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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 arenít 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 donít 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 Ė only informed evidence that an invention will succeed or fail.

To evaluate opportunities, ask the following questions:

  1. What is the need you fill or problem you solve? (Value Proposition)
  2. Who are you selling to? (Target Market)
  3. How will you make money? (Revenue Model)
  4. How will you differentiate your company from what is already out there? (Unique selling proposition)
  5. What are the barriers to entry?
  6. How many competitors do you have and of what quality are they? (Competitive Analysis)
  7. How big is your market in dollars? (Market Size)
  8. How fast is the market growing or shrinking? (Market Growth)
  9. What percentage of the market do you believe you could gain? (Market Share)
  10. What type of company will this be? (Lifestyle or High Potential, Sole Proprietorship or Corporation)
  11. How much will it cost to get started? (Start-up Costs)
  12. Do you plan to use debt capital or raise investment? If so, how much and what type? (Investment needs)
  13. Do you plan to sell your company or go public (list the company on the stock markets) one day? (Exit Strategy)
  14. If you take on investment, how much money do you think your investors will get back in return? (Return on Investment)

The RAMP Model

Letís 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.

Letís 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 letís 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 letís 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 letís 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. Donít 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



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