Good enterprise idea a business opportunity

EVALUATION STEP 3
EVALUATING THE IDEA AS A BUSINESS OPPORTUNITY

When is a good enterprise idea a business opportunity?

The type of ‘opportunities’ that can be pursued as viable businesses, or enterprises, vary greatly. The ‘lifestyle’ entrepreneur is not going to be looking for a high growth or fast-growth business, whereas the classic entrepreneur may well be looking to make as much money as fast as possible. So what then does constitute a real business opportunity? 

An opportunity results from organising resources (including people, money and materials) to produce something new (either a new process or product or service) which will create either profit or social value for you and/or society. Or as one academic put it, an entrepreneurial opportunity can be thought of as “a situation in which a person can create a new means-ends framework for recombining resources that the entrepreneur believes will yield a profit” (Shane, 2004). 

There are several key issues to bear in mind when attempting to do this.  To begin with, whatever the type and size of your opportunity, you will encounter some fundamentals of business economics that you simply cannot avoid.

Business models and ‘drivers’
An enterprise needs to have a viable ‘business model’ of how it is to create, and deliver value in terms of profit or social value to its owners and stakeholders. Who will pay for it and can it ever produce enough revenue to cover its costs? Many new internet businesses of the dot.com boom era of the late 1990’s could not adequately answer these basic questions, even though the idea behind the new business seemed enticing. [For more on the dot.com boom click here]. For every business there are also a set of key factors, or ‘drivers’, which create growth and help capture value. Different businesses have quite different business models and drivers.  For example, think about the following questions in relation to a supermarket; and also to a high-tech business software consultancy:

• How do they make money?
• Where does the profit come from?
• What are the key ‘drivers’ in the businesses – that make money for the stakeholders? 
• Are these drivers sustainable?

The answers to these questions depend on identifying a clear gap in the market in the first place, and identifying the key characteristics of the particular market and industry that you are entering. It is important to understand the difference between the market you will serve and the industry that you will be competing in. 

Your market consists of the people who will buy your products or services (shoppers or high-tec businesses).

Your industry consists of all the other people who produce products that are the same, similar or close substitutes for your own (food outlets, independent retailers, or other consultancy providers).

For more on business models – what they are and how to develop one for your enterprise click here

A very good introduction to the importance of the ‘market domain’ and the ‘industry domain’ is to be found in John Mullins’ book The New Business Road Test: What Entrepreneurs and Executives Should Do Before Writing a Business Plan. For full details of this, and other books from Mullins, click here.

A gap in the market?

As we have seen, good ideas are only a small part of the business start up process.  Each idea must be exposed to the realities of the market, customer demand, competition, substitute (alternative products) and an appreciation of customers’ needs, ability to pay and so on.  For some further insight into the range of factors that must be considered if an idea is to be developed into a business opportunity click here.

 

 Business case link

Sue Whitehead ran a successful hairdressing salon in Wimbledon. But it occurred to her that, despite the fact that the salon was unisex, she hardly had any male customers. She looked at other salons in the area and discovered that there were salons like hers and basic barber shops which didn't look very cool. She had found a gap in the market and wanted to make the most of it. To read more about how she went about exploiting this gap to create a successful business opportunity click here.

Sources of market information

Understanding the market is a key part of evaluating your opportunity. A useful list of possible sources of data for market information might include the following:

• Internal sources – your colleagues and friends have ‘tacit’ knowledge that may be incredibly useful if shared with you
• Trade associations
• Competitor sources – e.g. Web sites, product information leaflets, reports and accounts
• General guides – here are some examples:
• www.direct.gov.uk - single entry point to over 1,000 Government web sites (inc. DTI; businesslink; ukonlineforbusiness; companies-house)
• www.eubusiness.com
• Market intelligence – from Mintel International (www.mintel.co.uk)
• Key Note Reports (www.keynote.co.uk)
• Kelly’s Business Directory (www.kellys.co.uk)
• Key British Enterprises (Dun and Bradstreet – www.dnb.com)
• Kompass (www.kompass.co.uk)
• UK Banks offer advice and industry data for SMEs; see for example
• www.barclays.co.uk/business
• www.hsbc.co.uk
• www.natwest.co.uk
• www.lloydstsb.co.uk
• The Microsoft web site on www.microsoft.com is a popular source of information
• Real Business: www.realbusiness.co.uk for an online version of this popular business magazine.
• www.smallbiz.uk.com aims to provide quick and easy practical help and information.
• http://www.marketingprofs.com/marketing/online-seminars/235 -  social media marketing research
• http://www.orderannualreports.com/v5/in - annual reports of companies

 

Some alternative views on the ‘opportunity’ 

Different commentators have different views on what, for them, constitute the basis of a good ‘opportunity’.

For the entrepreneur behind the best-selling guide, The Beermat Entrepreneur, the focus should be on the particular benefits offered by your product or service.

   Activity

Think about how your product or service fares against this list.

 

 

 

 

   Activity

And, in order to assess whether your product or service really is the opportunity of a lifetime, how would you answer these questions?

Opportunity of a lifetime

 Business case link

To read why the Kitching family believed they had a huge opportunity because of changes in the law, click here.

Liz Gearing and Rachel Payne spotted a gap in the market - because they couldn't buy the things they wanted - and set about creating their business.  To read how they went about it click here.

For an alternative view on the difference between just ‘a good idea’ and a real business opportunity watch the ‘Ideas: What makes them successful?’ Guy Kawasaki video clip - click the link here. [In this clip Kawasaki considers what the difference is between a brilliant idea that is successful and a brilliant idea that is not successful.]

 

   Activity

How would you go about finding out whether your enterprise idea is viable?

For some ideas on how to research the market click here.

 

The need for innovation

So far, we have focused on the importance of ensuring that your ‘good idea’ is also a genuine business ‘opportunity’. Central to this is the ability to fulfil some need or want in a way that is so far unfulfilled. Very often, this requires the successful implementation of new ideas – or innovation.

The term innovation comes from the Latin innovare meaning ‘to make something new’. Modern day understanding is that innovation is a process of turning ideas into new opportunities for value creation and of putting these into widely used practice.

Innovation is inextricably bound up with the process of entrepreneurship, as Peter Drucker has observed:

“Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or service.  It is capable of being presented as a discipline, capable of being learned, capable of being practiced.” 

 

Why innovation matters…

Innovation is an essential feature for all businesses, from the smallest to the largest.  To see what former Prime Minister Tony Blair has to say about it click here

You will probably have encountered the terms creativity and innovation in a wide variety of settings. Both words are used interchangeably by many writers.  However, they do in fact mean very different things – especially in the context of entrepreneurship and enterprise creation.  In Step 2 you explored creativity – generating new ideas. You can now see that innovation is all about ensuring that these ideas are successfully exploited.  Managing this process can be extremely important for the ultimate success of your enterprise.

 

PEST and SWOT analysis

In order to evaluate whether your enterprise idea is a genuine business opportunity, you may find it useful to carry out a PEST analysis and a SWOT analysis at this point.
For sample frameworks and templates for PEST, SWOT and other evaluation methods that help you to come to an informed decision, click here

The PEST analysis is a useful tool for analysing the external environment in which your enterprise idea fits. The letters of this acronym stand for Political, Economic, Social, and Technological factors. To see an example for a new enterprise in the music industry click here.

Developing your own PEST

• Have a go at developing your own PEST analysis for your enterprise idea. 
• This will involve:
• Understanding both your industry and your market
• Knowing your competitors (how many and who are they?)
• Knowing your customers (how many and who are they?)  NOTE:  your ‘customers’ include suppliers; managers; buyers of services; clients; end-users
• What are the critical success factors for your particular enterprise?

 

A SWOT analysis introduces your Strengths; Weaknesses, Opportunities; and Threats.  It can be helpful to think of it as a mix between an internal analysis (your own Strengths and Weaknesses – which you have already considered in Step 1) and an external analysis (your Opportunities and Threats – in the light of your PEST analysis).

e-tivity (3) – Is it viable? Use the Venture Navigator assessment tool

 

 

Now that you have investigated the market and other aspects of your business you should be in a position to evaluate if the business is viable. Fortunately there is a very useful tool to help you do this – and it is free. Venture Navigator is a method of understanding the viability of an idea at an early stage, before preparing a business plan. The opportunity is divided into seven aspects and the test examines the business idea against each aspect.  It answers the key questions:

1. Are the market and industry attractive?
2. Does the opportunity offer competitive customer benefits as well as sustainability advantages over other solutions to the customer needs?
3. Can the team deliver the results they seek and promise to others?

Venture Navigator has been widely endorsed and is supported by the UK government, so it is a robust tool that you should use fully. Click here

 

Do you have a viable opportunity here?  If YES – carry on to Step 4; If NO –return to Step 2 to try out some further creative thinking about your enterprise.

 

Evaluation Step 3: Further links & reading

Stokes, D., Wilson, N., and Mador, M. (2010) Entrepreneurship, Cengage Learning, Chapters 3, 8 and 14. 

Stokes, D. and Wilson, N. (2010) Small Business Management and Entrepreneurship edition 6, Cengage Learning, Chapters 4 and 5.

Startups.co.uk – a really useful online resource for finding out the details of setting up in business

Smarta.com – a really useful online support service for entrepreneurs with lots of guides and videos.

VentureNavigator – a highly recommended tool, this is a free online business support service offering information resources and business assessments for creating and growing a new business. It also provides assistance for startups via a community of entrepreneurs sharing startup advice.

 

http://www.quickmba.com/entre/business-model - the business model and how important it is

http://businessballs.com/problemsolving.htm http://www.mindtools.com/pages/main/newMN_TMC.htm

Free SWOT analysis framework and  PEST analysis template SWOT analysis, cause and effect diagrams, understanding how processes work, risk analysis, the Ansoff matrix, the Boston matrix, Porters 5 Forces, and more

http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073901910&tc=000KWBL203030113203|3820524367 - - Market research and marketing reports

 

http://www.marketingprofs.com/marketing/online-seminars/235  - social media marketing research

DTI Living Innovation  -  self assessment test on innovation

http://www.orderannualreports.com/v5/index  - Order free annual reports on any business/company.