Question

Jim Boothe has invented dozens of different products in his 25 years as an engineer to a large research and development lab. For some time, he has been thinking of leaving his current company and starting his own but has never seemed to have the nerve to do so. Jim feels that with his children grown up and their own, now would be a good time to start his own business Having been an avid bicyclist for many years, Jim had invented an automatic derailleur for a 15-speed This can be easily attached to any bi bike. derailleur cycle. The user does no shifting as the bicycle shifts the gears of the bicycle automatically (depending on ter- rain) much like the automatic transmission on an auto mobile. Jim feels that this invention has significant mar- ket potential, particularly since he has observed a rapid growth in the bicycling industry. This growth has been elated to Lance Armstrong's success in the Tour de France, increased interest in physical fitness, and tech nological improvements in bicycles allowing for off road travel as well as more comfort for longer-distance riding. In his cycling club alone, the membership has doubled in the past two years and to his knowledge is consistent with a national trend. Jim feels that all he needs to do is to write a business plan and submit it to his bank to obtain the estimated $100,000 needed to get started. He is willing to support this by taking out a second mortgage as collateral. Jim feels that he can subcontract the manufacturing of the derailleur and the bicycle separately; then upon receiv- ing the items, he can complete the final installation and fabrication functions before shipping to customers. Jim's wife Nora is a little skeptical about him leaving a good job for the purpose of fulfilling one of his many fantasies or lifelong dreams. She is the more practical of the two and is concerned about their financial future and the commitment that will be required of Jim in the first few months of the start-up. Taking a second mortgage on the house makes her uncomfortable. She is also not sure Jim is the entrepreneurial type. In spite of all the concerns, Jim has prepared business plan that he expects to submit to his banker in the next few days. The business plan consists of six parts: a one-page summary of the plan, a detailed de- scription of his invention, forecasts of growth for the bicycle market, a one-year profit and loss statement, plan for the manufacturing and final fabrication of the derailleur and bicycle, and an appendix which con tains surveys with some of his friends who own ten- speed bikes.

1. What types of risk would someone like Jim assume if he decided to develop this invention into a business venture. (There are at least four risks that can be mentioned.)

2. What are some ways to research this concept?

Answer 1

1. Following are the risks which Jim must assume before entering this new business venture.

• Jim has to realize that taking a second mortgage on the house can be very risky .
• He has taken survey and feedback from his friends. This may have an element of bias.
• The manufacturing of bicycle and derailleur separately may not be appropriate. Assembly may be difficult.
• The invention may not be as profitable as is perceived by Jim.
• There could be some issues with the product.
• He could endanger his personal financial state.

2. Jim must invest time and energy in researching about the new business. Take feedback from professional as well as casual cyclists. Spend in promoting the product. Create awareness among potential customers.