Identification of a

UNIT 6 IDENTIFICATION OF A BUSINESS Business Idea/

Opportunity
IDEA/ OPPORTUNITY

Objectives
After going through this unit, you should be able to:
• identify the sources of new ideas
• understand the methods of generating ideas
• elaborate scanning and screening of business ideas
• discuss the selection of suitable business idea,
• explain the concept of market research
• discuss the selection and validation of a business model

Structure
6.1 Introduction
6.2 Sources of new ideas
6.3 Methods of generating ideas
6.4 Scanning and Screening of business ideas
6.5 Selection of suitable business idea
6.6 Market research
6.7 Selection and Validation of a Business Model
6.8 Summary
6.9 Keywords
6.10 Self-Assessment Questions
6.11 References/Further Readings

6.1 INTRODUCTION
There are two types of business enterprises which are called B2B (business to
business) and B2C (business to consumers). One of the most important and
very critical tasks for both types of enterprises is identifying the gap between
requirement and availability in the market. It is relatively easier if you are
planning in the B2B enterprises or in other words, planning to venture into
the capital goods sector i.e. your product will be used as input by other
sectors. However, production in the B2C sector or in other words, operations
in consumer goods are relatively difficult. Again, even in the consumer goods
sector, it is comparatively easier to enter the sector which already exists but
difficult to enter the market with a new product. Estimating and evaluating a
demand which does not exist in the market but there is demand for that
product or service is quite a challenge. Theoretically, if you start thinking of a
new product, there may be hundred and one such products. So, also start
thinking about which segment of society you want to start the activity. Is it
for male, female or children? Rural areas or people attract your attention or
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Establishing a New interest in urban areas or city life. These are very basic questions before
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starting an entrepreneurial venture. However, equally important is evaluating
your own capabilities also. All these issues have been discussed in this unit.

6.2 SOURCES OF NEW IDEAS

What people are looking for? Anticipating it may be the beginning of an
entrepreneurial journey. Whether you are thinking of a new product or
service which will improve the existing production process or improve the
customer experience? Finding the gap is the most challenging. If close
substitutes of the product are already available in the market, in which way
you are going to provide a differentiated product? Why people will purchase
your product? The best and may be first way to find out the gaps is Direct
Observation and Communication.

Direct Observation
It is the first and basic method to visualise new ideas. Keep your eyes open
and look around you:

i. Travel- New ideas can emerge during travel as one gets the opportunity
to see new things, places and meet new people.
ii. Window shopping – Unintentional visit to the market plays a very
important role in the process of the culmination of new ideas.
iii. Reading- Reading is the traditional way to know about the product and
people’s lifestyles.
iv. Web search- Now, a day’s various advanced tools are available on social
media which gives almost real-life experience and through which one
can access demand for the new product.
v. Social Listening- It is not necessary to talk to people face-to-face but you
can interact, ask questions and get suggestions through social media such
as Facebook, Instagram etc. also. Just find out what your target customer
has to say regarding the idea that you have thought of.
Advantages:
i. As there is nothing pre-decided, chances are high that a fresh, new and
relevant idea will emerge.
ii. It may be taken as the first step. The idea of being an entrepreneur
germinates at this stage.
Precautions:
i. The process from inception of an idea to finally selling the product in the
market is hard, long and arduous.
ii. It is difficult to get purchasing intention in a particular society or across
societies.

Unstructured and Structured Oral Communication

Talk to family, friends, and people who are going to use it or maybe using
similar products. Such casual talking gives a fair understanding of the
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requirement or if already using a similar product, what kind of change they Identification of a
Business Idea/
are looking for. Talking to people from the distribution channels or salesman Opportunity
about the positive and negative points of the available products gives an
insight for the required changes in the proposed initiative.

Advantages:
i. Based on the direct response of the prospective users.
ii. Response can be known in a short period of time
Precautions:
i. Prospective buyers may not have thought of or be ready or may not be
able to clearly tell what exactly they want. So, at the time of taking
decisions about the product or services, it is always advisable that before
taking any decision for production, such opinions must be taken from
two-three sources.
ii. If possible, experts also must be consulted.

Search online for getting more information, experiences and what others in
the same line have to share for beginners.

Figure 6.1: Stages of Establishing Sustainable Enterprise

Source: Author’s own output

Activity 1
Consider Google meet, Google Team, and Zoom meetings - these three
platforms for conducting meetings on the internet. Through observation and
communication, discuss which one of them is better and why.
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6.3 METHODS OF GENERATING IDEAS

Through, ‘Direct Observation’ or ‘Communication’, you have been able to
find the segment in which you will like to operate. The Internet is filled with
interesting tools that can help you in identifying alternative ideas. You can 113
Establishing a New choose between various available options, but the final decision usually
Enterprise
depends on the nature and peculiarities of your business idea. Some of the
internet tools and a couple of such platforms have been suggested below:
• E-survey - Google Form- a Google product which is easy to handle and
free of cost can be organised for an opinion poll on the question you seek
to find out. Survey Monkey is a similar product for conducting opinion
polls regarding products or to know their purchasing intentions.
• Evernote - There are chances that ideas come and go without you being
able to note them down. Evernote may assist you in noting down every
thought instantly.
• Ninja Essays - It’s a team of incredibly creative authors who can help
you to brainstorm and craft high-quality business plans for you or your
team.
• Internet must be used for convenience as cloud computing may be used
for the convenience of transportation or Google slides for sharing if it is
group entrepreneurship.
Now, there is a need to concretise the idea. Steps for the concretisation of
new ideas may be as below:

i. Pinpoint the identified gap through Brainstorming and Reverse

Brainstorming
Write all the gaps which have been detected on a board. Then, consider
both positive and negative points of all proposed products. Filter them
and come to the most suited option. While the problem-solving methods
are identified in case of the process of brainstorming, in case of reverse
brainstorming, the causes of the problem are discussed. Like if you are
planning to produce something for college-going students, start thinking
of a product which will be disliked by the college students. From the
answer, improve the product on those parameters for the college
students.
ii. S.C.A.M.P.E.R.
It is the acronym for Substitute, Combine, Adapt, Modify, and Put to
another use, Eliminate and Rearrange which is used to find out an out-of-
box solution for the detected gaps between demand and supply. It starts
with an examination of the existing products which may be under
consideration and then, SCAMPER is applied to prepare a most effective
substitute.
iii. Mind Mapping for product/ service, scale or location
Mind Mapping is a diagrammatical layout representing the gap between
demand and supply and how it can be filled. What are the solutions in
hand? Tasks, concepts, items, or words are arranged and linked through a
non-linear graphical layout which provides the user with an intuitive
framework upon which he can develop the central concept.

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iv. Identify the segment of society for which you would like to enter the Identification of a
Business Idea/
market Opportunity

Entrepreneurship is a painful and tough struggle in the beginning. The

product or service must be very near to your heart and you need to
strongly feel for that. So, after evaluating the market, evaluate yourself
also. Whether you are willing to spend your resources, time and energy
in something where the return is not assured.
v. Scan the Government Policies
From time to time, the Government also encourages entrepreneurship or
production of some products through fiscal policies as rebate on custom
duties of the inputs or tax benefits on finished products. These policies
must be studied well while taking final decision on which option to be
pursued. Such incentives not only reduce the cost of production but the
government wants it to be produced. There may be some comparative
advantage for the country at the level of international trade or the
government wants to be self-reliant. So you must study all possibilities
for your product.

6.4 SCANNING AND SCREENING OF BUSINESS

IDEAS
Business ideas may be scanned and screened in the following ways:

S.W.O.T. Analysis
All human beings are unique and they all are blessed with some qualities but
at the same time, with some limitations too. So, they must examine and
evaluate their strengths, weaknesses, opportunities and threats for a particular
project while taking a decision to proceed with it. The S.W.O.T. analysis is
an acronym which may be used for an entrepreneur or organisation to discuss
Strengths, Weaknesses, Opportunities and Threats. On a board, make four
blocks for all these four characteristics and clearly write what your Strengths,
Weakness, Opportunities and Threats are. Conceptually you need to be
very clear and at the same time very critical also.

Figure 6.2: SWOT Analysis

Strengths Weakness
Opportunities Threats
Source: Author’s own output

These parameters have been discussed below:

i. Strengths are the unique qualities, resources or competitive advantage
that the individual or team may possess. It may be of two types:
a. Internal Strengths may be knowledge of the business or previous
experience of working in a similar business. So, use previous
experience to your advantage in course of building the present one.
b. External Strength- Business relationship with other players of the
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Establishing a New industry or with the other players of the business eco-system which
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may benefit you in running the business.
ii. Weaknesses - The end result of weakness is inefficiency in the system.
The weakness may be of two types which are as follow:
a. Weakness of the entrepreneur –While selecting the activity, the
entrepreneur has thought of doing something which may be very
much in demand but he or the team is not equipped to handle it.
b. Weakness of the production process- The production process has not
been optimally designed due to a lack of knowledge, capital or other
resources which is ultimately causing inefficiency and keeping you
back.
You need to give special attention to the weaknesses which will
ultimately improve the overall efficiency in turn. The weakness of the
production process is easier to correct than the weakness of the
entrepreneur. First, because it is difficult to find out and even if, you are
able to pinpoint them, it is very difficult to address as being
psychological in nature.
iii. Opportunities are avenues which you can explore. It is an external
factor provided by the environment and the entrepreneur needs to have
the capability to assess and exploit it.
iv. Threats may be anything that could negatively affect the business. It
may be of two types:
a. Anticipated Threats: The real world is full of uncertainty and
unexpected situations. However, the entrepreneur may be mentally
prepared to face some of these challenges as they are evident to
appear but only time and magnitude in not known. You can usually
get a sense of your business’s threats or competition when you run
a market analysis.
b. Unexpected Threats – The situation that emerged due to COVID-19
was unexpected for the market or even the demonetization of the
Indian currency in 2016.

Minimum Viable Product (MVP)

Frank Robinson introduced the term MVP in 2001 which was disseminated
by Eric Ries from 2009 and Blank from 2010 onwards (Lenarduzzi &Taibi,
2022). Releasing an MVP in the market means releasing the product in the
market with minimum characteristics and improving it further after getting
responses and feedbacks from the early users. Generally, entrepreneurs of
lean start-ups follow this. They float the product in the market after
conducting a survey on the prospective buyers. So, they do not have to find
users after launching the product in the market. Early users may be asked to
provide feedback on which the product may be upgraded further in course of
time. Following steps may be taken to develop a Minimum Viable Product
(MVP):

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i. Take an existing substitute of the product you actually want to produce. Identification of a
Business Idea/
ii. Consider the inputs, their amount used and the time of the gestation Opportunity

period. Try to improve the efficiency of inputs which means, the same
output can be achieved with fewer inputs or try to shorten the gestation
period.
iii. Substitute any input which may be polluting the environment, from the
input mix with a sustainable substitute of that input.
iv. Add some additional features which may have become mandatory in the
present market or may have pointed out in the market survey. Now, float
it in the market.
v. Invite early users to give their feedback and incorporate them into the
product. However, while incorporating suggestions of the feedback
always keep an eye on the market segment for which the product has
been made or the incremental cost increase due to addition of any
feature.

Break-Even Point
Most young enterprises die within five years of their birth because they may
not have calculated their break-even point correctly. At the budget
preparation level, they plan money for at most two- three years and believe
that beyond that period, part of the present years the profit will be used as
next year’s required capital. However, it may not be the actual scenario. So, it
is very important to calculate the breakeven correctly.

Y (Price) MP= Price at which the product

will be available in the market

TC= Total Cost

E - Break Even
VC =Variable Cost
P

T FC =Fixed Cost

O Q X
(Quantity)

Figure 6.3: Break-Even Point

Source: Author’s own output

At the Break-even point, Expenditure incurred = Revenue Earned

On the left of it, expenditure incurred > revenue earned and
on the right-hand side, Expenditure Incurred < Revenue earned.
In the figure-, Vertical line OY = Line of Price
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Establishing a New Horizontal line OX = Line of Quantity.
Enterprise
OT (FC) = Fixed Cost
OVC (VC) = Variable Cost
Line TTC (Total Cost) = OT + OVC
Line OMP (MP) = Product sold at that price in the market
Line TTC and Line OMP cut each other at point E which is Break-even
point.

There is a formula to calculate Break-Even point.

FC
BEP =
MP / unit VC / unit
Where,
BEP = Beak-even Point
FC = Fixed Cost
MP/ unit= Price of one unit of the product is available in the market
VC/unit = Variable Cost of producing one unit of the product

Example
Find out the BEP if the Fixed Cost = Rs. 3620000; the market price/unit is
Rs. 440 and the variable cost/ unit is Rs. 40. If the annual demand is 10,000,
whether the entrepreneur should make it or not?
FC
Solution = BEP =
MP / unit VC / unit
= 3620000/400 = 9050
So, the breakeven point = 9050 and as the annual demand is 10,000
It is a sustainable proposal.

Activity 2
Find out Fixed Costs and Variable Costs of a product which is being
produced in your locality. Find out the market price of the product. Now,
calculate the Break Even point for the enterprise.
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 Identification of a
6.5 SELECTION OF SUITABLE BUSINESS IDEA Business Idea/
Opportunity
Selection of a suitable business idea for a product (including services), the
entrepreneur will have to take following three steps as discussed in Figure
6.4. The direction of arrow in the figure is significant.

Step-1 – Selection of a product

Selection of the suitable business proposal must be based on market analysis
and for the product whose demand is expected to grow in the future
and preference is given to those products which have regular demand as any
entrepreneur always wants to get the maximum regular return on the
investment. However, at the same time, you need to have the required skills
and interest in that field.

STEPS

Need to have interest

STEP-1 Growing market for the
Selection of a product product

Need to have required

Regular demand is
skills
expected

Discussion with experts Evaluating expected

about available options investment and return on
STEP-2 investment from various
available options
Evaluating Business
Gathering opinion from
Ideas
prospective users Expected expansion of the
demand

Uninterrupted Supply of STEP-3

inputs Business idea under the
Selection of Suitable existing Macro-Economic
Business Idea Environment

Sufficient labour with Environmental impact of

the required skills the product

Figure 6.4: Steps in Selection of Suitable Business Idea

Source: Author’s own output

Very often, a first generation entrepreneur selects a product which may be

very much in demand but they could not run it sustainably due to a lack of
knowledge or interest in the area. They just opted it by looking at the huge
demand.

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Establishing a New Step 2- Evaluating Business Ideas
Enterprise
You have come up with a list of products including services which qualifies
your check list from a demand and supply perspective. Now, you have to
conduct a comparative analysis from all selected options. Ask experts as well
as users and compare the initial investment of all selected options. Expected
return, continuity of the demand and expected expansion of demand are some
of the criteria on which business ideas need to be evaluated.
Step 3- Selection of Suitable Business Idea
The ultimate objective of any entrepreneur is maximisation of profit which
can only be achieved by increasing revenue earned from selling the product
in the market (amount of product sold x price of the product) or minimising
of cost of production. Increasing the price of the product may be wishful
thinking for all enterprises but it may not be possible in many cases due to
prices of other substitutes in the market. So, efforts need to be made to
control the cost of production.

Activity 3
List ten factors (Five internal and five external) which affect a car
manufacturing firm.

SN Internal Factors External Factors

1.
2.
3.
4
5

6.6 MARKET RESEARCH

Market research is defined as the process of evaluating the feasibility of a
new product or service, through research conducted directly with potential
consumers. This method allows business organisations to reach to the target
market, collect and document opinions to make informed decisions (Question
Pro, 2022). The stage of market research is one of the most important stages
of taking decision for an entrepreneur as it is very crucial to finding the gap
between market demand and available supplies. It can be done through the
following two methods:

1) Asking buyers indirectly

People dealing with buyers can give very pragmatic suggestions in the
following way:
i) Opinion of the salesmen or people working in the distribution
channel: In this method of market research, estimation of future demand
is made on the basis of salesmen or people who are working in the
distribution channel as they have a very close association with an
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 existing product. On the basis of their close and regular association with Identification of a
Business Idea/
the user, their views about positive or negative aspects of the product and Opportunity
which feature may be added or subtracted to enhance the utility of the
product may be very useful as a first estimate which certainly undergoes
very rigorous analysis before taking the final decision.
Advantages
• The method is very simple.
• It saves time and money.
• No statistical tool is needed (Singh, 2009).
• As the opinions are given by experienced people, these are almost
correct.
Disadvantages
• The method may be useful for only a short period but cannot be used
for long-run market research.
• In the dynamic environment, people may give opinions about the
existing good but cannot give very dependable opinions on what
kind of product they are looking for to using in future.
• As salesmen are not trained for making estimations, they can give
users' opinions but are not able to give changes under dynamic
economic environment.
ii) Delphi Method: The opinion of a panel of experts is used in this method
of market research. They are given as a series of questions and are asked
to give their opinion. Their opinions are fed into the computer for further
analysis. In case of contradiction, they are asked to create a consensus on
their views. Sometimes experts do not have an equal level of knowledge
for all questions which have been asked to assign weight for their
familiarity with the topic (Singh, 2009).
Advantage
• Expert' view, suggestions and recommendations are more reliable.
Disadvantages
• There is a possibility that experts could not reach a consensus.
• Expert’s opinion may be sometimes biased.
2) Directly asking buyer
The most reliable method may be a census, where each and every user is
asked about the expectation from the product but it may not be feasible
most often due to the high cost or time involved or may not be required
to have such a detailed viewpoint as the product may be new and an open
field for everyone to guess. So, it is advisable to ask from a sample of
users.
i) Ethnographic Method
The people are studied in their cultural background with the objective of
preparing a pen sketch of people in a particular culture against a 121
Establishing a New theoretical background which is developed through grounded theory. For
Enterprise
the ethnographic study, purposive sampling is adopted for who so ever
may be interested to participate in the study. There is no fixed sample
size (Thomson, 2011). It may vary from 5 to 30. Data gathering and
analysis go simultaneously. Along with researchers’ observation and
unstructured interaction and semi-structured questionnaires, researcher
may also use photo albums, diaries, reports of local committees and
memoirs to understand and get the answer to the research question.
Advantages
• It provides very rich data.
• It is appropriate to study a new aspect of human behaviour or people
in a new place where a hypothesis cannot be made for the situation.
• It does not rely solely on what the respondents report but is based on
researchers' observations also.
Disadvantages
• Observation takes a lot of time.
• As based on the researchers' observation also, it is difficult to
maintain the required objectivity.
ii) Statistical Methods
Statistical Methods may be of two types:
• Directly asking from the prospective consumers (Cross-Sectional
Study)
You have already decided conceptually the statement which is called a
hypothesis and now, it has to be verified whether to accept or reject the
hypothesis. A stratified random sample is the most common method in
which members of the population are first divided into strata and then
are randomly selected to be a part of the sample. The SPSS software may
be used for the analysis. The sample size can be calculated in the
following manner:
a) Sample size for known population
Let known population size N = 5708
Assuming that you use a 95% confidence interval, the error level is 0.05.
The minimum sample size is calculated by using the Yamane method
(margin of error = 0.05):
N
n yamane (Israel, 1992)
1 Ne2
where,
n = sample size
N = Population size
e = margin of error

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 The calculation follows: Identification of a
Business Idea/
= 5708 / (1 + 5708(0.0025) Opportunity

= 5708 / 1 +14.27
= 5708 / 15.27
= 373.80
The required sample size is about 374.
b) Sample size for unknown population
Where the population is unknown, the sample size can be derived by
computing the minimum sample size required for accuracy in estimating
proportions by considering the standard normal deviation set at 95%
confidence level (1.96), percentage picking a choice or response (50% =
0.5) and the confidence interval (0.05 = ±5). The formula is:
For the unknown populations at the 95% confidence level and 5% of the
confidence interval,
z2 p 1 p
n (Pourhoseingholi et. al., 2013)
e2
Where:
· e = the desired level of precision (i.e. the margin of error),
· p = the (estimated) proportion of the population which has the attribute in
question,
· q = 1 – p.
The z= standard normal deviation (value is found in a Z table).
Here is how the math works assuming you chose a 95% confidence level, .5
standard deviation, and a margin of error (confidence interval) of +/- 5%.
((1.96)2 x .5(.5)) / (.05)2
(3.8416 x .25) / .0025
.9604 / .0025
384.16
385 respondents are needed
Advantages
a. As all measurement is done at one point in time, there is good control
over the measurement process.
b. Since follow-up is not required, this is one of the most effective methods
of demand analysis.
Disadvantages
a. Time is a very important dimension but it is neglected in this method.
b. Accuracy of the result depends on the accuracy of the sample size and its
constituents.

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Establishing a New • Calculating Trends through Regression (Time Series Analysis)
Enterprise
From time series data, trend fitting is a very common method to estimate
demand in market research. The most common is visually fitting the line.
However, calculating through regression is most scientific. The
following steps are taken:
o Find out independent variables on which dependent variables depend
from the literature available.
o Through, the method of least square, derive the regression equation.
Y=a+bX (b is the slope of the line and a is the y-intercept)
Once the regression equation is derived, Y (demand for the product for
which the market survey is being done, can be calculated for any value
of X (Singh, 2009). The Software Stata may be used to find the trend.
Advantages
a. It provides the most scientifically calculated values.
b. It gives an accurate trend.
Disadvantages
a. Forecasting for the future on the basis of past data has limited
acceptability as the dynamic macroeconomic variables effects the micro
level data differently for the product which is being forecasted.
b. Accuracy in measuring independent variables affects the accuracy of the
dependent variable significantly.
c. If there is very low demand in the time series due to unexpected
circumstances as happened during COVID-19, values of ‘a’ and ‘b’ will
decrease substantially.

Example
The annual sales of a company are as follows:

Year 2015 2016 2017 2018 2019

Sales in Rs 36000 38000 40000 42000 44000

Estimate the demand for the product in 2025.

Solution

Year Sales (in X* X2 XY

‘000 Rs.) Y
2015 36 1 1 36
2016 38 2 4 76
2017 40 3 9 120
2018 42 4 16 168
2019 44 5 25 220
2
N=5 ∑Y =200 ∑X= 15 ∑X = 55 ∑XY = 620
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 Identification of a
Note:*start counting first year as 1, second year as 2 and so on Business Idea/
Opportunity
Substituting, the value in the least square equations, we get

∑Y = na+b∑X--------------------------------------------- (1)

∑XY = a∑X + b ∑X2-------------------------------------(2)

Putting the values from the above table in equation (1) and (2), we get

200 = 5a +15b ----------------------------------------------(3)

620 = 15a + 55b -------------------------------------------- (4)

Solve equation (3) and (4)) by multiplying equation (3) by 3.

a = 34 and b =2

If 2015 is 1 and 2016 is 2 then 2025=11

Y= 34 + 2 X 11
= 56 Ans.

6.7 SELECTION AND VALIDATION OF A

BUSINESS MODEL
Though the concept of a business model does not have a theoretical
grounding in business studies or in economics, but a business enterprise must
employ it either explicitly or implicitly to describe the design or architecture
of the value creation, delivery, and capture mechanisms (Teece, 2010). In
simple words, a business model is a representation of the movement of
money, materials and their direction around the production and distribution of
any product with help of symbols as well as mathematical and statistical
tools. It is developed to get an understanding of the cause and effect
relationship between variables and to measure the phenomenon more
accurately. It is similar to the professional behaviour of an automobile
engineer who makes a model of an automobile before making the actual
automobile. The model may be similar to an actual automobile, but certainly,
simpler than the actual automobile. The model is made for doing many
testing and if the machine fails in any test, the engineer can quickly locate the
fault and rectify it. Similarly, the business models are very helpful in
planning, implementing and validating any change.

Since the growth of the digital economy during the 1990s, the term “business
model” has emerged as a buzzword in the business arena. The entrance of
Information Technology (IT) into business has changed the traditional
framework as for now; even small start-ups can manage to compete with
large and well established-companies (Scott & Scott, 2018). According to
Afuah & Tucci (2001, p. 45), companies with well-formulated and innovative
business models are able to manage higher profit margins and have
competitive advantages over their competitors who may not have given the
emphasis on designing their own business model.
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Establishing a New Selection of a Business Model
Enterprise
The most appropriate Business Model may be a framework in which all
resources are optimally utilised leading to profit maximization and users are
getting value for their money. To achieve this, the following factors must be
known or given while selecting the model:
i Which sector the enterprise belongs to?
ii. What will be the scale of production?
iii. Are resources available or it has to be generated?
iv. Which section of society does the enterprise target?

When the above factors are given, a model needs to consider the profile of
the buyer such as the age of the customer, place of residence, and staying in
an urban or rural area, and whether the prospective buyer is a male or female,
their income level. These are very important questions to reply. Similarly,
knowledge about the nature of the demand is also very significant for
selecting a business model. After obtaining such information, an ideal
business model decides how optimally the resources can be combined to get
maximum return.
Selection of a business model is a challenging task for an entrepreneur as the
business operates in a dynamic world. Thus, the model also needs to be
capable of constantly reengineered so that the business model accommodates
the changing market situation and operates at the optimal level.

(i) Sector of (i) The process to (i) Profile of

the enterprise. be followed for the customer;
production.
(ii) Scale Age, place of
of production. (ii) Financial residence,
sustainability. gender,
(iii) Resources
income
available or (iii) Technological
group,
can be sustainability.
education
generated.
(iv) Maintaining level.
Environmental
(ii) Nature of
sustainability.
Demand –
regular or
seasonal.
Figure 6.5 -Factors for Selecting and Validating a Business Model
Source: Author’s own output

Validation of a Business Model

Model validation is the process through which it is systematically evaluated
to see whether the business model has been able to create value for the
stakeholders of the business ecosystem.

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First on the list of ecosystems is the firm itself. It is very important to recheck Identification of a
Business Idea/
the whole production process and be sure of the following: Opportunity

i. Financial Aspect - The production is being done in the most cost-

effective way which will deliver the product of pre-decided quality at the
lowest cost. Whether the firm achieves financial stability which refers
to its ability to generate attractive profits and whether the firms would be
able to avoid the heavy cost of maintenance and have a better chance of
long-term success (Luenendonk, 2017). Whether the firm is able to take
all benefits being given by the government and business associations.
ii. Technological Aspect – Whether the firm has been able to acquire non-
polluting technology because this is very important. In some of the
sectors it is mandatory but even if it is not mandatory, they opt for the
non-polluting one for two reasons. In future, it can become mandatory
and second, pollution has a huge social cost.
The customer comes next in the ecosystem. Whether the customer is getting
value for his money? Some of the indicators to judge value for money are as
below:
i. Design of the product is very important from the point of convenience
and comfort.
ii. Price of the product needs to be comparative with other substitutes
available in the market, especially if the product is catering to the middle
class. For the costly products, there should be facilities for loans and
payment facilities in easy installments.
Sources of External Help and Assistance
The firm needs to have a proper plan for all payments and it needs to abide
by it also. But at the same time, it should not sit back. Entrepreneurship is a
continuous race towards perfection. So, further plans for loans and assistance
needs to be ready for improvement and up gradation.

Larger Society
At the present time, Corporate Social Responsibilities (CSR) have become
very important and some studies have shown that it has a positive impact on
customers’ preferences and firms’ profitability. Not immediately, but a CSR
plan must be in-line and needs to be implemented as soon as possible.

Activity 4
Develop a business model for an enterprise working in the small sector that
has been adversely affected by the lockdown during COVID-19.
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Establishing a New
Enterprise 6.8 SUMMARY
Sources of new ideas are direct observation and communication with user of
the product as well as the salesman or representative of the firm as he has
experience of meeting and talking to the users. The opportunity for direct
observation is experienced during travel, window shopping, web searching,
etc. Some other methods of generating ideas are market surveys or doing
S.C.A.M.P.E.R. Elimination and rearranging are done to come out with an
out-of-box solution. Mind mapping is a diagrammatical layout representation
to find the gap in the market which can be filled by the entrepreneur.

Scanning and Screening of business ideas - S.W.O.T. is one of the best

methods for evaluation. It is an acronym which may be used for an
entrepreneur or his teams to discuss their strengths, weaknesses, opportunities
and threats. Human beings are unique and they all are blessed with some
qualities but at the same time with some limitations. So, they must examine
and evaluate their strengths, weaknesses, opportunities and threats for a
particular project while taking a decision to proceed with it. Launching a
Minimum Viable Product (MVP) in the market and later on, adding features
on the basis of feedback is a good option for lean start-ups.

Knowledge of the break-even point for any enterprise tells the level beyond
which an entrepreneur will earn profit. The ultimate objective of any
entrepreneur is the maximisation of profit which can only be achieved by
increasing revenue (amount of product sold x price of the product) earned
from selling the product in the market or minimising of cost of production.

There are ethnographic and statistical methods for doing market research
through which important insights are gathered for developing a product.
Customers’ views can be gathered directly from them or indirectly through
Delphi Method. The demand trend for a product can be calculated through a
regression line.

A model provides a framework for the production system. Depending on the

capability and market demand, a model is selected. Through the process of
validation, it is systematically evaluated to see whether it has been able to
create value for the stakeholders.

6.9 KEYWORDS
Business Model: Business models are simpler and smaller representation of
the business framework which helps in visualising the business.

Social Cost: The cost which may not be in monetary terms but may be
creating lots of pain and suffering due to problems and disturbances in the
life of people and societies.
Minimum Viable Product (MVP): MVP is a version of a new product,
which allows a team to introduce a product in the market and collect the
feedbacks from the early users.

Lean Start-up: A lean start-up introduces a new product for an existing

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company. After collecting customers expectation for new product, the Identification of a
Business Idea/
company is aware that product will be demanded as it will enter the market in Opportunity
contrast of developing a product and then, expecting that demand will
emerge.

Incremental Cost: Incremental cost is the increase in total cost due to a

complemented change in the policy or change in the nature or level of
business activity. While taking decision, the incremental revenue must
exceed the incremental cost (IR >IC).

6.10 SELF ASSESSMENT QUESTIONS

1. What are different sources of generating new ideas? Which one of them
you consider best? Discuss reasons.
2. What do you mean by SWOT Analysis? Write its significance for an
entrepreneur.
3. Discuss steps taken in selection of a suitable business idea.
4. Discuss direct and indirect methods of conducting market research. Also
discuss their advantages and disadvantages.
5. What do you mean by a Business Model? How to validate a Business
Model? Discuss with suitable example.

6.11 REFERENCES / FURTHER READINGS

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