Business Idea & Opportunity Evaluation
You have what seems to be a great idea, but now is the time
to see if it is actually a commercial opportunity.
The difference between an idea and an opportunity is
whether:
- You can build it and get it into the market;
- Customers will buy it;
- There aren’t too many competitors detracting from
your efforts;
- At the end of the day you can still make a profit
from it.
The common pitfalls which you should consider and look
out for initially are:
- Judging your ideas too quickly without critically
raising questions and queries;
- Stopping with your first good idea and sticking with
it rather than brainstorming your idea and developing
it substantially;
- Obeying rules that don’t exist rather than questioning
and examining your assumptions and testing them. It
could be possible to come up with a unique idea by questioning
what is currently seen as a standard or acceptable.
The Opportunity Evaluation process can be excellent
in helping you focus on key issues in developing your
invention and will challenge your thinking of how to develop
it further. There are no right or wrong answers in an
opportunity evaluation – only informed evidence that an
invention will succeed or fail.
To evaluate opportunities, ask the following questions:
- What is the need you fill or problem you solve? (Value
Proposition)
- Who are you selling to? (Target Market)
- How will you make money? (Revenue Model)
- How will you differentiate your company from what
is already out there? (Unique selling proposition)
- What are the barriers to entry?
- How many competitors do you have and of what quality
are they? (Competitive Analysis)
- How big is your market in dollars? (Market Size)
- How fast is the market growing or shrinking? (Market
Growth)
- What percentage of the market do you believe you could
gain? (Market Share)
- What type of company will this be? (Lifestyle or High
Potential, Sole Proprietorship or Corporation)
- How much will it cost to get started? (Start-up Costs)
- Do you plan to use debt capital or raise investment?
If so, how much and what type? (Investment needs)
- Do you plan to sell your company or go public (list
the company on the stock markets) one day? (Exit Strategy)
- If you take on investment, how much money do you think
your investors will get back in return? (Return on Investment)
The RAMP Model
Let’s take the above questions and term them into a model
that you can use to evaluate your business ideas. This
is called the RAMP model.
Let’s start with the first letter, R, which stands for
Return. Return really is return on investment.
- Discuss Exit Strategy (acquisition or IPO).
- Is it profitable? Will your revenues be higher
than your expenses?
- Time to break even. How long will it take before
you have positive cash flow? How long until the company
begins to have an aggregate net income?
- Investment Needed. How much money will it take
to start up this venture?
Now let’s look at A. A stands for advantages.
- Look at the cost structure (suppliers, what
each element will cost to source or manufacture).
- Barriers to entry (large competitors, regulations,
patents, large capital requirements).
- Intellectual Property. Do you have a proprietary
advantage such as a patents or exclusive licenses on
what you will be selling?
- Distribution Channel. How will you be selling
your product? Will you sell it direct to the consumer
via the Internet, sell it to wholesales, sell it to
businesses, or sell it to retail stores? If you can
develop a unique distribution channel this can surely
be an advantage.
Now let’s look at M. M stands for Market.
- The Need. Is there big need for this product
or service? Try to avoid ideas that sound cool but there
is no real need for. Make sure your product or service
fills a need or solves a problem.
- Target market. Who are you selling to? Businesses?
Consumers? What demographics? What is the size of the
market?
- Pricing. What will you charge, what will be
the price, will there be a high enough markup?
Finally let’s look at P. P stands for potential.
- Risk vs. Reward. How risky is the opportunity?
Will there be a high reward for the founders and investors
if the company succeeds?
- The Team. Is the team right for the business?
Do the members of the team have knowledge in this area?
- Timing. Is the market ready for your product?
You may have a great idea for flying cars, but if consumers
are not ready for your product you may not be able to
turn your idea into a successful business.
- Goal Fit. Does the business concept fit the
goals of the team to create a high potential or lifestyle
business?
By using the RAMP model you should be able to do a thorough
job analyzing your business ideas and opportunities presented
to you.
If you identify a flaw or your idea really is not an
opportunity, leave your idea behind. Don’t stop here though.
Learn from the experience and start on developing your
next great idea that is also a good commercial opportunity.
Author:
Ryan P Allis
