Concepts of business venture

Business Projects and Innovation

Business projects are concepts that can be developed by an entrepreneur or organization in order to increase productivity. Although most innovations are unique, others are just tweaks on pre-existing openings. For example, a person may want to change the essence of how business processes are carried out within a company. Additionally, manufacturing processes need to be adjusted to comply with new technologies. As a result, there would be a motivation to acquire innovative market tactics. In a scenario where a particular business is facing stiff competition, stakeholders may want to design alternative products or modify the nature of their services to make them unique and appealing. In the end, new opportunities are explored for such operations to remain relevant in a competitive market.

Sources of Business Ideas

In this discussion, various sources of business ideas are identified. For example, opportunity for improving the quality of coffee, customisation of clothes and items, and venturing into intermediary business. Amongst the three opportunities, a detailed explanation of the benefits of participating in intermediary business is discussed. It is accompanied by detailed business models, value propositions and relevant theories that guide investment decisions.

Contents

1.0 Introduction4

2.0 Presentation of three business venture concepts summaries4

2.0.1 Improving Quality of Coffee4

2.0.2 Customisation of Clothes and Items4

2.0.3 Engagement in Intermediary Business5

3.0 Fully Developed Business Model for an Intermediary Business5

3.0.1 Value Proposition5

3.0.2 How Value is Created5

3.0.3 How Resources, Activities and Partners are Organised7

3.0.4 How Value is Captured7

4.0 Step-by-Step Explanation of the Process of Business Model Design7

5.0 Critical Reflection on the Process of Creating an Entrepreneurial Venture8

6.0 Conclusion9

7.0 References 10

8.0 Appendix11

1.0 Introduction

Business ventures are opportunities that are either acquired or originally created by an entrepreneur. As a result, business organisations and individuals willing to expand their financial income must explore new avenues for development (Jenkins 2009, p.35). In the wake of technology, most business ideas have been linked to online operations and acquisition of technologically compatible modes of business. Before deciding on the type of products to sell or complementary services to offer, it is important to design appropriate strategies for evaluating the success and possibility of gain from any business venture. By creating appropriate models, conducting piloting tests and further, researching on risks that can hinder performance, a good model can be established. Upon realisation of the factors that can reduce profitability, necessary measures can be taken to either eliminate or mitigate possible risk avenues. It is also important to benchmark an upcoming business venture against any already established organisation. Therefore, performance of evaluation and adjustments on the business will be greatly improved.

2.0 Presentation of three business venture concepts summaries

Some of business opportunities that can be exploited include:

2.0.1 Improving Quality of Coffee

When establishing this business venture, potential customers include: ordinary coffee consumers, students and employees within the city.

An opportunity for improving the value of a product can be achieved through providing a superior variety compared to ordinary types being offered in the market (Larson, Teisberg and Johnson 2000, p.7). Therefore, a new business can be supplying a better tasting coffee, dealing with an organically grown brand and engaging artists who can appropriately craft it to satisfy customers’ wants. Consequently, operating the business from a website will possibly improve network base. This business venture is unique since it will offer an experience that customers have never tasted before. With the rise in technology, many customers will possibly order online and require for delivery to their places of residence or offices.

Therefore, there will be need to increase the coffee prices in order to cater for the overhead expenses meant for achieving the desired quality. With efficiency in services and improvement in quality, customers are likely to accept the increased prices in exchange for additional value. For both coffee stores, secure payment methods like credit cards will be accepted. Customers purchasing from the company’s website will also be advised to pay through credit cards or PayPal.

2.0.2 Customisation of Clothes and Items

Another business opportunity can be the customisation of clothes, items and shoes. Consumers are likely to get much satisfaction when they are associated with branded items. In this cases, potential customers are likely to be celebrities, business organisations, entertainment bands and individuals willing for a unique taste of fashion.

These groups of customers are favourites because in most organisations, workers are required to wear uniforms while on duty. However, small scale companies can only afford to acquire clothes of similar design and colour for their workers. They cannot afford to pay for branding costs displaying their logo, employees’ names and company’s slogans. Consequently, individuals with a unique taste of fashion may be obsessed with a feeling of finding outstanding customised design and wear. It will, therefore, require for branding and designing of their clothes, shoes or items as per their specifications.

The business will charge higher prices on customised clothes and items. For this reason, the additional price will cover for the compensation of skills and resources used in designing unique logos and branding styles. Payments will be allowed through credit cards and online payment methods like PayPal in a move to secure the company’s transactions.

2.0.3 Engagement in Intermediary Business

Lastly, an interesting business venture is the engagement in a supply chain in a view to assist another company to expand its operations. In this case, the newly established business will be acting like an intermediary which links customers to their preferred producers. Therefore, the major customers for this business are final consumers and primary producers.

By establishing an intermediate company, exchange of information is facilitated between primary producers and final consumers. While consumers are demanding for high quality products at affordable rates, producers are asking higher prices in exchange of the value created (Carroll and Shabana 2010, p.93). Therefore, an intermediary will be responsible for breaking the bulk of goods obtained from the supplier and sell them to target market at affordable prices and in small quantities. An intermediary can also establish a local store where buyers can easily access and bargain for prices. On the order hand, the producer will be relieved of the stress of finding customers, paying for warehouse and reducing prices to meet customers’ demands. In the long run, consumers and producers will benefit from the continued production of high value services. At the same time, the newly established intermediary will gain profits by acting as a link between these two parties.

While final consumers might be paying by cash, producers are likely to transact through secured means like PayPal or credit cards due to large amounts of cash involved. Consumers will incur additional expenses since quality products are availed to them in affordable quantities while producers will agree a reduction on their wholesale charges to honour the intermediary of an effort to search for consumers.

3.0 Fully Developed Business Model for an Intermediary Business

3.0.1 Value Proposition

Value proposition is the obligation of a business to provide high value products or services as earlier agreed. It represents the measurable benefits that customers can derive from a commodity (Frow and Payne 2011, p.236). While designing a model for starting an intermediary business, some of the value propositions to be achieved might be delivering quality products to consumers at affordable rates, relieving producers the bulk of storage, providing useful information about trending market needs, and lastly, presenting consumers’ interests. While developing this proposition, an organisation must consider the possible benefits that can be obtained from the venture, necessary costs and benefits that such venture can create to its customers.

3.0.2 How Value is Created

Value of a product can be created by improving its quality. An intermediary business that aims at improving customer’s satisfaction must understand its target market and their needs. Such organisation must also differentiate its products from competitors to achieve a unique experience and satisfaction. Models like marketing mix and balanced scorecard can be used to evaluate the utility derived from such products. Value propositions are designed to improve a product’s superiority and demand (Frow and Payne 2011, p.237). Therefore, a six stage model can be used to explain this scenario.

The first step of a value proposition model is the identification and analysis of market segments. Target customer base can be composed of existing clients or potential customers. Secondly, there is need to establish and analyse current customer value derived from the business’ activities that are already in place. Thirdly, a comprehensive evaluation of the opportunities that can leverage the values are also identified. Consequently, a business must evaluate its capabilities to deliver value experience currently demanded in the market. Evaluation can be achieved by balancing the equation where value = benefits – costs (Frow and Payne 2011, p.239).It is also prudent to identify alternative aspects and differentiation strategies that can be used to improve customer experience. Lastly, there needs to be surety and proof that value proposition had been achieved.

A diagrammatic illustration of the Value Proposition Canvas

Figure 1. Obtained from OptinMonster.com by Telio, 2016

When generating an appropriate business model, it is important to identify the most suitable and viable business model that can be explored using the company’s available resources (Johnson, Christensen and Kagermann 2008, p.66). During designing and modelling of strategies, considerations should be made as to whether the profitability of such venture suits the amount of resources to be applied. Afterwards, value proposition is determined and a profit model is also designed. For an intermediary business, there is need to establish if the profits can be obtained by selling quality products at higher prices. On the other hand, the business must coordinate with the producer to ensure that wholesale prices are relatively lower to allow accrual of profits having broken the bulk to sell to final consumers.

While validating the customers’ interest, the intermediary needs to design a working concept for balancing the needs of both final consumers and primary producers. Since consumers and producers are equally important to this business, an intermediary has to take necessary caution to ensure that each one is treated fairly. Therefore, in developing a working concept, the business must conduct a customer discovery research aimed at finding solutions to already identified problems (Yi and Gong 2013, p.1281). Having established a model, the products identified should be aligned to the market demands.

Consequently, there is need to develop a business venture that incorporates all the stakeholders. The intermediary must inform consumers on benefits of acquiring high value products while producers are cautioned against charging exuberant prices on commodities. Having assembled a working team, a business can then obtain resources for managing and controlling its operations. In practice, both financial and human resources are necessary. An intermediary would need financial resources to acquire commodities from the primary producer while human resource will be necessary in breaking the bulk and delivering products and services to consumers.

Therefore, the process of creating value can be represented as a four-phase cycle that involves conception of an idea, design of model, actualisation of the plan and evaluation of services.

Figure 2: Obtained from uservoice.com by Fernandez, 2017

3.0.3 How Resources, Activities and Partners are Organised

In managing the operations of an intermediary, it is appropriate to schedule activities according to financial and human resources available. While financial resources can be obtained from savings or external sources like borrowing, human capital can be acquired in form of skilled or unskilled employees. The operations manager at an intermediary business needs to verify that only commodities on high demand are ordered from the producer. The manager also supervises activities during to repackaging of goods into smaller quantities. Organisation’s activities must be properly coordinated so that space is not used up for delivery of other units. As a result, a vibrant marketing team should be in place to promptly deliver commodities to places of demand. Important partners to this intermediary business are final customers and primary producers. Employees and other organisations delivering support services are considered as internal stakeholders

3.0.4 How Value is Captured

Value of this venture can be acquired by reducing associated costs and improving resulting benefits (Yi and Gong 2013, p.1280). In an attempt to reduce overhead expenses, the intermediary can request delivery costs of goods to be incurred by producer. Furthermore, only appropriate quantities should be delivered to relieve the intermediary on costs of storage. In return, the business will charge relatively lower prices on its products thus attracting more customers. When customers are satisfied with both the prices and quantities provided, their need for value is achieved. The business also requires to achieve benefits from its operations. In this case, a positive difference between benefits derived and costs incurred will imply profitability. Lastly, the producer must also obtain value of its activities in order to sustain its development. Since high quality products will be on demand, revenues collected by the primary producer are likely to increase. The extra cost will be meant to cover for expenses of acquiring raw materials.

4.0 Step-by-Step Explanation of the Process of Business Model Design

Ideas for establishing this business originated after an observation of market imbalance between final customers and primary producers. As a result, there was need to bridge the gap between consumer’s descriptions and producer’s items. For example, in a scenario where grade 1 sugar would cost $ 400 per kilogram, only a few consumers will be ready to buy that commodity. Most of middle and low income earners would opt for cheaper grade 3 sugar costing $ 100 per kilogram. After a prolonged observation of the market and an intensive analysis, an idea was generated that 1 kilogram of grade 1 sugar can be repackaged into quarter packets and sold at $ 80 while making a profit. Therefore, middle and low income earners will be able to obtain the grade 1 sugar and have a taste of it. In the long run an intermediary will realise $ 320 from the sale of repackaged 1 kilogram of grade 1 sugar. In order to gain a profit, the established intermediary must bargain with producer to lower supply costs and reduce whole sale prices due to purchases made in bulk. Possibly, the producer can lower its wholesale prices to $ 280 per kilogram of grade 1 sugar. Therefore, all the three parties would have benefited from the trade.

The idea of intermediary business was chosen because it aimed at creating a balanced transaction between consumers and producers. In most business scenarios, consumers are forced to forego high utility at the expense of cheap products. At the same time, producers are taking advantage of uniformed consumers by charging exaggerated prices on basic commodities. Therefore, this idea would enlighten consumers and also provide useful information to producers on market trends.

Before deciding to actualize this idea, it was necessary to make a choice on competing factors. The major decision was choosing amongst the presented business ideas, the most appropriate venture since both opportunities were aimed at improving customer’s satisfaction. For example, starting a business of coffee supply would improve customer satisfaction while customization of clothes and items would promote business brand name and achievement of unique fashion amongst individuals. However, there was need to develop a venture that also bargained for reduced prices to favour middle and low income earners. Therefore, the main supporting evidence used in this business was the optimization principle of improving customer experience while charging lower prices and increasing the producer’s volume of sales. An example is the case of breaking the bulk of grade 1 sugar costing $ 400 to affordable quarter units costing $ 80.

In developing this model, some of the major frameworks that helped in decision making include procedures of generating a business model, methods of validating customer interest, developing a business venture and techniques for identifying entrepreneurial opportunity. A combined analysis of these aspects assisted in deriving three business ideas and the identification of the most appropriate topic to discuss.

5.0 Critical Reflection on the Process of Creating an Entrepreneurial Venture

Major theories applied in the design and creation of this venture included; theory of decision-making under uncertainty by Frank Knight. This theory stated that entrepreneurs must be able to predict future business opportunities amidst uncertainties (Langlois and Cosgel 1993, p.459). That entrepreneurs had to make toughest decisions in predicting outcomes of the unforeseen future and make sane decisions meant for business success. By utilising this theory it helped in deciding the best idea to venture. From the presented three ideas, establishment of intermediary business was considered the most riskless opportunity. Since investments are based on the unforeseen future, a promising, riskless and profitable business would be the optimum decision. By considering the other ideas, coffee business could be easily substituted by other beverages while customisation of clothes and items could be easily overtaken by established textile firms. On the other hand, customers would always demand for an intermediary who advises them on appropriate products to purchase as producers also enquire about trending market demands.

Theory of gales of creative destruction was developed by Joseph Schumpeter. It stated that opportunities are endless and can be easily identified by an innovative entrepreneur who is ready to revolutionize production patterns (Witt 2002, p.19). Such opportunities were broadly categorised as either original ideas or improvement of the existing ones. In this study, improving quality of coffee and customisation of clothes would be an improvement of already existing opportunities. Conversely, establishment of intermediary business would be considered an original idea. In the long run, both aspects of innovation are important since they work towards improving customer value, however uniqueness can only be achieved by starting an original idea.

Lastly, theory of entrepreneurial alertness was also utilized. It was developed by Israel Kirzner. The theory stated that entrepreneurs can generate diverse ideas since people are exposed to different types of information, at any given point (Gaglio and Katz 2001, p.99). As a good entrepreneur it was suggested one should be an intermediary who coordinates between various aspects of the market. Hence the need to choose on an intermediary business that could link final consumers to products of their specifications. At the same time, primary producers are fed with relevant information that guide them on product design and quantities to supply. Since entrepreneurial decisions are influenced by information a person collects, it is therefore important for any aspiring entrepreneur to gather business magazines, attend trade exhibitions and business model seminars in order to acquire enough skills.

6.0 Conclusion

Business ventures are opportunities that can be explored by an individual or any other business organisation in order to bridge a gap in the market. Such opportunities can be original ideas or an improvement of already existing ventures. Regardless of the nature, a business venture should only be aimed at improving customer value. Such benefits can be achieved through delivery of high quality products and services while charging fair prices. On the other hand, a business must also obtain its value by ensuring that benefits gained are higher than costs incurred. The process of creating value for customers and business was termed as value proposition. In the discussion three possible ventures were highlighted, however the most appropriate choice was establishing an intermediary. The idea was critically analysed using various theories to evaluate its benefits.

7.0 References

Carroll, A.B. and Shabana, K.M., 2010. The business case for corporate social responsibility: A review of concepts, research and practice. International journal of management reviews, 12(1), pp.85-105.

Fernandez m., 2017. 32 Value Propositions that are Impossible to Resist [Online] (updated 2017) https://optinmonster.com/32-value-propositions-that-are-impossible-to-resist/ [Accessed on December 28, 2017]

Frow, P. and Payne, A., 2011. A stakeholder perspective of the value proposition concept. European journal of marketing, 45(1/2), pp.223-240.

Gaglio, C.M. and Katz, J.A., 2001. The psychological basis of opportunity identification: Entrepreneurial alertness. Small business economics, 16(2), pp.95-111.

Jenkins, H., 2009. A ‘business opportunity’ model of corporate social responsibility for small‐and medium‐sized enterprises. Business ethics: A European review, 18(1), pp.21-36.

Johnson, M.W., Christensen, C.M. and Kagermann, H., 2008. Reinventing your business model. Harvard business review, 86(12), pp.57-68.

Langlois, R.N. and Cosgel, M.M., 1993. Frank Knight on risk, uncertainty, and the firm: a new interpretation. Economic inquiry, 31(3), pp.456-465.

Larson, A.L., Teisberg, E.O. and Johnson, R.R., 2000. Sustainable business: Opportunity and value creation. Interfaces, 30(3), pp.1-12.

Telio S., 2016. How to Collect Customer Feedback Using Interviews and Focus Groups [Online] (updated 2016) Available at https://community.uservoice.com/blog/customer-interviews-focus-group-best-practices/ [Accessed on December 28, 2017]

Witt, U., 2002. How evolutionary is Schumpeter's theory of economic development? Industry and innovation, 9(1-2), pp.7-22.

Yi, Y. and Gong, T., 2013. Customer value co-creation behaviour: Scale development and validation. Journal of Business Research, 66(9), pp.1279-1284.

8.0 Appendix

The diagram below illustrates how businesses design their products to acquire desired benefits. It shows that producers can achieve value by designing unique features that improve customers’ experience. On the other hand, consumers are striving to satisfy their unlimited wants using available products that match their budget. In case they cannot acquire a given utility, individuals can readily opt for the product’s substitutes.

Figure 1. Obtained from uservoice.com by Telio, 2016

Another illustration below explains that the process of creating value can be achieved in four phases. With the first step being conception of an idea. Afterwards, a model is designed. The planned activities are then actualised in the third phase. Lastly, services rendered are evaluated

Figure 2: Obtained from OptinMonster.com by Fernandez, 2017