ENTREPRENEURSHIP AND INNOVATION

1. ENTREPRENEURSHIP AND INNOVATION Christ University, Bangalore

2. Agenda • The creative process • Idea germination, Preparation, Incubation, • Illumination and Verification • Are Entrepreneurs Born or Made? • Myths of Entrepreneurship • Search for Business ideas • Selection of Product/Service • Product innovation • Product planning and development strategy • New product development • Services Industries-Human side of an enterprise Christ University, Bangalore 2

3. Sources for Ideas • Following are some of the sources for ideas: • Good understanding of economics and the economy • Changing needs of the people in a locality/ society • Emerging trends in the society (Example- Migration of people from rural areas to urban centers, preference for fast food among youth) • Extensive travelling and a wide range of reading

4. Creativity • Every problem is an opportunity for a creative person • Creativity is a major tool for the survival of an entrepreneur • It not only gives one the edge for recognizing needs, generating business and marketing ideas, but it also helps in solving problems • The person who faces a problem and finds a novel solution or is able to quickly convert the problem into an opportunity that has ready solutions, will be a survivor in a field where others, less flexible and less creative, will be left behind • This is particularly true as small businesses are considered to be more flexible and pro- active than large, bureaucratic organizations and thus, can react better and faster to changing circumstances

5. Rules for Creativity Every problem holds an opportunity Problems are not excuses for giving up Every problem has more than one solution Think sideways Creativity is fun- you get more ideas in an uncritical atmosphere

6. The Creative Process • Refer Page 33 of David H. Holt Text”Entrepreneurship- New Venture Creation” for the Diagram and more notes on “The Creative Process” • 1. Idea Germination: The seeding stage of a new idea- Recognition • The germination process is a seeding process. It is not like planting seed as a farmer does to grow corn, but more like the natural seeding that occurs when pollinated flower seeds, scattered by the wind, find fertile ground to take root. • Exactly how an idea is germinated is a mystery; it is not something that can be examined under a microscope. However, most creative ideas can be traced to an individual’s interest in or curiosity about a specific problem or area of study

7. The Creative Process • 2. Preparation: Conscious search for knowledge- Rationalization • Once a seed of curiosity has taken form as a focused idea, creative people embark on a conscious search for answers. If it is a problem they are trying to solve, then they begin an intellectual journey, seeking information about the problem and how others have tried to resolve it • If it is an idea for a new product or service, the business equivalent is market research • Inventors will set up laboratory experiments, designers will begin engineering new product ideas, and marketers will study consumer buying habits • Any individual with an idea will consequently think about it, concentrating his or her energies on rational extensions of the idea and how it might become a reality , Christ University, Bangalore 3

8. The Creative Process • 3. Incubation: Subconscious assimilation of information- Fantasizing • Individuals sometimes concentrate intensely on an idea, but, more often, they simply allow ideas time to grow without intentional effort • The idea, once seeded and given substance through preparation, is put on a back burner, the subconscious mind is allowed time to assimilate information Christ University, Bangalore 4

9. The Creative Process • Incubation is a stage of “mulling it over” while the subconscious intellect assumes control of the creative process • The subconscious mind is allowed to wander and to pursue fantasies, and it is therefore open to unusual information and knowledge that we cannot assimilate in a conscious state • This subconscious process has been called the art of synectics, a word coined by W.J.J. Gordon in 1961 Christ University, Bangalore 5

10. The Creative Process • Synectics, means a joining together of different and often unrelated ideas • Therefore, when a person has consciously worked to resolve a problem without success, allowing it to incubate in the subconscious will often lead to a resolution Christ University, Bangalore 6

11. The Creative Process • 4. Illumination: Recognition of idea as being feasible- Realization • Illumination occurs when the idea resurfaces as a realistic creation • Reaching the illumination stage separates daydreamers and tinkerers from creative people who find a way to transmute(transform) value

12. The Creative Process • 5. Verification: Application or test to prove idea has value- Validation • An idea once illuminated in the mind of an individual still has little meaning until verified as realistic and useful • Verification is the development stage of refining knowledge into application • This is often tedious and requires perseverance by an individual committed to finding a way to “harvest” the practical results of his or her creation • During this stage, many ideas fall by the wayside as they prove to be impossible or to have little value

13. Are Entrepreneurs Born or Made? • A persistent notion is that most entrepreneurs are “born” with innate characteristics that prepare them for the often topsy- turvy life of new venture creation • Clearly, entrepreneurs have personal characteristics that lead to a more venturesome identity • Successful entrepreneurs tend to be optimistic, have a keen sense of determination, are energetic, and often have an entrepreneurial parent • However, there is substantial evidence that entrepreneurial characteristics may be environmentally based

14. Are Entrepreneurs Born or Made? • Firstborn children, for example, are often expected to take over parental businesses as heirs to established enterprises • One’s childhood background often forges an entrepreneurial spirit as individuals from less- fortunate economic conditions have to find routes to success other than through traditional jobs • Those who believe entrepreneurs are born conclude that entrepreneurship cannot be taught • This corollary (resulting) myth would suggest that studying how new ventures are formed or how innovation takes place is of new value • If the environmental theme has credence, then learning as much as possible about the entrepreneurial process will better prepare students to succeed in business Christ University, Bangalore 8

15. Myths of Entrepreneurship • Folk heroes like Steven Jobs Mitchell Kapor are beset by myths that they “stumbled into success” and got their ideas by accident • Not so. They have spent several years striving for a foothold in their particular fields • Both men made success by creating their own brand of luck • There are other myths to be explored, but let’s begin by expanding the notion of luck

16. Myths of Entrepreneurship • a. Luck is for Gamblers: Clearly, there are individuals who seem to have an uncanny ability to be able to spot and to exploit opportunities, and luck(both good and bad) plays a role in the outcome of many ventures. More often, successful individuals have been nourishing a concept for some time or working on closely related projects when a breakthrough occurs. • For instance, Art Fry of 3M created the Post-it note as a result of trying to make non-slip hymn book markers. He spent several years working on the idea, and he also had to fight an uphill battle convincing 3M executives to manufacture his product. Christ University, Bangalore 10

17. Myths of Entrepreneurship b. Make or Break on the First Venture: Another popular myth is that entrepreneurs strike it rich with the first great “flash of genius,” or, conversely, they fail miserably with the first venture. Entrepreneurship is not a “boom or bust” process, even though many new firms succeed brilliantly and others do not survive for long.

18. Myths of Entrepreneurship c. Entrepreneurs are Mavericks and Misfits: Evidence suggests that many entrepreneurs march to the proverbial different drummer. They are not always among the best students, and they tend to be restless in structured jobs. Consequently, they are likely to be unsettled wanderers. It is true that entrepreneurs prefer independence and can be rather rebellious, and both conditions can affect their performance in school and at work. Most successful entrepreneurs, however, are from the ranks of above average students, and they are relatively unlikely to have drug or alcohol problems or to run afoul of the law. Entrepreneurs are mavericks in the sense that they instigate change and challenge the status quo, but they are not “misfits”.

19. Myths of Entrepreneurship • d. Are Entrepreneurs Born or Made?- Already explained • e. Other Myths and Misconceptions • Historic examples of inventors are used to illustrate success stories, and although these provide valuable insights, inventors are not necessarily entrepreneurs. Entrepreneurs are less often inventors than astute businesspersons who can create an organization to bring new ideas to market. • A related misconception is that entrepreneurship must address whatever is called “high tech” at the time. Currently, information technology and biogenetic engineering are high- tech stereotypes. Entrepreneurship has always been associated with technological advances, but low- and- no- tech enterprises remain very important. 11

20. Myths of Entrepreneurship • An unfortunate myth that often accompanies failure is “all you need is money” to be successful. Even those with sufficient money to launch an enterprise find that entrepreneurship requires skills in marketing, manufacturing, planning, and managing human resources, to name a few. Money does not assure success, and in some instances it may be a problem because with excess capital, entrepreneurs may encumber (hinder, burden) themselves with unnecessary assets and inefficient organizations.

21. Products and Technology • High- Tech Products: A high- tech product is more of a state of mind than a discernable entity, but calling something high- tech is useful for describing products that currently reflect state- of- the- art technology. • Mid- tech Products: A majority of familiar products are less sophisticated and more readily understood than high- tech innovations, and we classify them as mid- tech. • Low- Tech Products: Perception also plays a role in defining what is meant by low- tech, but we assume a rather unsophisticated viewpoint. Low- tech products are usually thought to be marginal changes or improvements in existing products. • Identifying Opportunities- Refer Page 152 of David Holt Text • Generating Product Ideas- Refer Page 153 of David Holt Text • Mapping New Ideas- Refer Page 154 of David Holt Text

22. The Product Development Process • Idea Generation Stage: is the conscious identification of a product idea that logically addresses an opportunity. • Giving an Idea Form: Once an idea has begun to gel, the entrepreneur must set it down on paper, design it, and if appropriate, make a “bench- model”. • Transition to the Next Stage: If the proposal is made through corporate R & D, it must be accepted and funded. If management cannot share the same vision of success as the innovator, the product may be terminated without fanfare. • Screening the Product: Screening procedures exist in larger organizations whereby a product is submitted to a formal survey among key managers and engineers. The screening process is a subjective evaluation that relies on expert opinion of a select group to rate the proposal for its commercial feasibility.

23. The Product Development Process • The Incubation Stage: Having survived a screening process and obtained funding, the innovator must set about implementing the first stage of actual product development. The product must be devised and a prototype developed. • Product Design: Traditional R&D will follow a prescribed path of turning rough sketches into blueprints. These will be expanded into material lists and a plan for making one item- a prototype. • Making the Prototype: Assuming the innovator has endured the failures and has a design that finally seems workable, a prototype is built and submitted to testing. This stage of development can be quite lengthy and include having several prototypes field- tested under government supervision (or by approved laboratories) to comply with government regualtions.

24. The Product Development Process • Commercialization Decision: The critical milestone activity at this point is to write a formal business plan. The entrepreneur may have written an initial business plan at the proposal stage, but the product has probably undergone substantial stages that will require a revised plan. • The Implementation Stage: The third stage in product development involves limited manufacturing and is called the initial implementation stage (as opposed to the “illumination stage” in the creativity model). This is a preliminary effort to put actual products into the field and to gather market feedback. It is comprised of making a transition from prototype to limited manufacturing. • Gearing Up for Manufacturing: The first step, and one with heavy costs for new equipment and production setup, is the initial process of gearing up for manufacturing.

25. The Product Development Process • Limited Production for Testing: The first actual production run of a new product may require several dozen or thousands of items. • Market Testing: Even a simple product will have to be tested with actual consumers. • The Market- Test Milestone: Results from market tests constitute another milestone in product development.

26. The Product Development Process • Testing an Innovative Process: If the innovation is a process, such as a new method of robotic welding, test marketing is not part of the development scenario. However, testing is done in a controlled environment under rigorous conditions. • When Projects Are Killed: A Postmortem: Even the best plans go haywire, and it is not unusual for excellent products to fail

27. The Product Development Process • The Diffusion Stage: Assuming a product makes it through initial stages to the point of being formally marketed, the process is not complete until the product can prove that it can profitably penetrate the target market. It must be successfully sold through a diffused cross section of the market, showing a pattern of growth in demand. • Reacting to Competition: When a new software program comes on the market, it attracts immediate attention from competitors. This leads to a “leapfrogging” of product improvements in software- constant updates and revisions, new toots and whistles to leap beyond the other guy, only to find the other guy leaping beyond you. • Dealing with False Market Tests: Even well- devised market tests may have fatal flaws that render a product vulnerable once it is introduced. Perhaps the product was introduced at an artificially low price during the test, and a higher price in the actual market will be rejected by consumers.

28. The Product Development Process • Recognizing Management Assumptions: Every new product carries with it a set of assumptions made by management. These include profit forecasts made during development stages, economic forecasts that underpin market demand, scenarios of competition, cost estimates for factors of production, and many more. When one of these assumptions changes, the product may quickly come under scrutiny. For example, a slight change in material costs could render the product a loser, and such a change affected toy manufacturers in dramatic fashion during the 1970s when oil prices soared. Toys made of plastics required petroleum- based resins, and when oil prices tripled, plastic toys became expensive and unprofitable. When something like this happens, management should have contingency plans. Fisher- Price Toys, for example, quickly modified toy designs for wood rather than plastic in response to petroleum costs. Others, such as Tyco, relocated manufacturing to Hong Kong where cheap labor offset higher material costs.

29. The Product Development Process • Beyond Diffusion- A Final Word: While we have identified four stages that take a product from imagination to market introduction, clearly the life- cycle process requires continuous product attention well beyond this early period. If the product is successful, it will enjoy early growth, enter a rapid growth stage, mature as competitors enter the market, and eventually reach saturation in its markets. Beyond that point, new products will be introduced, rendering the existing products obsolete and signaling a period of decline. The later stages may span decades of sales and require organizational changes. Entrepreneurs can, however, recognize the process and be prepared for new generations of products that will emerge.

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