Finding And Evaluating Business Opportunities
In this article we shall explore the three key areas of evaluating business opportunities;
i. Characteristics of a real business opportunity
ii. How to locate a profitable opportunity
iii. The process of opportunity audit
Characteristics of a business opportunity
Many entrepreneurs generate numerous ideas for potential businesses. Unfortunately few of these ideas make the cut for a great business opportunity.
Let us look at a few simple characteristics of a great business opportunity.
i. A product/service that creates significant value for potential customers by solving a real problem or meet an unmet need which they are willing and have the ability to pay. Customers will often than not pay for a product or service only if they perceive a benefit whose value exceeds its cost.
ii. A product/service that offers significant profit potential to investors enough to meet their risk/reward expectation
iii. A product/service that matches the capabilities of the entrepreneur and the management team. A great match would be a situation where the entrepreneur and the management team have the managerial skills, financial skills, technical skills and the personal commitment needed to address a business opportunity.
iv. A product/service that is durable. This is a product or service whose profit opportunity will exist for a long time .There should be a growth potential factor. Entrepreneurs need to be careful as there are some opportunities that lack durability even though the demand may be high for a long time. This situation is caused by Low Barriers to Entry. Such a combination of a very obvious and visible opportunity with very low barriers to new competition is very deadly and many have suffered huge losses.
Taking a case of Kenya and the many opportunities that mirror the aforementioned is the M-Pesa business, Car wash business, Chicken rearing; Boda boda (Motor cycle transport) business which are attractive to many would be entrepreneurs but end up wasting their hard earned savings.
How to locate a profitable opportunity
Opportunities for profitable business opportunity are always opening in open and free market economies and only alert entrepreneurs identify them. Let us look at possible areas to look;
New knowledge and technological changes-Since the dawn of time entrepreneurs have been creating new knowledge and technology that have led to great business opportunity such as the telegraph, telephone, internet , social media, soft drinks, money transfer (M-Pesa) and many more.
Regulatory Change-Deregulation in many African states in the late 19th century has led to more open economies hence more business opportunities in very many sectors such as trade in FOREX, transport ,Health, Communication and many more .
Social turmoil and Civic failure-Many African and global governments in general have failed in their role in providing goods and services that are of public interest and good.
Mediocrity in many publicly run institutions have created an opportunity for many entrepreneurs in setting up private schools, tuition services, child day care, transport, private hospitals etc.
Changing Tastes-Many big companies that subscribe to products philosophy (most of whom have no idea) are vexed with their existing products and operations that they often are very sluggish to respond to changing customer tastes. Their sluggishness therefore presents an opportunity for entrepreneurs to exploit the un-met needs.
The Quest for Convenient solutions-Many modern life has provided many households with substantial disposable income albeit little disposable time. Many households have both parents going to work and hence most of them would welcome convenient solutions to life’s annoyance such as car wash, house cleaning and pesticide control, meal delivery, petty errands, child day care and so forth.
Can you think of convenient solutions that you could provide to households in your society?
Below the radar-Many big companies are handicapped in dealing with small business opportunities. Entrepreneurs can take advantage of the rejected projects. Ironically we have observed that the same big companies that do not pursue the small projects end up paying a premium to buy or acquire the same ventures once they have grown significantly.
The Biggest Mistake to avoid
Many people confuse their personal interest with real business opportunities. Passion and commitment make it possible for business owners to put in the long days that success requires but the big question is, is there a significant unmet demand for your proposed product/service, the question and others we talked before in the article need to be answered satisfactorily before a would be entrepreneur leaps into business.
We have seen many people open restaurants because they like to eat others open bookstores because they like being around books and people who read them. A passion for a product or service is great but it’s no substitute for sound business opportunity.
Opportunity Audit
The purpose of this exercise is to reveal the scope and details of the perceived opportunity. The following steps are recommended;
i. Examination of the market for the product or service. The following sample questions should be asked; how will it benefit customers, what is the size of the market, what is the target market share, are there substitutes and so forth.
ii. Analyzing the competitive environment-Similarly the entrepreneur need to ask themselves the following critical questions; how are the customers currently satisfying the perceived need, what are the strengths and weaknesses of competitors, how would the competitors reacts to my product.
iii. Economic Feasibility– Entrepreneurs need to thoroughly understand the economic structure of their business. More importantly they need to know the profit and cost structure of the venture.
Also, there is need to appreciate the different levels of business success in different sectors. For example in retail business, low profit margin is the norm. Successful retail chains have very large volume while on the other hand a successful custom making business have little sale but very high profit margins.
Finally the would be entrepreneur needs to factor in the financial and human resource needs required to succeed in the venture.