FOUNDATIONS OF ENTREPRENEURSHIP

Elikem Nutifafa Kuenyehia

CLASS SEVEN: BUILD OR BUY? & IDEA GENERATION

Class Agenda

• Mid-term assignment • Recap of last class• Build or Buy?• Idea Generation • Guest Speaker: Shirley Frimpong-Manso,

Managing Director, Sparrow Productions

Mid-term Assignment

• Questions and issues

Recap of last class

• What did you learn from legal and regulatory considerations?

• What did you learn from the Stellar Group’s acquisition story?

Build or Buy?• A key decision entrepreneurs may have to

make early is whether to build or buy?• Build – start a business from scratch• Buy – buy an existing business• Need to carefully evaluate options

available before making a decision • Most people become entrepreneurs by

starting enterprises from scratch with only a small number buying existing enterprises

Buying an existing enterprise• Assets purchase • Share purchase • Purchase a share in a partnership• What is included in an acquisition? – Real Estate – Staff – Technology – Customers and contracts – Suppliers – Branding and intellectual property

Pros of buying vs. starting from scratch

• ‘Easier’ route to entrepreneurship • A history of success• Predictability of income stream• Experience of the previous owner• Lower risk• Easier to find finance• Eliminate competitor(s)• Eliminate barriers to entry

Difficulties of buying vs. starting own enterprise

• Legacy issues • Culture/Employee related issues• Difficulty to get an enterprise that suits

the entrepreneur’s idea• Customer and supplier relationships may

not be inherited• Obsolete technology and/or inventory • Special talent by owner• Enterprise may be overpriced• Valuation difficulties • Lack of choice

Due diligence guidelines• Ask Questions • When you hear an answer, make sure you

also see the answer• Use the Colombo method• When co-investing, do your own due

diligence• Painstakingly review information about all

aspects of the company

The buying stages

• Identification of opportunities • Screening opportunities• Evaluating• Valuation• Negotiation• Heads of terms or term sheet or letter of

intent• Acquisition/purchasing

Idea Generation

From idea to profit? IDEA

OPPORTUNITY

CONCEPT

INSIGHT GENERATION

ENTERPRISE?

What is an idea?

• An idea is a conception or plan formed by mental effort

• Every entrepreneurial venture rests on at least one fundamental business idea

• It is an entrepreneur’s initial dream & mental picture for his enterprise

Nature of ideas• Need not be outstanding/complicated• Need not be original

– Search & Spin – Though some entrepreneur are inventors

• To form the basis of a business, must provide a solution to a customer need– Customer Pain (Gari Soakings)

•An unmet need•Existing enterprises may fall short

unless– Using additional features & benefits

Sources of ideas• Opportunity & Environment Scanning

– Keeping eyes wide open/alert to opportunities

– Various changes:•Social•Economic•Technological•Changing customer tastes &

preferences• Media

– In all forms – NB: what you might not typical pay

attention to

Sources of ideas (cont’d)

• Reading• Travel• Government• Personal Experience and Frustration• Skill Set• Franchises• Conferences, Workshops, Exhibitions• Brainstorming

IdeaQuest

• Be very observant– Keep your eyes open for inspiration: use a

notebook• Interest: what you like doing• Take a critical look at your major irritations• Skills – what are you good at? (irrespective of

whether you like doing them)• Personality/Work Styles• What product or service will make my life

easier?

Which comes first?

IDEA

THE DESIRE TO START A BUSINESS?

Ideas vs. Opportunity • A good idea is not enough• It must be underpinned by an

opportunity• An idea may be underpinned by

opportunity through: – Patent Opportunity– Tacit Discovery

Ideas vs. Opportunity For an idea to be considered an opportunity it

must:• Meet a customer need• Create value for the customers• Create value for stakeholders – depends on:Number of potential buyersPurchasing power of potential buyersReturn on investment

• Be the right fitReflect values, interests, aspirations Match resources & skills

• Pass the realistic/sense check

Concept Development • What is the customer pain that the enterprise will

remove?• How is the pain dealt with at present (competitor

products/substitutes)?• How it will remove the pain (customer value

proposition and how different is it from the competition)?

• Description of target market• Distribution – how will you distribute the product? • Production – how you will make the product?• Idea of cost of set up/production and key

resources required• Idea of pricing ?

Guest Speaker

• Shirley Frimpong-Manso, Managing Director, Sparrow Productions