Unit 1 · Topic 1.4 · about 30 minutes
How Do Business Ideas Originate?
Describe how entrepreneurs and businesses come up with product ideas and why they take the risk, then walk an idea through design thinking from a validated problem to feedback on a minimum viable product.
Predict first
Leah is sure that students at her school need an app that reminds them when library books are due. Before she spends her savings on a programmer, what should she do first?
Entrepreneurs and where ideas come from
An entrepreneur is an individual who develops a new business and assumes its risks and potential rewards. If the business fails, the entrepreneur can lose the money and time put into it. If it succeeds, the rewards are the entrepreneur's.
Entrepreneurs are not the only source of new products. Existing businesses launch them too, and both generate ideas in similar ways:
- Observing, interviewing and surveying potential customers to identify needs. A grocery chain that watches shoppers search the aisles for gluten-free food, then asks them about it, learns what to stock and where to put it.
- Investing in market and technical research to identify market gaps, needs that no current product meets. A phone maker that pays for technical tests of every phone on the market might find that none lasts the two full days of heavy use its customers ask for, a gap no rival has filled.
- Developing new capabilities through experimentation. A skateboard company that tests dozens of bamboo designs until one is as strong as maple can now make a board it could not make before.
Why anyone takes the risk
Bringing a new product to market is risky. It takes financial, physical and human resources, which all cost something, and there is no guarantee that the product will bring in enough revenue to cover those costs, let alone earn a profit.
| Resource | What it means | Ana's bakery |
|---|---|---|
| Financial | Money | $85,000 from her savings and a small business loan |
| Physical | Equipment, space and materials | A leased storefront, two ovens, a mixer and the first month's flour and butter |
| Human | People's time and skills | Her own 70-hour weeks, plus two bakers paid $18 an hour |
If customers do not come, much of that is gone. Existing businesses face the same kind of risk: a soda company that launches a new flavor pays for recipe testing, new cans and advertising before it knows whether anyone will buy.
So why bear it? An entrepreneur or an existing business may be motivated by the potential to earn future profits, the satisfaction of solving a problem or the ability to pursue a passion. Ana has baked since she was ten, and she is betting that the neighborhood's first real bakery will turn a profit by its second year.
Design thinking: from a problem to a product idea
Entrepreneurs and existing businesses can apply an entrepreneurial design-thinking process to generate and validate a new business or product idea. It starts with the customer, not with the product.
- Identify and validate a problem, need or want. Observe, interview or survey potential customers. At this stage, validation means gathering evidence that the problem exists, that it can be clearly defined and that multiple potential customers experience it.
- Develop a potential solution, the product idea. This may involve brainstorming, sketching and prototyping, which means building a rough model to see how the idea could work.
- Validate the idea. Gather initial feedback from potential customers on a minimum viable product (MVP): the simplest version of the product idea, with only its core features. An MVP may be a sketch, a description or a model. It does not have to be a finished, working product.
Sort it
Each card is something an entrepreneur does. Decide which step of the design-thinking process it belongs to.
Identify and validate the problem
Develop a solution
Validate the idea with an MVP
Worked exampleFrom a messy parts bin to an MVP
Imani is on her high school's robotics team. Every meeting starts the same way: 20 minutes of digging through bins for the right screws and gears. She wonders whether a better way to organize parts could be a business. Walk her idea through the design-thinking process.
Identify the problem. At a regional competition, Imani watches teams in the pit area and interviews coaches from 12 schools. She asks open questions about how their teams store and find parts, and she does not mention her idea.
Validate it. Ten of the 12 coaches describe the same problem, and four say their teams have bought a part again because they could not find the one they had. The problem exists, it can be clearly defined (teams lose time and parts because small components are hard to sort and find), and multiple potential customers experience it.
Develop a solution. Imani and two teammates brainstorm 25 ideas in one meeting, sketch the best three, and build a rough prototype from a fishing tackle box with relabeled compartments to test the layout on their own team.
Validate the idea with an MVP. Her MVP is a single plastic tray with compartments sized for the 30 parts teams use most, plus a printed label sheet. That is its core feature, and there is nothing else: no lid, no carrying case. She lends it to six teams for two weeks. Five keep using it, and four ask for a lid so parts do not spill in a backpack.
Imani validated the problem before designing anything, then put a bare-bones MVP in front of potential customers. The feedback says the idea works, and that a lid is the next feature to add.
Check your understanding
Dev is thinking about leaving his job to start a bike repair business with his own savings. If he goes ahead, which of these can he reasonably expect?
An outdoor gear company pays an analytics firm to study a year of camping-gear sales and customer reviews nationwide. The firm finds that slow setup is the most common complaint in solo campers' tent reviews, and that no tent sold today can be set up by one person in under a minute. Which idea-generating strategy is the company using?
A large cereal company with steady profits plans to launch a new protein cereal. Why is the launch risky even for a company this size?
Sam thinks commuters at his train station need a faster way to get breakfast. Which finding would best validate that problem at the start of the design-thinking process?
Lena has confirmed that many students at her school struggle to find study partners for the same class. Her idea is an app that matches them. Which of these is a minimum viable product she could use to gather initial feedback?
Course alignment, for teachers
AP Business with Personal Finance topic 1.4, Unit 1: Businesses, Competition, and New Ideas.