This guide is all about assessing opportunities as an Entrepreneur. If you’ve done your job right at this point you’ll have several opportunities that you’re considering for your entrepreneurial endeavour. And in fact, that puts you way ahead of most entrepreneurs who consider only one opportunity.
Related: Entrepreneurship in Established Firms
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The question now is which of several opportunities should you pursue?
- The key criteria for assessing entrepreneurial opportunities are, first how significant is the need. Meaning, how many potential customers have the need, and how deep is the pain? Is this an itch, or is it a migraine headache, or is it a gushing wound?
- You’d ideally like to identify a need that many, many people have, and that causes a lot of pain. Second, how effective is your solution at addressing the need? Is it a vitamin pill, or is it a painkiller?
- Third, will there be a large gross margin? By which they mean, is the customer willing to pay, and able to pay, quite a bit more than it costs you to provide the solution? That of course depends in part on how cost-efficient your solution is but also on the competitive intensity in the market and the industry.
- Fourth, how hard will it be for you to acquire customers? Are they easy to identify? Can you reach them? Can you get them to try the product?
- And last. Are you the best team to go after this opportunity? Does it fit with your passion and capabilities? Do you have access to the required resources, including capital?
In an ideal world, you’re going after a big market, where customers have a lot of pain, with an effective product. That has large gross margins, that is it doesn’t cost you very much to deliver.
And a market where it will be easy to acquire customers, and you’re going to do that with the best possible skills and capabilities for addressing the opportunity.
Key Criteria
How significant is the need?
- How many potential customers have the need?
- How deep is the pain? (“itch” vs. “migraine headache” vs. “bleeding wound”)
How effective is the solution at addressing the need? – “vitamin pill” or “pain killer”?
- Will there be a large gross margin?
- Willingness and ability to pay.
- Cost efficiency of the solution concept.
- Competitive intensity.
How hard will it be to acquire customers?
- Are they easy to identify?
- Can we reach them?
Are we the best team to go after this opportunity?
- Fit with our passions and capabilities.
- Access to required resources, including the capital.
Now that’s all a little bit abstract. So, let me tell you a real story:
Alan Cook was Mr Dean’s former student and former business partner. They created a company called Scoop Free, and Scoop Free did was provided automated litter boxes to cat owners. You simply changed a cartridge once a month, and the litter box automatically took care of the waste management. You never had to deal with cat waste, and once a month you simply changed the cartridge. This turned out to be a fantastic business.
They made about $15 U.S. every month for every person who owned a Scoop Free box because they changed a cartridge every month. It was a beautiful business. Alan sold the business a couple of years ago, and after driving a Porsche around Europe for a while, got bored and decided he wanted to do something new.
And so Alan developed a set of criteria for what was next for him. Based on his prior experience with Scoop Free, here were Alan’s criteria.
He said I want to go after a big market. I want to market that has big gross margins, meaning there’s a big difference between the price the customer pays and what it costs me to provide the solution.
He said I’d like strong recurring revenue streams. Meaning I love that once I’ve acquired a customer, they keep buying from me. It’s not a one-shot deal.
But he also took a capabilities perspective and said I’ve got a great engineering team. And great product development capabilities. They work well together.
I’d like to do something that takes advantage of that existing team. They also had good connections to factories in China that can make our products. It’d be great if they could use those connections. And they also had good supply chain capabilities. They knew how to get the product from the factory to the customer.
He also said they knew how to sell directly to the consumer. And they also could support a subscription-based sales model. That’s another thing he’d like to apply to my new business.
Furthermore, he said, to acquire customers, they’ve been able to rely on public relations. That is to mention in the media.
That gets the word out about what they’re doing. So I’d like to do something that will resonate with our friends in the media, in the press.
And lastly, I like to do something in a market that has some obvious potential acquirers, and that speaks to the notion of good exit possibilities. Meaning once I’ve created this next new business I want to make sure there’s somebody there to buy it so that I have a way to get out.
So he had a way to get a return on my investment from a potential to acquire. So this is the actual list that Alan put together.
And they then did is they held a meeting in which they took all of the opportunities that the team had identified. You can sort of see them in the back of this photo on flip chart sheets. They had identified about 50 or 60 new venture opportunities, and then they simply screened those new venture opportunities against those criteria to decide what was next.
Now of course you’re going to have to wait to see what Alan came up with because I can’t reveal what the new opportunity is. But what I wanted to do is expose you to real decision-making, by a real entrepreneur thinking systematically about, how I decide what to do. In some, you want to address an important need. Meaning some combination of a lot of people has the need or those that have the need feel a lot of pain associated with the need.
So that’s the first that you’re addressing a big need. Second is, you want the opportunity to be a great solution. Again, you want it to be a painkiller, not a vitamin pill.
And lastly, you want to do something that plays to your strengths. You should do something that you are best at. That you can excel at. Because that’s going to give you an advantage.
Now your specific criteria will be specific to you, and so you’ll generate your list, but probably quite similar to the list that Alan did. Simply screen your alternatives against those criteria, to decide which opportunities are most promising.
Let me also add that it’s not usually a question of going from 20 or 30 ideas that you have developed to one. There’s often an approach you can take, the tournament approach, in which you say, which 6 or 8 of these are most promising? Explore them a little further.
And then say which three or four of these are most promising and explore them a little further, and then finally select the one that you’ll pursue.
Bonus: Alan’s “Next Opportunity” Criteria
- Big market.
- Big gross margins.
- Strong recurring revenue streams.
- Take advantage of our engineering and product development capabilities.
- Utilize our sourcing connections.
- Flow through our supply chain capabilities.
- Leverage direct-to-consumer and subscription sales capabilities and/or can be sold into channels where they already have strong retail connections.
- Will resonate with our friends in the press.
- In markets with large, “obvious” potential acquirers (i.e., good “exit” possibilities)
Also Read: Types of Enterprises