar
engineering and solar research, fabrication and
manufacturing. So there is a big opportunity for
entrepreneurs in this sector as well in our country.
Recycling Business:
• E-waste will rise to alarming proportions in the
developing world within a decade, with
computer waste in India alone to grow by 500
percent from 2007 levels by 2020, according
to a UN study. Therefore, this sector also
opens new vistas of viable business
opportunity for entrepreneurs in terms of e-
waste management and disposal activities in
large size.
STARTING BUSINESS
Once Identifying the Opportunity, there are two

ways to start the Business.
I. STARTING A NEW VENTURE
II. AQUIRING THE EXISTING BUSINESS
I. SETTING UP NEW VENTURE:
The major steps involved in the process of

setting up a new business enterprise:
• Identification of business opportunity

• Generation of business idea
• Feasibility study
• Preparation of business plan
• Launching the enterprise
A. Identification of Business Opportunity
• An entrepreneur should be able to identify business ideas
which can be converted to profitable business ventures.
While choosing an idea to work with, an entrepreneur has
to be very careful about the line of business
(manufacturing, trading or service) as any mistake made
in taking such a decision may prove to be very costly.
• The entrepreneur should also ensure that there is an
adequate market for the product or service that he wants
to offer in the market and that the rate of return on the
investment is sufficient.
B. GENERATION OF BUSINESS IDEA
The idea should be able to yield a reasonable return
on investment . While selecting the business idea, the
following points need to be considered.
• There must be sufficient demand for the proposed
product or service.
• The idea should require such capital, technical know-
how, raw material and other inputs which the
entrepreneur can arrange for.
• The idea must ensure a reasonable return on
investment.
• A business idea may be discovered from the
following sources.
– Observing Markets
– Prospective Consumers
– Study of Project Profiles
– Developments in Other Nations
– Trade Fairs and Exhibitions
1. Observing Markets:
• The promoter should study the market to find out the demand
and supply position for various products. He should then
estimate the future demand after taking into account the
anticipated changes in income levels, fashions etc.The
entrepreneur should also ensure that there is an adequate
market for the product or service that he wants to offer in the
market and that the rate of return on the investment is
sufficient.
• market surveys can also reveal competition and price trends.
From the data collected through market surveys, the promoter
should try to identify those products and industries where
demand exists and supply needs to be increased.
2. Prospective Consumers:
• Contacts with prospective consumers can give

an idea of the features that should be built
into the product/service. It is also important
to collect data on customer needs and
preferences before choosing the product to be
manufactured. A market test of the prototype
product can be conducted before launching
the product in the market.
3. Study of Project Profiles:
• Various publications of public and government

agencies on various projects and industries is
an important source of business ideas. Such
project profiles describe in detail the
prevailing market situation and the technical
and financial requirements of different
projects. A careful analysis of such details can
bring out the most promising projects which
can then be taken up for further evaluation.
4. Developments in Other Nations
• An entrepreneur can discover good business

ideas by keeping good knowledge about
developments in advanced nations of the
world.
• An entrepreneur can also visit foreign markets
to explore the possibility of a foreign
collaboration and to discover other types of
business ideas.
5. Trade Fairs and Exhibitions:
• A visit to national and international trade fairs

and exhibitions can provide information about
various products. It is also a good place to
explore possibilities of collaboration and
dealership and gives a fair idea of the existing
competition in the market.
C. Feasibility Study
Feasibility study is a detailed study done by an
entrepreneur to ensure that the project is
viable. The feasibility study should contain an
analysis of the following.
– Technical Aspect
– Commercial Aspect
– Financial Aspect
– Socio-economic Aspect
1. Technical Aspect
• The technical feasibility of a project involves a critical
study of the factors such as location, size of the plant,
raw materials and labour, machinery and equipment,
infrastructure etc.
• Here the entrepreneur should ensure that the location of
plant and the site selected is such that it permits cost-
effective operations of business.
• An entrepreneur must also examine whether the
required raw material, machinery and equipment and
infrastructure is available for carrying out the operations.
2. Commercial Aspect
• Technical feasibility of a project has no meaning if

the project is not commercially viable. Commercial
viability of a project requires a study of the present
and potential demand for firm’s product in national
and international markets.
• It also requires an analysis of margin of profit,
degree of competition, market stability etc.
Sometimes the services of an expert may be
required to find out the commercial viability of the
project.
3. Financial Aspect
• Financial viability of the project can be

judged on factors like total estimated cost of
the project, projected cash flow and
profitability, financing of the project with
reference to the capital structure, promoter’s
contribution to the total project cost etc.
4. Socio-economic Aspect
 A social cost-benefit analysis should be made

to judge the national viability of the project.
Every project entails some costs to the nation
and produces certain benefits.
 The contribution of the project to social
objectives such as employment generation,
development of infrastructure, development
of backward areas, earning foreign exchange,
import substitution etc. is evaluated.
D. Preparation of Business Plan
Business plan is often an integration of

functional plans such as marketing, finance,
production, personnel etc.
Contents of a Proposed Business Plan
• General Introduction:
Name and address of business and entrepreneurs, nature
of business
• Description of Venture:
Products and services to be offered, scale of business
operations, type of technology to be used
• Organizational Plan :
Form of ownership (sole proprietorship, partnership or
joint stock company), identification of business partners, roles
and responsibilities of members of the organization
Contents of a Proposed Business Plan
• Production Plan:
details of manufacturing process, type of plant and
machinery, raw material to be used
• Marketing Plan:
products and services offered, pricing policies,
distribution channels, promotional strategies
• Financial Plan:
fixed and working capital requirements, sources of capital,
cash flow projections, break even analysis
• Appendix:
market research report, price lists from suppliers, contingency
plans
E. LAUNCHING THE ENTERPRISE
After preparing the business plan, the entrepreneur

assembles the necessary resources to launch the enterprise.
He collects the required funds and acquires land and
buildings, plant and machinery, furniture and fixtures, raw
materials, employees etc. Once this is achieved, it is necessary
to ensure that the project is implemented properly and it has
smooth and uninterrupted operation.
II. ACQUIRING EXISTING BUSINESS
• Buying up an existing business seems to

be an easy way of getting into business
on your own. But before taking the
plunge, the benefits and possible
disadvantages of buying should be
examined.
ADVANTAGES
• Buying an existing business will avoid a lot of
problems involved in opening a new business.
• Ready licenses and government approvals .
• Issues of land acquiring and location can avoid as An
existing business is likely to bundle the purchase with
the land it operates from.
• The plant and machinery have already been bought
and have been installed and tested.
• Employees are experienced.
• A supplier base has already been established.
ADVANTAGES
• There is readymade market , distributor network and

customer base established
• Good will and reputation built up over the years by
the existing business would not change to a large
extent with the change in ownership.
• Cash flow is going to start immediately.
• Banks may be more willing to lend to a business with
running operations,
• It might be cheaper than setting up new operations.
DISADVANTAGES
• The industry as a whole might not be doing well and
the situation might not improve in the near future.
• The owner may possibly be dishonest about the
business. The fact that the business is not doing well
might be hidden by false statements by the owner,
employees etc.
• The equipment is old and outdated.
• The location may be bad or likely to become bad.
• Employees may be unproductive or incapable of
meeting the standards required of them.
DISADVANTAGES
• Any bad reputation that the business had acquired
amongst suppliers, distributors and other people in
the industry is likely to pass on to you.
• The previous owner may have got into some
unfavorable long-term contractual obligations, which
threaten the viability of the business.
• The inventory lying in stores could be obsolete or
unfit for use.
• If the company’s products have not been received by
the market, it will be to gain market share for these
products as compared to a new product.
SEARCH & IDENTIFYING
• It is not easy to come across a business owner will to
sell his business. Business owners do not go around
telling everyone that they want to sell off their
business. Doing so may cause apprehension or even
panic amongst their employees, suppliers etc. it is
difficult to come across news of a business for sale.
• Some to the sources that can be tapped are
discussed in subsequent slides
SOURCE OF INFO OF SELLING EXISTING BUSINESS
• The industry
• Accountants and Lawyers
• Bankers
• Advertisements
• Others: information pertaining to the potential sale
of a business can originate in the most unlikely places
ranging from the local paanwalla to idle gossip during
your wife’s kitty party. It pays to keep ears and eyes
open to catch useful scraps of information.
THE PROCESS OF BUYING
• Once a potential target for purchase has been
identified, the next logical step is to thoroughly
investigate the business. A steps involved in the
process to investigating a business is as
follows.
A. Preliminary Information Collection
B. Site Visit
C. Assessment
D. Additional Information Collection
E. Negotiation
F. Transition
A.PRELIMINARY INFORMATION COLLECTION
Talk of the business owner to find out more about
the business. Usually, people offload a business in
case it is losing money, but there may be a variety of
other reasons prompting the business owner to sell.
He \she may have simply lost interest in the business.
There may be some other reasons such as the old
age of the owner and his/her willingness to retire, his
propensity to explore a new opportunity and so on.
B. SITE VISIT
Visiting the business to get a feel for the
business you are planning on buying. It is a
good practice to visit repeatedly mixing in both
announced and unannounced visits. In case it is
a business open to the public such as a shop or
a restaurant you can walk in anytime convenient
to you. A visit yields first hand information
regarding processes, employees and even
customers.
C. ASSESSMENT
It is the stage to ask the business owner to
hand over documents to help you assess the
business. Audited financial documents for past
years, sales data, purchase records for capital
equipment and raw material, employee records,
bank statements, etc can be of help in your
assessment. Not all documents are taken at
once. Usually, after the first lot of documents is
scrutinized, some questions remain unanswered
or further questions are raised.
D. ADDITIONAL INFORMATION COLLECTION
It is useful to cross-check the information on

the company documents with some significant
other sources. This can be done by
interviewing customers, employees,
competitors etc. this may also need accessing
other documents from government files,
public records etc. It is used to talk to industry
exports to get a view of the overall scenario in
the industry.
E. NEGOTIATION
The negotiation is not about agreeing on a

price. There are a lot of factors which will
be discussed and negotiated upon. One
important thing to remember is that
anytime during the deal, each party is free
to walk away from it. There is no
compulsion to come to an agreement and
finalize the deal.
F. TRANSITION
The process does not come to an end with a change in

ownership. What follows is a very critical transition
period. During this time, it is important to get the
support of key people. It could be in the form of
passionate involvement of key senior employees or a
statement from a major customer expressing the
confidence in the new owner’s abilities. At this stage,
it is invaluable to get some guidance from the former
owner. It will help a lot to handle apprehension of the
employees and business associates alike.
SCRUTINY 1
• At the least, the financial statements of the past few
years have to be scrutinized
• Document pertaining to the formation of company
have to be analyzed(Memorandum of Association)
• To assess the value of the capital equipment, the
purchase bills and variety details have to be seen
along with the factory log books
• Some of the inventory may be old, obsolete or
unusable. Purchase details and inventory records will
give a picture of actual cost of raw material, cost of
storage, wastage, etc
SCRUTINY -2
• At the least, the financial statements of the past few
years have to be scrutinized
• Document pertaining to the formation of company
have to be analyzed(Memorandum of Association)
• To assess the value of the capital equipment, the
purchase bills and variety details have to be seen
along with the factory log books
• Some of the inventory may be old, obsolete or
unusable. Purchase details and inventory records will
give a picture of actual cost of raw material, cost of
storage, wastage, etc
SCRUTINY -3
• It is important to have a property document.
• Tax receipts have to be cross check to ensure that the
company is up-to-date in paying its dues which
include income tax, sales tax, service tax etc
• All permits, licenses , exceptions have to be
scrutinized to find out whether they are valid and
renewable
• The firm may have entered into long term contracts
with some suppliers, service providers and customers.
This can have a impact on future profits.
SCRUTINY -4
• Similarly, there may be disputes regarding owed by
the firm. Usually the disputes are related to
perception of the quantum of money owed.
• Sales data will show the actual performance of the
firm in the market. In addition to reveal the total
sales, it pay to identify sales patterns. It may expose
seasonality as well as strengths and weakness of the
firm.
• Customer list is important to the business that sells to
other businesses or deals in high value goods
SCRUTINY -4
• Activities related to promotions and advertising serve
to promote by image of the product.
• Customer complaints will give new insights into the
problem being faced by the firm.
VALUATION-1
• Many different methodologies can be used to a firm
being acquired. There is no best way to do it. A lot
depends on the circumstances.
• The buyers will inevitably use calculations that lead a
low value, where as sells will try to do their best to
inflate the value. A ‘fair’ value may be an idealistic
concept and the value arrived at is usually some were
between the value quoted by the buyers and sellers.
VALUATION-2
The various methodologies used can be put in the
following categories:
• Value of assets
• Return on Investment
• Payback period
• Discounted cash flows
NEGOTIATION -1
• The negotiation will not be confined to the
price alone. A lot of other matter will be
brought up and there will be considerable give
and take on a variety of issues.
• Mostly, the factors to be discussed during a
negotiation will largely relate to the following
issues:
NEGOTIATION -2
• Instead of an all-cash deal, one or both parties may be
interested in the current owner retaining a share in the
business.
• The seller would realize that it would become difficult to realize
the amounts due after severing ties with the business. Usually
it is agreed to transfer the dues at a discount.
• Sometimes, the buyer may wish to leas the business with an
option to buy at a later date. This is usually suggested when
the buyer is very unsure about the ability of the business to
perform as presented.
• The buyer will always be afraid that the seller may use the
proceeds to set up a competing unit or join hands with a
competitor.
NEGOTIATION -2
• Instead of an all-cash deal, one or both parties may be
interested in the current owner retaining a share in the
business.
• The seller would realize that it would become difficult to realize
the amounts due after severing ties with the business. Usually
it is agreed to transfer the dues at a discount.
• Sometimes, the buyer may wish to leas the business with an
option to buy at a later date. This is usually suggested when
the buyer is very unsure about the ability of the business to
perform as presented.
• The buyer will always be afraid that the seller may use the
proceeds to set up a competing unit or join hands with a
competitor.
III. FRANCHISING
• A franchise is a form of business ownership created by
contract whereby a company grants a buyer the rights to
engage in selling or distributing its product or services
under a prescribed business format in exchange for
royalties or shares of profits.
• The buyer is calling the Franchisee and the company that
sells rights to its business concept is called the Franchisor.
III. FRANCHISING
CHARECTORSTICS OF FRANCHISING
• It is an agreement to sell the products or services of some
owner paying him/her specified free or commission.
• It does not give franchisee the ownership of the product
or service. It is an agreement for affixed period of time
ranging from five years to thirty five years
• It is a replication of some successful business format.
• It takes place in case of business with a good track record
of profitability.
• It applies to business which are easily duplicated and
replicated
• It can be terminated before the expiry of franchising
period
• In franchising, one is in business for oneself not by
oneself
III. FRANCHISING
TYPES OF FRANCHISING
Franchising arrangements are broadly classified in to three
types:
• Product Franchising
• Manufacturing Franchising
• Business – Format Franchising
III. FRANCHISING
1. PRODUCT FRANCHISING
• This is the earliest type of franchising, under; these
dealers were given the right to distribute goods for a
manufacturer. For this right, the dealer pays a fee for the
right to sell the trademarked goods of the producer.
Product franchising was used, perhaps for the first time,
by the Singer Corporation during the 1800’s.
III. FRANCHISING
2. MANUFACTURING FRANCHISING
• Under this arrangement, the franchisor gives the dealer
the exclusive right to produce and distribute the product
in a particular area. This type of franchising is commonly
used in the soft drink industry.
III. FRANCHISING
3. BUSINESS FORMAT FRANCHISING
• This is recent type of franchising and is the most popular
one at present. This is the type that most people today
mean when they use the term franchising. Business
format franchising is an arrangement under which the
franchisor offers a wide range of services to the
franchisee, including marketing, advertising, strategic
planning, training, production of operations manuals and
standards and quality-control guidance.
BUSINESS MODEL
• A Business model describes the rationale of how an
organization creates, delivers, and captures value.
• On the other hand, a business plan is how you execute the
business model. If the business model does not work, the
business is likely to do well.
• Several early researchers have given their interpretations
of what makes a business model.
• The ideas presented by these researchers can be well
encapsulated by some of the latter detailed descriptions
of business models. One is by Mark Johnson and the other
is by Alexander Osterwalder.
BUSINESS MODEL
COMPONENTS OF BUSINESS MODELISING
• According to Johnson(2010), a business model consists of
four interlocking elements. Then together, these
elements create and deliver value.
BUSINESS MODEL
CUSTOMER VALUE PROPOSITION (CVP)
• A successful company has to find a way to create value for
the customer. In other words, the company has to provide
the customer with a compelling reason to but its products
or services. That happens when the company identifies an
.important, unsatisfied customer problem or job and
proposes a product or service to satisfactorily do the job
at an acceptable price.
• Before developing a CVP, the entrepreneur must have a
good understanding of the job to be done. To really
understand the customer, the entrepreneur must explore
why a customer buys an offering, rather than focus on
what a customer buys.
BUSINESS MODEL
PROFIT FORMULATION - 1
The profit formula defines how the business itself will make
money by providing value to the customer. The profit
formula has the following several aspects to it:
 Revenue model
 Cost Structure
 Target unit margin
 Resource velocity
BUSINESS MODEL
PROFIT FORMULATION -2
REVENUE MODEL: How much money can be made: price X
quantity. Quantity can be thought of in terms of market
share, ancillary sales, purchase frequency, etc an
entrepreneur may opt for various combinations of amount
of sales and realization per sale.
COST STRUCTURE:Determining the right mix of fixed costs and
variable costs can prove to be crucial to all overall viability
of the venture. In desigining most new ventures, there
are various options for choosing a fixed cost for lower
variable cost and vice versa. Long term view on possible
economics of scale is also helpful in getting it right from
the start.
BUSINESS MODEL
PROFIT FORMULATION -2
TARGET UNIT MARGIN: It refers to how much each transaction should
yield in order to cover overheads and achieve desired profits at the
target volume of sales. The target unit margin results from the
revenue model and the cost structure but it is important to
understand that in case the target unit margins are not met, it might
be necessary to rework some of the basic assumptions.
RESOURCE VELOCITY: It defines how quickly resources need to
be used to support target volume.
BUSINESS MODEL
KEY RESOURCES
The combination of people, raw materials, technology and
infrastructure required to deliver the value to the
customer can be called key resources. There can be
several key resources and can include the following:
 People  Channels
 Technology  Partnership and alliances
 Raw materials  Fund
 Equipment  Licenses or permits
 Information
BUSINESS MODEL
KEY PROCESSES - 1
 Key processes ensue that the profitable delivery of the
CVP is repeatable and scalable.
 These are the recurring, critical tasks that must be
delivered in a consistent way.
 The key processes can be of the following three kinds:
1) Processes.
2) Business rules and success metrics .
3) Behavioral norms.
BUSINESS MODEL
KEY PROCESSES - 2
1) Processes – such as design, sourcing, manufacturing,
quality control, hiring, training etc.
2) Business rules and success metrics – These connect the
elements of the business model and keep the systems in
balance. These can be supplier terms, credit terms, lead
times, margin requirements for investments for
investment etc.
3) Behavioral norms – These refer to the socially
determined approach to business which is determined by
the beliefs and values of the entrepreneur and the
industry. These can be include risk appetite, required
return on investment, approach to consumers, etc.
BUSINESS MODEL
TYPES OF BUSINESS MODELS -1
1) NICHE
2) Long tail
3) Ex:
4) Mass Customization.
5) Freemium
6) Unbundling
7) Bundling
8) No Frills
9) Premium
10) Open Business Models
11) Multi-sided Platforms
BUSINESS MODEL
TYPES OF BUSINESS MODELS - 2
1) NICHE: A niche is the subset of the market on which a
specific product is focused; therefore the demographics
that is intended to be served defines the specific product
features, as well as the price range and production quality.
2) Long tail: it refers to the niche strategy of selling a large
number of unique items in relatively small quantities.
3) Ex: blockbuster movies like avatar and 3 idiots are easily
available and account for huge sales
4) Mass Customization: Mass customization combines the low
unit costs of mass production processes with the flexibility
of individual customization.
BUSINESS MODEL
5) Freemium: Freemium is a business model that works by
offering a basic version of the product or service free and
then charging a premium for advanced features,
functionality or for extended use.
6) Unbundling: unbundling is a way to unlock value in a
productivity by breaking it up into several standalone
products. Ex .instead of buying a whole book, one can buy
only a single chapter. It allows the customer to pay less and
choose only the components one wishes to consume. Tata
Sky are unbundling their service packs.
7) Bundling: bundling is a strategy that involves offering several
products for sales as a combined product. It works well
when the bundled product is able to capture different
willingness to pay for different products
BUSINESS MODEL
8) No Frills: In the no frills business model, all feature deemed
non-essential have been removed to keep the price low.
The classic Indian example was Deccan Airline. The TATA
group has successful launched its no-frills hotel, Ginger and
a no-frills car, Nano.
9) Premium: The ultimate dream of every entrepreneur is to
be able to charge a premium for their products and services
but it is easier said than done. The customer is willing to
pay a premium only if there is a very good justification for it
(Design, Exclusivity, and Quality).
BUSINESS MODEL
10) Open Business Models: Open source describes a business
model that promotes access to the end product’s source
materials. By giving access, the creators of a product invite
independent developers, collaborators and even customers
to improve upon the product and to create additional
features. This business model is quite popular in
technology-based products, especially software.
11) Multi-sided Platforms: In a multi-sided platform, an
entrepreneur acts as a go between. There are at least two
distinct types of customers. Ex.in the case of magazine or a
newspapers, there are readers and there are advertisers.
THE END
THANK YOU

ED UNIT II - Part - II

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ED UNIT II - Part - II

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MODULE II

• Sources of Innovative Ideas:

• The process of constructing through the idea,

• Similar to brainstorming, but criticism is

Gordon method is a method of

Developing a new idea through a list of

Developing a new idea through a chain of

Forced relationship is the process of

It is method in which ideas are generated

This is a more structured method of

Value analysis is developing a new idea by

This is an idea finding technique that

Matrix charting is a systematic method of

Developing a new idea by thinking about

It identifies entrepreneur's personality traits,

Regarding the availability of business opportunities, the views of Thomas J.

The various business opportunities for example, discussed in next slides :

Once Identifying the Opportunity, there are two

The major steps involved in the process of

• Identification of business opportunity

• Contacts with prospective consumers can give

• Various publications of public and government

• An entrepreneur can discover good business

• A visit to national and international trade fairs

• Technical feasibility of a project has no meaning if

• Financial viability of the project can be

 A social cost-benefit analysis should be made

Business plan is often an integration of

After preparing the business plan, the entrepreneur

• Buying up an existing business seems to

• There is readymade market , distributor network and

It is useful to cross-check the information on

The negotiation is not about agreeing on a

The process does not come to an end with a change in

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