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Identifying and evaluating an opportunity

This is a very difficult task. Most good business opportu­nities do not suddenly appear, but rather result from an entre­preneur being alert to possibilities (constant search for new ideas) or, in some cases, by establishing mechanisms to iden­tify potential opportunities. For example, one entrepreneur asks at every party if anyone is using a product that does not adequately fulfill its intended purpose (that it is inconvenient to use). This person is constantly looking for a need and op­portunity to create a better product. Another female entrepre­neur always watches children at play and which toys they like best and why. She may be a manager of an enterprise produc­ing toys for children and this is her way of searching for any unique toy product for a new venture.

Most entrepreneurs do not have formal mechanisms for identifying business opportunities. Conversations with con­sumers, business associates, members of the distribution system, and technical people are often fruitful. Consumers, such as business associates purchasing products to fit a certain life-style, are often the best source of ideas for a new venture. You may hear someone comment: "If only there was a prod­uct that would..." This comment occasionally results in the creation of a new business.

As a result of their close contact with the user, trade workers of the distribution system also identify product needs. One salesman in a bookstore after hearing students complain about the high cost of books and the lack of service provided on campus started a college bookstore. Many other entrepre­neurs have identified business opportunities through a dis­cussion with a retailer, wholesaler, or manufacturer's repre­sentative.

Finally, technically-oriented individuals are likely to have ideas for business opportunities when working on other projects.

After the opportunity is identified, each opportunity must be carefully evaluated. This analysis allows the entrepreneur to assess if the specific product or service will have returns for the resources required. This evaluation process involves looking at the creation and length of the opportunity (length of time when the product or service are supposed to be in demand), its real and perceived value, its risks and returns, its fit with the personal skills and goals of the entrepreneur, and its advantage in its competitive environment.

It is important that the entrepreneur understand the fac­tors creating the opportunity. Is it technological change, market shift, government policy, or competitive change? These factors and the resulting opportunity have a different market size and time for the product to be in demand (time dimension).

The market size and the length of the opportunity are the primary basis for determining risks and rewards. The risks reflect the market, competition, technology, and amount of capital involved. The amount of capital forms the basis for the returns and rewards. The methodology for evaluating risks and rewards indicates whether an opportunity offers either a financial or personal nonfinancial reward compared with the risks involved. The return and reward of the present opportu­nity needs to be viewed in light of any possible subsequent opportunities as well. Follow-on products (potential opportunities) become very important for a company expanding or diversifying in a particular channel. Many distribution firms prefer to do business with multi-product rather than single-product firms.

Finally, the opportunity must fit the personal skills and goals of the entrepreneur. It is particularly important that the entrepreneur be able to put forth the necessary time and ef­fort required to make the venture succeed. An entrepreneur must believe in the opportunity so much that the necessary sacrifices will be made so that the resulting organization will succeed.