BUSINESS OPPORTUNITY EVALUATION
Business Opportunity Evaluation
Introduction
Entrepreneurs are always surrounded with different types of ideas every moment. However, it is important for them to recognize ideas that can be converted into real business opportunity. Entrepreneurs should evaluate the commercial viability of the idea before execution of the idea into the market. There are various factors that impacts feasibility of the business opportunity in target market such as identification of the gaps existing in the market, competition level, requirements of the target customers, consumer buying behavior with regard to identified product or service, purchasing power of the target market, and possible profit margin. Entrepreneurs are required to critically evaluate all these factors in order to determine the success of business opportunity in future. This paper intends to analyze how entrepreneurs identify business opportunity existing in the market, and how they evaluate business opportunity. The paper will conduct a literature review on different aspects associated with business opportunity evaluation.
Literature Review
Various studies have conducted to understand how entrepreneurs recognize the opportunity available in market. What factors contribute towards opportunity recognition and evaluation? Entrepreneurs carry some characteristics that make them special such as risk taking ability, knowledge of the business, and expertise. Foo (2010) in his article mentioned that evaluation of business opportunity can be done by interaction between the experts. Experience of entrepreneurs also plays a major role in the evaluation of the opportunity. People gain knowledge through their work experience about different aspects of business success. For business success it is important that entrepreneurs have knowledge of all processes that need to perform from development/ production of the products to final delivery of the products to the consumers and after sales services (Foo, 2010).
Bryant (2007) in his article talks about use of heuristics by the leaders or entrepreneurs in making identifying business opportunities. Risk taking ability of the entrepreneurs allow them to take decisions based on their calculation and knowledge. It is a trial-and-error method, and there is a possibility of both business success and failure (Bryant, 2007). Foo (2010) also said that people identify business opportunities based on their configuration of business knowledge. The author mentioned that unique experience gained from the past work and society, help entrepreneurs in understanding and applying information in a way that other people cannot. For example, a person good in culinary can go for opening a restaurant or catering business depending upon his knowledge of the business (Bryant, 2007; Foo, 2010).
An entrepreneur often identifies new opportunities in the contemporary business environment with limited information. There is always a possibility that some of the opportunities identified by the entrepreneur cannot be realized. Therefore, it is important that entrepreneurs identify potential opportunities. Entrepreneurs should be competent in rational thinking in order to make a right decision, and to deal with business uncertainties. Heuristics based decision making allow entrepreneurs to self-regulate their decision-making process and selection of the opportunity available in the market. Bryant (2007) said that heuristic decision-making is always more exposed towards risks. The author further mentioned about the problems associated with heuristics such as attribution error, overconfidence, and representativeness.
Factors that Help Entrepreneurs in Opportunity Recognition and Evaluation:
Each individual has a different expertise, interest and knowledge. A team of entrepreneurs collect and brings small pieces of information together in order to design large business strategy. Therefore, knowledge gained from different social sources also helps entrepreneurs in identifying right business opportunity. According to Foo (2010), work experience of entrepreneurs increase their ability to identify opportunities, and experienced members are in a better position to identify risks and viability of the business opportunity.
Fatima, Iqbal, Rehman, & Ali (2011) in their article mentioned that socializing provides various entrepreneurial opportunities. People who wish to start should always meet new people and should analyze the demand of new businesses. Social attachment provides a variety of assistance in terms of technology, information, opportunity, market and demand. Social ties further provide various business opportunities, trustworthy investors, reliable suppliers and loyal customers along with providing suitable locations for production and marketing (Fatima et al., 2011).
Previous work experience inspires people for entrepreneurship and helps them a lot. People gather and learn a variety of information, skills, ideas and knowledge that helps them in starting their own entrepreneurial ventures. Foo (2010) said that previous work experience plays very significant role in entrepreneurship as it reduces risks of the business and gives it a new dimension. People who have previous work experience make small or no mistakes as compared to those who are less experienced or have no work experience at all.
Specific work experience helps people in entrepreneurship. Those who have worked in any special are more inclined towards that area and tend to start related business. A person who has worked in medicine sector would, usually, like to work in medicine sector and not in infrastructure. It has been observed in quite a lot of cases that functional area experience always pays good results in the related areas (Fatima et al., 2011; Foo, 2010).
General business experience helps entrepreneurs in many ways. According to Fatima et al. (2011), a person who has specific experience only but lacks general experience cannot be a good entrepreneur. General experience helps a person in understanding various aspects of business. There are several aspects of any business including manufacturing, marketing, supply demand, credit, location, transportation and customer base. No business can sustain relying on one aspect only, and a businessman can deal effectively with other related aspects of business only if a person has a wide general experience (Fatima et al., 2011).
Knowledge about market is necessary for entrepreneurs. They must have the knowledge of serving market. Entrepreneurship requires knowledge and understanding of the market, as well as, skills of handling the market. Knowledge about market and skills of applying knowledge helps people in succeeding in the entrepreneurship. Knowledge is required for every aspect of marketing including preparation, organization and implementation. It has been observed in cases of various successful entrepreneurs that previous knowledge and market serving skills were utilized successfully.
Customers are the backbone of any business. Knowledge of customers, their requirements and their problems is highly required in order to be successful entrepreneurs. One cannot sustain or think of doing business unless he has good customer base. It is unavoidable to know and understand customers in order to make a good customer base. A successful entrepreneur knows about requirements and problems of his customers. Such skills help people in moving ahead of others in business (Fatima et al., 2011; Foo, 2010).
Business Opportunity Evaluation:
Before investing any opportunity, an entrepreneur should gather all relevant information about the business by considering industrial principles. Industrial trends inform about the possible ups and down in the business. Industrial reports provide information about the gaps and possible growth of the industry. Entrepreneur should develop a report analyzing industrial environmental factors such as political, legal, economic, social, technological, and geographical; all these factors influence performance of the business, hence, impact success of any new venture.
Foo (2010) said that a business opportunity should be analyzed by adopting systematic evaluation technique. Systematic evaluation technique helps entrepreneur in understanding various factors associated with the success of a business, and reduce the chances of error or business failure. Conducting a feasibility study before implementation of business idea informs about the possible size of target market. A feasibility study refers to a research study conducted to analyze the scope of business opportunity. Feasibility study answers various questions related with business opportunity such as is consumer will buy the product or services, what should be the price, possible location of the service, customers’ expectations from the company, staff behavior, and delivery of the product or service (Bryant, 2007; Foo, 2010).
Krueger, Reilly, and Carsrud (2000) said that feasibility study informs entrepreneur about the requirements of the consumers and possible success of the business opportunity. After analyzing probability of success of business ideas, entrepreneurs should focus on the development of any business plan. Business plan refers to a systematic report that covers future marketing and financial strategy of the company (Krueger et al., 2000). According to Foo (2010), business plan helps entrepreneurs in understanding business environment, industrial trends, competitive analysis, positioning and marketing communication strategy. Business plan detailed out benefits of the product or offerings, description of location, skills & expertise of human resources and delivery of service/ product to the consumers. Business plan also informed about the possible expenditure, expected sales and profit. Business plan is essential for new business idea, so that entrepreneur understand all problems that need to be faced and resolved after implementation of idea (Foo, 2010; Krueger et al., 2000).
Bryant (2007) in his study analyzed 30 interviews shortlisted from electronic database to understand how entrepreneur take decisions after identifying the business opportunity. According to the author, entrepreneurs consider few questions while developing business plan and conducting feasibility study. Common questions considered by the respondents are: knowing the target market, trust on business partners, risk taking ability, and analyzing worst scenario. Author mentioned that the heuristic approach is generally adopted by the entrepreneurs only during identification of the opportunity. Entrepreneurs do not use their intuition while evaluating the feasibility of the business opportunity (Bryant, 2007).
Foo (2010) said that the evaluation of business opportunity starts from defining the target market and customers, and moves ahead by describing products/ offerings, and analyzing competitors. Quantification of the business opportunities is also very important in order to forecast the monetary benefits from the business. Success of business also depends upon the availability of the resources such as manpower, skills, capital, and availability of the raw material, technology, and infrastructure. Entrepreneurs should analyze the number of suppliers available in the location in order to negotiate the contract of supplies. Effective negotiation and economy of scale is important to deliver products or services at competitive rate (Foo, 2010).
The literature review conducted on the subject reveals some common themes such as experience and knowledge of the entrepreneurs. All authors covered under the literature review mentioned that individual knowledge and experience play a major role in identifying business opportunities. However, Bryant (2007) talk about use of intuition by the entrepreneurs in business opportunity identification, and Fatima et al. (2011) talked about knowledge gain from different sources. Learning and information gathering from different sources such as friends, industrial experts, society and secondary information, helps in understanding and evaluating business opportunity (Bryant, 2007; Fatima et al., 2011).
All authors mentioned that the success of any business depends upon various factors; hence, it is important to evaluate business opportunity by performing research and conducting feasibility study. Foo (2011) describes steps utilized by the entrepreneurs in business opportunity evaluation. Authors advocate execution of feasibility study and development of a business plan to understand industrial factors, business environment, competition, and customer’s expectation. According to the authors, customers are the key to the success of any business, and it is important for any entrepreneur to first describe its target market. Entrepreneurs should evaluate business opportunity keeping in mind the target market (Foo, 2011).
Conclusion
After conducting a literature review on the above-mentioned subject, it can be concluded that not all people can identify business opportunities available in the market. Entrepreneurs possess special qualities such as good knowledge of their field, prior experience, risk taking ability, and ability to perform a systematic search. Prior knowledge and experience are important factors that facilitate identification of the business opportunity. Systematic research helps in analyzing different factors that impact the success of an identified business opportunity. Entrepreneurs analyze business opportunity by adopting few steps i.e. defining customers/ target market, identifying location, analyzing requirements of the target market, analyzing the business environment, competition, and financials. Success of a business largely depends upon the customer satisfaction that can be achieved only through careful selection of the target market and efficient service to the customers.
References
Bryant, P., 2007. Self-regulation and decision heuristics in entrepreneurial opportunity evaluation and exploitation. Management Decision, 45(4), pp. 732-748.
Fatima, S., Iqbal, S., Rehman, F., & Ali, M., 2011. A study of factors affecting opportunity recognition process-Case Study of Pakistan An opportunity recognition process Framework. Interdisciplinary Journal of Contemporary Research In Business, 3(8), pp. 1106-1124.
Foo, M.-D., 2010. Member Experience, Use of External Assistance and Evaluation of Business Ideas. Journal of Small Business Management, 48(1), pp. 32-43.
Krueger, N.F. Jr, Reilly, M.D., and Carsrud, A.L., 2000. Competing models of entrepreneurial intentions. Journal of Business Venturing, 15(5/6), pp. 411-432.
