Be it an amateur business-dreamer thinking about opening his own venture or a seasoned entrepreneur looking to invest in a new business, thorough research is needed.
Well, as they say, prevention is the best form of cure. So, when it comes to business – Planning is the best form of prevention.
Opportunity screening is the process of evaluating a business opportunity by carefully studying important factors such as market size , market structure, capital required, existing competitors, legal regulations, trend forecasting and most importantly, the scale of disrupting the market through innovative ideas and strategies.
Let’s take a look at four essential factors to consider when evaluating a business opportunity:
1) Identify the Market Need
A lot of good ideas go to waste and a huge chunk of small-businesses close prematurely because they didn’t look at the bigger picture.
Does your potential product or service have the viability to survive the ever-changing market and the brutal economy?
Conduct surveys, initiate pilot runs and conduct focus groups to thoroughly test out your product before you dream about the home-run.
2) Product Differentiation
Do similar products already exist in the market? How well are they doing?
If your product is the first one to be out there, you are very fortunate indeed. It’s very rare to create something completely new these days.
On the other hand, on the most likely scenario that your product is similar to existing ones in the market, there’s a lot to be taken into account beforehand.
How does your product differ from the ones that are already out there?
Why would customers choose your new product over established ones?
What’s your unique selling point(USP)?
The answer lies in innovation or offering something unique. It could be your efficient manufacturing techniques that help you sell your product at a lower price point. It could be the way your brand and promote your product or the additional features you offer at competitive prices.
Quality products at fair prices are the best way to woo customers to your side of the border.
3) Market Size and Analysis
Does your product aim to appeal to a nice market or large scale market?
Large scale market means more competitors and lower price points while niche markets make it harder to sustain long term profitability in addition to higher advertising costs.
Are your products catered to certain genders, races, nationalities, age groups or geographical areas?
How fast is your target market expanding or contracting?
4) Capital Requirement
Cost Analysis is a fundamental part of weighing a business opportunity. Poor financial planning is an operational nightmare.
How much does it cost to manufacture your products? What is the total capital needed to kickstart your business?
Do you rely on your personal funds? Do you borrow from the market and end up paying high interest-rates?
Having definitive and feasible answers to all these factors and problems is the only way to capitalise on an exciting idea.
Planning and market research is what transforms exciting ideas into successful business ventures.
Written by Gagan Dhawan
Whether you're starting a small business from scratch or purchasing an existing company or franchise, you need to take steps to evaluate the business’s potential and your abilities to make it work. Your investigation must be thorough, analyzing the risks and benefits of the opportunity. The evaluation of business requires financial, product and human resource analysis. Review the potential and the pitfalls inherent in the business to make an informed decision and increase your chances of success.
According to the Arkansas Small Business Development Center, most small businesses fail because of poor management and the owner’s inability to manage resources. Before you even start researching the feasibility of your idea and the market you plan on entering, evaluate your own talents, desires and goals. Consider your willingness to take risks as well as the amount of time and energy you’ll need to make the business a success. Review your financial, personnel and marketing skills as well to ensure you have the necessary background to make a success of your new venture.
After learning about the investment required to purchase the existing business or franchise or the start-up costs you’ll need initially, evaluate your own resources. Part of a financial assessment includes the amount you have in personal savings to add to the initial investment. Banks typically require entrepreneurs to come up with a portion of the investment to show good faith and willingness to take a risk with the lender. Assess the financing available through the seller, investors and lenders when evaluating your chances of succeeding.
To thoroughly understand what you’re getting into, perform an extensive market research project to determine the feasibility of your business. In addition to gleaning statistics of trends and current customer buying patterns, you need to know who your customers are, where they are located and what kind of competition exists in your area. Consider market research your first steps in opportunity analysis that help you understand exactly how you will sell products or services to a specific market.
A complete evaluation of a business opportunity includes a risk assessment. An honest appraisal of the potential risks inherent in your new business can help you prepare for possible problems and decide whether the risks are worth the investment. Details you need to consider in the risk assessment process include factors that could negatively affect your business, such as the general state of the economy, weather events and your competition's competitiveness. Internal considerations should include your own health, the level of credit available to you and the number and type of employees you’ll need to hire to run the business efficiently.
Finally, evaluate the amount of support you expect to receive from your family and the community. You’ll most likely spend an inordinate amount of time in the initial stages of opening your new business, which could affect your family relationships. Opportunity evaluation requires professional and personal considerations. Outside hobbies and commitments may need to be curtailed for some time. Attitudes and cultural preferences in your community can impact your ability to grow and sustain your business. Evaluate your standing on all these fronts to ensure you’ve got the necessary support to be successful.