• Wednesday, April 24, 2024
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Sizing up an entrepreneurial opportunity

Sizing up an entrepreneurial opportunity

Before launching a new business, you will need to size the opportunity by creating an opportunity report. The Opportunity Report can be viewed as a high-level business plan or a precursor to the feasibility study.

Generally speaking, your opportunity report should contain the following sections:

Executive Summary
The Executive summary articulates what your business is, and why it is attractive. The summary should be short, concise, appealing, and compelling.

Opportunity Description
This section is used to describe the customer pain/need you identified, your product/service, and your value proposition. The key question is why and how your product/service can solve the customer pain. The following questions may give you some thoughts.
What is the customer pain?
How painful is the pain?
Who are your customers?
What are their preferences and consuming behaviors?
Are end users and decision makers (buyers) different people?
What is your product/service?
How innovative is your product/service (e.g., new technology, new production, new features)?
What is your value proposition? How unique is your value proposition? Although value to customers is key, you may also need to think about values for other stakeholders. Please also think about different aspects of value (e.g., functional vs. emotional).

Revenue Model & Key Assumptions
The term ‘’business model’’ refers to your secret sauce for creating, delivering and capturing value. Writers such as Alexander Osterwalder popularized the concept of business model generation in the past decade through their books and concepts.

Essentially, your business model is about how you make money or more technically, your revenue streams and cost structures. The development of a business model requires some “design” work. Thus, being creative is often critical.
What are your major revenue streams? How do these revenue streams interact (i.e., positively, negatively, or no relationship at all)?

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What are your cost structures (fixed vs. variable, setup vs. operational)? A business model that has a low level of fixed costs generally has a low level of risks. However, competitive advantage can be built through proprietary investments, which often incur fixed costs.
What are the key assumptions of your business model? Your assumptions should be well grounded, for example, based on archival data and your own market research.
When will you expect positive cash flow and break-even?
Is this business opportunity scalable? Scalability and profitability may contradict. Under such a situation, you need to understand your priority.

Risk Factors & Mitigation Strategies
Experienced entrepreneurs understand how to manage and avoid risks, rather than simply take risks. To manage risks, the first step is to identify potential risks. Questions below may give you some hints.
What can go wrong with your idea, how likely, and when?
Are these risks internal to your business (e.g., your technology just does not work) or external to the environment (e.g., a competitor has developed a better technology)?
To what extent can you manage these risks?

Multi-year financial projections
You will need to create projected financial statements. The starting point of these financial statements should be your sales forecast, which you can derive from the findings of your market research. The basic financial statements to be prepared include:
Projected income statement
Projected balance sheet
Projected cash flow statement

In summary, it’s important to always create an opportunity report for your new product, taking care to emphasize the following:
Why is your opportunity an attractive one?
Can you make money from the opportunity? Not every problem is a business opportunity.
What are the potential pitfalls you need to look out for?