Topic 1.4 · How Do Business Ideas Originate?

How Do Business Ideas Originate?

Entrepreneurs find ideas by studying customers, accept risk in pursuit of rewards, and validate ideas through a design-thinking process and an MVP.

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Learning objectives

1.4.ADescribe strategies entrepreneurs and businesses use to generate new product ideas.
1.4.BDescribe the risk involved in bringing a new product to market and the reasons entrepreneurs and existing businesses are willing to incur the risk.
1.4.CApply an entrepreneurial design-thinking process to the generation and validation of a new business or product idea.

Objective statements © College Board, quoted from the Course and Exam Description.

An entrepreneur develops a new business and takes on its risks in exchange for potential rewards. Existing businesses also innovate constantly. Both need a reliable way to come up with ideas customers actually want.

Where ideas come from

Observing, interviewing and surveying potential customers to discover unmet needs
Market and technical research to find gaps no one is filling
Experimentation that builds new capabilities

Why take the risk?

Launching a product requires financial, physical and human resources, and each costs money. Nothing guarantees the product will earn enough revenue to cover those costs. Entrepreneurs bear this risk because of:

The potential to earn future profits
The satisfaction of solving a problem
The chance to pursue a passion

The entrepreneurial design-thinking process

Identify and validate the problem. Observe, interview and survey potential customers. Validation means evidence that the problem exists, can be clearly defined, and is experienced by multiple potential customers.
Develop a solution. Brainstorm, sketch and prototype a product idea.
Validate the solution. Gather feedback from potential customers on a minimum viable product (MVP): the simplest version with only core features.

Key terms

Entrepreneur: An individual who develops a new business and assumes its risks and potential rewards.
Design thinking: A customer-centered process: identify and validate a problem, develop a solution, then validate the solution with customers.
Validation: Gathering evidence that a problem exists, can be clearly defined, and is experienced by multiple potential customers. Later, it also means gathering evidence that a solution works.
Prototype: An early model of a product idea used to test and refine it.
Minimum viable product (MVP): The simplest version of a product idea, with only core features. It may be a sketch, a description or a model, and is used to gather early customer feedback.
Business hypothesis: A testable statement about customers, the problem or the solution that research can support or reject.

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