1. Evaluating the idea as a business opportunity
• Here are a few important initial questions to ask yourself as part of a
business opportunity evaluation.
• Does your business idea have a demonstrated market need?
• Is there sufficient demand for the product or service?
• Is creating the product or service economically feasible?
• Will there be a sufficient return on the investment of starting a new business?
• What is the cost of NOT pursuing this business opportunity (also known
as business opportunity cost)?
2. • If a business idea does have initial merit, you should also perform a
more detailed business opportunity evaluation. One such method is
the RAMP model developed by Ryan P. Allis
• RAMP stands for Return, Advantages, Market, and Potential.
3. 1. Return
• The big question that an entrepreneur should ask is whether a business
opportunity will generate revenue, and ultimately, profit. Without a potential
profit, a great business idea is just a great idea without financial merit.
• Can you make a product that generates more money than you spend?
• How much investment will you need to get the business idea off the ground?
• And ultimately, what are your or your investors’ return requirements?
4. 2. Advantages
• To identify the advantages of pursuing this potential business opportunity,
look at factors that this idea has that others don’t.
• What makes your business idea better than others?
• Is your idea unique, and does it have minimal competition?
• Do you have intellectual property like a patent that gives your business idea
an advantage?
5. 3. Market
• Another pillar in your business evaluation process is analyzing the market. If
there isn’t a big enough market for your product or service, you should
rethink whether this business opportunity makes sense.
• Who will be your target consumer?
• Is there a need for your business idea?
• Can you fill a market need?
6. 4. Potential
• The bottom line of any business is to make money. Without positive cash flow,
you won’t succeed. Business owners with the best of intentions often fail
because the financial potential isn’t big enough.
• Will there be sufficient financial reward?
• Do you see a potentially growing market for the product?
• Do you have others who believe in your business ideas?
• Are there other businesses that are similar (which is a validation that this
potential business opportunity could be worth pursuing)?
7. SCREENING
• Compatibility with the Promoter
• It Fits the Personality of the Entrepreneur
• It is Accessible to Him
• It offers him the Prospect of Rapid Growth and High Return
on the Invested Capital
8. SCREENING
• Consistency with the Government Priorities
• Is the Project Consistent with the National Goals and
Priorities?
• Are there any Environmental Effects Contrary to
Governmental Regulations?
• Can Foreign Exchange Requirements of the Project be
Easily Accommodated?
• Will there be Any Difficulty in Obtaining the License of
the Project?
9. SCREENING
• Availability of Inputs
• Are the Capital Requirements of the Project within
Manageable Limits?
• Can Technical Know-How Required for the Project be
Obtained?
• Are the Raw Material Required for the Project Available
Domestically at a Reasonable Cost? If the Raw Materials
Have to Be Imported, Will there be Problems?
• Is the Power Supply for the Project Reasonably
Obtainable from External Sources and Captive Power
Resources
10. SCREENING
• Adequacy of Market
• Total Present Domestic Market
• Competitors and Their Market Share
• Export Markets
• Sales and Distribution System
• Projected Increase in Consumption
• Economic, Social and Demographic Trends
• Patent Protection
11. SCREENING
• Acceptability of Risk Level
• Technological Changes
• Competition from Substitutes
• Competition from Imports
• Governmental Control Over Price and Distribution
12. Project rating index
After considering all the above factors, the peak of the preliminary screening
may culminate constructing a Project rating index. This method comes in
handy when a firm evaluates a large number of project ideas regularly and
may be helpful to streamline the process of preliminary screening. The
steps involved in determining the project rating index are;
i) Identify factors relevant for project rating
ii) Assign weights to these factors (the weights are supposed to reflect their
relative importance).
iii) Rate the project proposal on various factors, using a suitable rating scale
(typically a 5-pint scale or a 7 point scale is used for this purpose)
iv) For each factor multiply the factor rating with the factor weight to get the
factor score
v) Add all the factor scores to get the overall project rating index
16. Political Factors :-Political factors include government
regulations and legal issues and define both formal and
informal rules under which the firm must operate. Some
examples include:
tax policy
employment laws
environmental regulations
trade restrictions and tariffs
political stability
17. Economic Factors :-Economic factors affect the
purchasing power of potential customers and the
firm's cost of capital. The following are examples of
factors in the macro economy:
economic growth
interest rates
exchange rates
inflation rate
18. Social Factors
Social factors include the demographic and cultural aspects of the
external macroenvironment. These factors affect customer needs and
the size of potential markets. Some social factors include:
health consciousness
population growth rate
age distribution
emphasis on safety
Technological Factors :-Technological factors can lower barriers to
entry, reduce minimum efficient production levels, and influence
outsourcing decisions. Some technological factors include:
R&D activity
Automation
technology incentives
rate of technological change
19. • Environmental Factors
• These factors have only really come to the forefront in the last fifteen years or
so. They have become important due to the increasing scarcity of raw
materials, pollution targets, doing business as an ethical and sustainable
company, carbon footprint targets set by governments (this is a good example
were one factor could be classes as political and environmental at the same
time). These are just some of the issues marketers are facing within this
factor. More and more consumers are demanding that the products they buy
are sourced ethically, and if possible from a sustainable source.
• Legal Factors
• Legal factors include - health and safety, equal opportunities, advertising
standards, consumer rights and laws, product labelling and product safety. It
is clear that companies need to know what is and what is not legal in order to
trade successfully. If an organization trades globally this becomes a very tricky
area to get right as each country has its own set of rules and regulations.
20. Porters five force analysis
• Threat Of New Entrants
• Threat Of Substitutes
• Bargaining Power Of Buyers
• Bargaining Power Of Suppliers
• Rivalry Among Existing Firms
21. Supplier Power
• This refers to the power the suppliers have to jack up their prices. This
will depend on a litany of factors like – how many suppliers are
present in the market, are the goods/services they supply unique and
special, is the quality comparable to other suppliers etc.
• The fewer the number of suppliers the more the concentration of
power in their hands. Another factor will be how difficult it would be
for the entrepreneur to shift to alternative suppliers and how much
would it cost him? The sum total of all these factors will give us an
idea of the supplier power in the industry.
22. 2] Buyer Power
• This is an examination of how easily the buyers can bring down the
prices of the product and services available in the market.
• Again, this will depend on a lot of factors – the number of buyers, the
general order size, demand for new products, the uniqueness of your
product, prices of other alternatives etc. If the buyers are in limited
numbers they can dictate their terms and prices more efficiently.
23. 3] Competitive Rivalry
• This is an important factor in Porter’s approach. The number of
competitors and their capability are both significant factors in an
industry.
• So if a new product on the market already has many competitors it is
a disadvantage. Because both suppliers and customers have
alternatives. But if your product or service has no, or very little
competition then that is a significant advantage to the entrepreneur.
24. 4] Threat of Substitution
• This refers to the customer finding an alternative way to fulfil their
requirements. So they are able to eliminate the need for your product
or service because they found another way to satisfy their needs.
• Say for example your offer IT services of setting up a LAN connection.
But now the customers connect their entire computing system over a
wireless network, and so your services are no longer necessary.
25. 5] Threat of New Entry
• This refers to how easy it is for new players to enter the market. If it is
fairly easy to enter the market with minimum finances and efforts,
then new players will keep entering and increasing the competition.
• This will weaken your position in the market and dilute your market
share. However, if there are some strong barriers to entry it will be
favourable to the entrepreneurs.
26. (a) Porter 5 forces Model–
It helps in analyzing profit potential of an
industry depending upon strength of –
i. Threat of new entrants
ii. Rivalry amongst existing companies
iii. Pressure from substitute products
iv.Bargaining power of buyer
v.Bargaining power of seller
TOOLS FOR IDENTIFYING Business
OPPORTUNITIES–
27. (b) Life cycle Approach → There are four stages a product goes through during his
life cycle:
(a)Pioneering Stage – In this stage the technology and
product is new, there is high competition and very few
entrants survive this stage.
(b)Rapid Growth Stage – This stage witnesses a significant
expansion in sales and profit.
(c)Maturity Stage – It marks developed industries with
mature product and steady growth rate.
(d)Decline Stage – Due to introduction of new products
and changes in customer preference the industry incurs a
decline in market share and profits.
28. (c) Experience Curve → Experience curve analyzes how cost per
unit changes with respect to accumulated volume of production.
• The Experience Curve concept was devised by the Boston Consulting
Group.
• From BCG's research into a major manufacturer of semiconductors, they
found that the unit cost of manufacturing fell by about 25% for each
doubling of the volume that it produced.
• BCG concluded: the more experience a firm has in producing a particular
product, the lower are its costs
• The logic behind the Experience Curve is this:
• As businesses grow, they gain experience...
• That experience may provide an advantage over the competition...
• The “experience effect” of lower unit costs is likely to be particularly strong
for large, successful businesses (market leaders)
29. • If the Experience Curve concept is valid, then it has some significant
implications for growth strategy:
• Business with the most experience should have a significant cost advantage
• Business with the highest market share likely to have the most / best
experience
• Therefore:
• Experience is a key barrier to entry
• Firms should try to maximise market share
• External growth (e.g. takeovers) might be the best way to do this if a
business can acquire firms with strong experience
30. Opportunity Analysis
• An opportunity is a favorable juncture of circumstances with a good
chance for success or progress. It is the job of the entrepreneur to locate
new ideas and to put them into action.
• Opportunity is a set of favorable circumstances associated with a business
idea that award it good chances of progress and future success
• Entrepreneurial opportunities are defined as situations in which new
products, services and processes can be introduced and sold at greater
than the cost of production
• Entrepreneurship can therefore be understood as the activity of
identifying and exploiting new business opportunities
31. Characteristics of an attractive opportunity
• Timely
◦ - a current need, unmet demand or problem (e.g.
vaccine for bird flu, drugs to prevent obesity)
• Solvable
◦ - a problem that can be solved in the near future with
accessible resources (e.g. a cure for cancerous
diseases, a more efficient public transport to reduce
congestion and traffic jams)
32. • Important
– The customer deems their problem or need important to them (e.g.
energy-saving air conditioner or petrol saving devices that work)
• Profitable
– the customer will pay for the solution and allow the enterprise to profit
(e.g. security products, multi function printers)
• Context
– a favorable regulatory and industry situation (e.g. on- line business
transaction , genuine investment schemes that promised high returns)
33. • Opportunity analysis is the verification of the
proposed business that is viable before entrepreneur
spends their time and money into doing the business
plan.
• It is to ensure that we are on the right track.
• Can be shown in a diagram.
