Page 207 - DNBI_A01.QXD

184

DEVELOPING NEW BUSINESS IDEAS At a less dramatic level during this step of evaluating and selecting
ideas, you need to be considering such major risks as the unreliability
of customer orders, over-optimistic sales projections, inability to
manufacture to appropriate specification and quality levels, and
inability to achieve your cost and time estimates. You need to be aware
of the realities of starting up – because you may have to chase accounts
which other more established players avoid; for example, your risk of
bad debts will be correspondingly higher.

innovation and risk The level of risk is also related to the degree of
innovation involved. The very highest levels of innovation carry very
high risks of failure. Edison demonstrated best practice in innovation
management when he promoted electricity to the market as an
improvement to gas lighting, for example, rather than as a completely
new concept which the market might have rejected outright.

‘Me-too’ products and services which merely copycat existing market
offerings and are devoid of any innovation can be equally risky. The
Tees Valley study quoted previously highlighted the significantly high
failure rate of new business start-ups in Cleveland during the 1980s.
Almost 25 per cent of the start-ups during that period were low entry-
cost activities such as motor vehicle repairs, hairdressing and beauty
salons, almost exclusively focused on the immediate locality.

Table 5.6 demonstrates the complex relationship between risk of failure,
ease of evaluating the opportunity and profit potential. Where on the
spectrum would you place your business idea in its current
configuration?

Table 5.6 Opportunity conditions associated with new venture innovation135

Opportunity New Highly Moderately Slightly Copycat
innovative innovative innovative
conditions invention

Risks Very high High Moderate Moderate to Very high
low

Evaluation Very Difficult Somewhat Easy Easy
difficult difficult

Profit Very high High High to Moderate to Low to nil
potential moderate low

The following sections will help you to explore the extent to which
your appetite for risk matches the level of risk which your business
idea offers.