An idea for an enterprise  (Page 3/4)

Creative thinking is essential: An entrepreneur does not imitate, but does something new or improves on something that already exists.

The actions taken by an entrepreneur can be divided into different groups. The following is a broad division within which further subdivisions can be made:

Something that already exists and is readily available and plentiful could be used for something else ( new purpose ). For example: Someone decided to buy the pieces of broken brick that could not be used on a building site and used it for paving at a price which no other paving businesses could match. It was a great success.

Something that already exists can be altered by way of an improvement ( improvement ). The development of the microchip in computer technology is a good example. Another example is the reduction in size of huge computers that filled a whole room, to personal computers (desktops) and later to laptops. A totally different example is where a shop owner decides to diversify by expanding his range of products. He improves upon his existing service.

Something new can be developed that altogether replaces something that is available on the market ( substitution ). At present plastic lenses for spectacles are replacing the older type of glass lenses.

2. Research and describe the idea fully. Make rough notes first and then write down the final description here. Do this thoroughly, because you are going to use this idea for the rest of the module.

My business idea

• Product or service (indicate whether it is a new purpose, improvement or replacement)

• Manufacturing and/or sourcing

• The market (who is going to buy, why, and why they will be able to afford it)

• Marketing strategy

3. Now you must test the financial viability of the business idea. Up to now we have looked at the business idea in terms of product, manufacturing and sourcing, the market (buyers) and the way in which we are going to get the buyers to buy the product (marketing strategy). However, now we must make sure that the idea is actually financially viable. A business is only a business if it shows a profit. That means that we should not sell our product or service at a loss and that the breakeven point (the number of items or service contracts that we have to sell in order to break even) is realistically attainable.

To be capable of doing that, we need to look at the following:

• the selling price;
• the direct cost of providing the product or service;
• the costs involved in running the business (e.g. transport and marketing)

The selling price

The selling price is determined provisionally beforehand on the basis of market research. The research is used to determine which similar products or services exist and what they cost.

The cost of the product

A product cannot easily be created without any costs. For example, even if spring water is drawn and sold, the containers (bottles) still cost money.

Operating costs

Operating costs include anything that is needed to keep the business going, such as transport, salaries, marketing, postage, telephone costs, and so on. Let us do a calculation to determine the viability of a specific business idea. Let us assume that we are going to sell hot dogs at an athletics meeting. It will be only a small meeting and we think we’ll be able to sell 100 hot dogs. After doing some research we decide that R6,00 is an acceptable price. The frankfurters cost R3,00 each and the rolls are R0,60 each. The various sauces that we’ll need cost R25,00. We find out that we’ll have to rent a stall at R50,00 and that we’ll need 20 posters at R8,00 each to market the stall.