Chapter 2: Generating and Protecting business ideas

These are the 4 main sources of IDEAS for entrepreneurs:

 
1. Spotting trends and anticipating their impact
 
For example: Innocent Smoothies, Primark, Nintendo Wii
 
2. Identifying a market niche
 
For example: Red Letter, Gift Experiences, Tangle Teezer, Curved Nail File, Build-a-Bear Workshop
 
3. Copying Ideas from other countries
 
For example: Starbucks, Pink berry (Frozen Yoghurts)
 
4. Taking a scientific approach
 
For Example: Dyson's cyclonic cleaner, Dreamliner Aeroplanes, Apple

Gap in the Market

Definition: Is a business opportunity that is either a completely new idea or adds something different to an existing product or service.

Market Niche

Definition: A small segment of a larger market.

Franchising

Definition of a Franchise: Is when a business (the franchisor) gives the right to supply its product or service to another business (the franchisee).

Types of Franchise

1. Business format Franchise

- The franchisor grants the franchisee with a licence to another person/business to use their business idea (often in a specific geographical area). The franchisee sells the franchisor's products/services and trades under their trade name/trademark. The franchisee also gain help and support from the franchisor.
Example: McDonalds, Subway

2. Distributorship and dealership

- It sells the products but does not trade under the franchise name. This gives the franchisee more freedom over how their business is run.
Example: In car sales a particular showroom may be the main dealership for Toyota cars.

3. Agency

- Where the franchisee sells goods/services on behalf of the supplier/franchisor.
Example: A Newsagent

4. Licensing

- Where the right to produce and sell a product is given.
Example: Microsoft Office, Mickey Mouse


Advantages of a Franchise to the Franchisee:

•  Lower Risk than non-franchisees - 93% of franchises are profitable after 5 years and have higher chance of success
• Established brand name - Proven track record of success
• Helps to attract finance from banks - Because of proven reputation
• Franchisor provides marketing and other services - Lowers advertising and promotional costs.
• Training provided by franchisor
• Franchisee usually has monopoly in local area - Has exclusive rights to be the only one of that franchise in the local area.
• Suppliers usually organised by franchisor - Also has an established relationship making it easier to manage.

Disadvantages of a Franchise to the Franchisee:

• Fee to franchisor and so higher start-up costs - Including: Initial cost and on-going fees (Royalties).
• Franchisor fee may also lower profit margins
• Reputation may be adversely affected by other franchises
• Less independence- Restrictions on how it is run, can't make changes to the market or make decisions.
• Have to sign non-competition clauses - means the franchisee cannot set up a similar business for a significant period of time.

Advantages of a Franchise to the Franchisor:

• Regular flow of income from the franchisee
• Risk shared with franchisee
• Expansion paid for by franchisees
• Rapid growth of franchise is possible
• Franchisor can retail a high level of control

Disadvantages of a Franchise to the Franchisor:

• Reputation may be adversely affected by actions of franchisees
• Can be expensive to monitor franchisees
• Profit from franchisor's idea is shared with franchisees

Protecting a Business Idea

1. Copyright

- Legal protection against copying authors, composers and artists.
- Owner can charge licence fees or royalties on the material.
- Material could be: Books, sound recordings, films, computer programs etc...
- Governed by the: Copyright, Designs and Patents Act 1988

2. Patent

- Can be applied for to prevent others copying an invention.
- The Copyright, Designs and Patents Act 1988 gives patent holders the monopoly (sole producer) the right to use, make, licence or sell the invention for up to 20 years after being registered.
- Full drawings must be submitted to the UK Intellectual Property Office (UK-IPO)

Benefits:

• No close competition for 20 years and so the owner has the monopoly.
• Can be an attractive proposition for a large firm to obtain the patent/ for an investor.

Consequently it can generate: Higher sales, sell at higher prices and patent holder can receive revenue from selling the rights to another firm.

But...

• Expensive
• Takes a long time to apply for and to protect a patent
• Preventing other firms using your patent = high legal costs

3. Trademarks

Definition: These are signs, logos, symbols or words displayed on a company's products or on its advertising, including sounds or music, which distinguish its brands from those of its competitors.

- Registered at the UK Intellectual Property Office (UK-IPO)

Benefits:

• Provides an image that is instantly recognisable to customers.
• Creates a USP by differentiating a product from its competitors
• Makes it easier to launch new products by using widely recognised trademark.