1.1.16. Assessing Opportunities

This session is about assessing opportunities. If you’ve done your job right at this point you’ll have several opportunities that you’re considering for your entrepreneurial endeavor. And in fact that puts you way ahead of most entrepreneurs who consider only one opportunity. 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 head ache, 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 a vitamin pill or is it a pain killer?
Third, will there be large gross margin? By which we 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 in 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 a product that’s really effective. 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.
Now that’s all a little bit abstract. So, let me tell you a real story about a friend of mine. Alan Cook was my former student and former business partner. We created a company called Scoop Free, and what 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. We 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 awhile, 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 really like strong recurring revenue streams. Meaning I love it that once I’ve acquired a customer, they keeps 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. We work well together.
I’d like to do something that really takes advantage of that existing team.
We also have good connections to factories in China that can make our products. It’d be great if we could use those connections. And we also have good supply chain capabilities. We know how to get product from the factory to the customer.
He also said we know how to sell direct to consumer. And we have an ability to support a subscription based sales model. That’s another thing I’d like to apply to my new business.
Further more he said, in order to acquire customers we’ve been able to rely on public relations. That is to mentions in the media.
That gets the word out about what we’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 I have a way to get the return on my investment from a potential acquire. So this is the actual list that Alan put together. And what we then did is we held a meeting in which we 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. We had identified about 50 or 60 new venture opportunities, and then we simply screened those new venture opportunities against those criteria in order to decide what’s 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 do I decide what to do? In some, you want to address an important need. Meaning some combination of a lot of people have the need or those that have the need feel a lot of pain associated with the need. So that’s 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 really do something that plays to your strengths. You should do something that you are really best at. That you can really excel at. Because that’s going to give you advantage. Now your specific criteria will be specific to you, and so you’ll generate your own list, but probably quite similar to the list that Alan did. Simply screen your alternatives against those criteria, in order 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.

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