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Presented byJobi Mathai

S4 MBA

Entrepreneurship development 1

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Entrepreneurial opportunities are ideas that have thepotential to create value through new, repackaged, orrepositioned products, markets, processes, orservices.

The world is filled with great business opportunitiesand none of them guarantee success.

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C hoosing a business opportunity allows theentrepreneur to use their skills.

C areful evaluation is necessary when choosing theright business opportunity.

When evaluating business opportunities, it isimportant to consider a number of different factors:

Industry, market, economics, competitive advantageissues, management team, and so on.

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The size of the industry, currently and expected, is acritical factor.

For new industries, the projection of industryrevenues should generally be for 3-5 years in thefuture.

Expected revenue growth, during the industry s rapidgrowth stage is one of comparative benchmark;industries that are growing, or are expected to growat compound rate in excess of 30% per yr are likely tocontain high growth, high-performance venture.

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Potential high growth, high-performance venturesare expected to be industry leaders by the third yearof operation.

This generally means that such business opportunitywill need to garner more than 20% market share of the industry s revenues.

Initial survival & eventual success often depends on aventure s ability to maintain or grow market shareover time.

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O ne should also consider barriers to entry whenevaluating potential business opportunity.

The best situation is when no current barriers inhibityour venture, but barriers to future entrants willprotect your venture s future.

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Several pricing and profitability tests are useful. In addition to expectations of how much customers

are willing to pay for the venture s products orservices, it is important to consider the direct costs of producing a product or providing a services,i.e., costof goods sold.

The magnitude of the gross profit margin is one of the most important measures of a ventures potential.

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A second measure of profitability is the after tax ornet profit margin.

After tax margins greater than 20% suggest that thebusiness opportunity has sufficient attractivepotential.

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O ne important aspect of this category is the length of time expected for the venture to reach operatingcash flow breakeven.

Two types of cash flows have to be considered.1. O perating cash flow: cash flow from producing and

selling a product or providing a service.2. Free cash flow: value creation ultimately depends

on the venture s ability to produce cash flow thatcan be used to pay back investors, that is free cashflow.

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Venture opportunities are also appraised in terms of the likelihood that the founder/entrepreneur will beable to maintain control of the venture.

When the founder has, & is expected to maintain,majority control, the potential attractiveness of abusiness opportunity gets high score.

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A sober assessment of the quality of themanagement team, including the founder(s) & otherkey personnel, is critical in assessing a proposedbusiness opportunity & moving the venture forward.

A management team with expertise & experience,with intact networking connections in the proposedindustry, merits a high score.

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In addition to having management team expertise &experience, coverage of all functional areas isimportant.

A business opportunity that has all the functionalareas covered merits a high score.

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