A question we are often asked is how to evaluate business opportunities? Sometimes business opportunities find you, and on other occasions, you need to diligently search for them. Preferably, your efforts identify multiple opportunities with potential.
Either way, once you have found a potential opportunity, it is important to ensure that it is worthy of the time and capital needed to exploit it. To successfully evaluate business opportunities, you must understand its merits:
- Its risks
- The uncertainty involved, and
- How these factors will likely impact on the outcomes
Committing to an opportunity that is flawed, or not understanding the idiosyncrasies of a high-quality opportunity, can burn large sums of capital and put your income and wealth at risk!
Common pitfalls in evaluating business opportunities
To lower the risk of burning time and capital, the common pitfalls often encountered when evaluating an opportunity, must be avoided.
Regardless of how you find new opportunities, you need to avoid pursuing those that fall materially short of meeting your expectations or worse, placing you under significant duress.
Some of the most common errors stem from the lack of:
- Objectivity – falling in love with an idea and failing to investigate and scrutinise it with sufficient rigour
- Uniqueness – failing to create a product or service that is unique for a specific market segment and instead, imitating others and being forced to compete on price alone
- Industry insight – failing to appreciate the key factors driving industry profitability, how they are changing and how to shape or adapt to them
- Market insight – failing to appreciate the factors critical to the customer acquisition process and the appropriate marketing strategies needed to convert prospects into customers
- Technical requirements – failing to appreciate and account for the technical barriers encountered when creating a new product or service and bringing it to market
- Legal and regulatory requirements – failing to meet the legal and regulatory requirements or protecting yourself and your business from commercial risk and predatory behaviour
Critical factors in evaluating business opportunities
It is prudent to conduct a sound assessment of an opportunity before committing to it.
Being able to exploit an opportunity capable of creating the income and wealth you desire, is both an art and science. Often one of the most difficult tasks is to ensure that your passion and enthusiasm for an intuitively attractive opportunity, does not automatically surpass the need to objectively evaluate its merit!
Fundamentally, when evaluating any business opportunity, you must:
- Ensure there is a customer willing to pay a price for your product or service that is capable of delivering sustainable profits
- Have a product or service with sufficient value, and in the face of competitive rivalry, that has the ability and capacity to maintain that value over time
In evaluating these two imperatives, there are a number of critical factors that need to be considered:
- Uniqueness – the features and attributes of your product or service and the activities and resources needed to deliver it, must be unique. If you do not have something unique for a specific customer, you will be forced to compete on price and making profits will be a gruelling and ongoing battle. You must ensure you have a unique customer value proposition and sound business strategy to maximise an opportunity
- Customers – to achieve sufficient profits, you must find enough customers. You need to carefully review who your customers are, understand what their buying habits are and how much they are willing to pay for your product or service
- Sales growth – to achieve sufficient profits you must create enough sales. You need to build your sales and revenue projections on facts and research to be comfortable that there are sufficient customers, know where they are and how you will reach them. Pure speculation should be avoided and key assumptions tested
- Product availability – if you are creating an entirely new product or service, be sure that your development strategy, deliver schedule and production costs are realistic. Failure to deliver or meet the required cost targets, will severely threaten profits and the potential of any opportunity
Are you ready to seize an opportunity?
Evaluating opportunity is an essential task in the process of selecting those with potential and avoiding those without it. An essential task in creating new ventures, sustaining them and capturing the income and wealth you seek!
While this process commences with spotting opportunity, value creation comes from exploiting the right opportunities, and avoiding those that jeopardise your future!
With a fully stocked opportunity register, and a good understanding of the evaluation process, you can better select the right opportunity.
If you are ready to seize an opportunity, make sure you have a sound evaluation process in place to avoid the pitfalls!
If you would like to learn more about evaluating and capturing the value embedded in business opportunities, give the team at Fortitude Business Consulting a call on 1300 551 040.