Generating & Protecting Business Ideas

The sources of ideas may include brain-storming, own personal experience and business experience. The generation of business ideas must be in relation to a small business with limited resources.

Candidates should be familiar with the formation and operation of franchises and understand the benefits and pitfalls to franchisors or franchisees of operating a franchise as opposed to starting a new business.

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Sources of business ideas

4 Sources of business ideas:

  • Spotting trends & anticipating their impact; Innocent Drinks tapped into the growing desire for healthier lifestyles after being started in 1999
  • Indentifying a market niche; This involves noticing something that is missing from the market or can be improved on
  • Copying ideas from other countries; Howard Schultz of Starbucks saw the coffee bar culture in Italy and thought it could be introduced to the USA
  • Taking a scientific approach; This is where you invent orginal or new products from a university or laboratory such as the "Dyson bagless vacuum cleaner"
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Franchise definition: When a business (the franchisor) gives another business (the franchisee) the right to supply its product or service.

Types of franchise: 

  • Business format franchise; This is where a business grants another business the right to use their business idea (often in a specific geographical area).
  • Distributorship & dealership; This is where the franchisee sells the products but doess not trade under the franchise name.
  • Agency; Where the franchisee sells goods or services on behalf of the supplier
  • Licensing; Where the franchisee has a license to sell & make the franchisors (licensors) product.
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Franchises (Cont.)

Benefits of operating as a franchise:

  • Least amount of start up risk; 95% of franchises last more than 2 years & 93% of franchises calim to be profitable after 5 years.
  • Strong brand; This means the franchisee is investing in a business with a proven track record.
  • Financing is easier; Banks are more willing to give money to someone investing in a proven franchise.

Pitfuls of operating a franchise:

  • The franchisor may not have built up a strong enough brand 
  • Costs may be higher; After buying the franchise ongoing royaltie payments may come out of turnover and thus the franchisee will not earn high profits
  • Other franchisees could give the brand a bad reputation which may have an adverse impact on all franchisees.
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Copyright, Patents & Trademarks

Copyright definition: Legal protection against copying for authors, composers & artists.

Patent definition: An official document granting the holder the right to be the only user or producer of a newly invented product or process for a specified period. 

Patents can be barriers to entry: i.e. strategic tools that protect businesses from competitiors entering the market.

Trademark definition: signs, logos, symbols or words displayed on a company's products or on its advertising , including sounds or music, which distinguish its brand from those of its competitors.

Intellectual property can help:

  • Set the business apart from competitors 
  • Be sold or licensed, forming an important source of income
  • Offer customers something new & different 
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