Identifying business opportunities

Idea to business
What is an idea?
• Idea -Content of cognition
• Is every idea an opportunity?
– Clearly needs to be valuable as well
– Connotes exploitation of a customer need

• Why should we evaluate an idea?

– Entrepreneurship: Concerned with the discovery, evaluation and exploitation of
profitable opportunities.
• Successful entrepreneurship requires the ability to balance technical knowledge and
market knowledge
– Many people have technical knowledge and neat ideas based on their technical
knowledge
– BUT do they address an opportunity? Is the idea needed right now or later?
• Is there a need for your cool technology? Question to be asked for every idea

There may be many ideas for businesses and we need to think of these -
– Of all the things that are possible, which are the ones where the difference
between what customers will pay and what it will cost to make is the greatest!
– The more unique the opportunity more is the pay-off, if it is implemented
properly
How to identify an opportunity?
• How do we recognize or create an opportunity?
• How do we know it’s valuable, and valuable for what?
How do we exploit it?
• Where? (e.g., what industry, market segment)
• When? (e.g., in a market’s evolution)
• How? (e.g., what exactly to produce; how to charge)
• Tactics? (e.g., financing; exits; growth rate; appropriating rents)
With what effect?
 Opportunity discovery needs some luck too.

• The odds can be managed once it is discovered.

• We need to remember to be prepared for the opportunity. Just luck will not
enough to achieve success.

• Also, once an opportunity is discovered (due to your prepared mind), then

you need to know what to do with it.
How to identify opportunities?

• Markets grow at different rates

– The idea is to identify a market that is structured and stable but is still
growing and
– It does not require a very large capital outlay
Factors to consider when identifying opportunity?
• Market
– Large market size and growing
– Identify a market niche that provides high value to customers
– Customers are reachable and can be addressed
– No major brand loyalties
– The pay back to the customer can be identified and is repeatable
– The benefit to the customer in monetary terms exceeds or at least covers your
costs plus a reasonable profit
– Potential for product expansion and being a market leader (20%+ share)
– Industry should neither be highly concentrated or highly competitive
• Economics
– Time to positive cash flow
• Cash flows simply put is the difference between the cash that flows in
and cash that flows out
– Upfront capital need to be low
– R&D requirement both initial and ongoing needs to be “low”
– High gross margins (difference between the selling price and the cost of
manufacture)
• Personal harvest – what is in it for you?
– The venture should be high strategic value to a potential acquirer
• Pharmaceutical firms acquire entrepreneurial firms for more than what it is
worth because it of strategic value for them
• Many times technology startups that have accumulated losses and modest
sales get acquired for many times they are worth
• Strategic value come from having important customers, distribution or a
proprietary technology that has strategic value to an incumbent in an
industry

• Does it cover your opportunity costs

– The money that you will make from your personal next best option + other
non-monetary things that you will be giving up
• Competitive advantage
– Competing with incumbents
• Can you compete with existing players if they enter
– Can you produce at low costs – can you achieve economies of scale?
– What are the entry barriers for your competitors?