What are the most important questions to ask myself when evaluating a business opportunity?
Probably the most important aspect of pursuing a business opportunity is to first determine whether you are the right person for the job. I would recommend you do a personal assessment (be honest with yourself, there’s a lot at stake here), and ask yourself if you have the skills and passions necessary to build this specific type of business. Beyond that, do you have what it takes to live through the highs and eventual lows that you know will occur through the normal course of operations? Evaluating your readiness, and determining if your unique skill set maps to those required by the business should be at the top of your checklist, as you prayerfully and thoughtfully determine the worthiness of the project ahead of you.
As a potential entrepreneur, it is easy to get excited about any new business opportunity. So much in fact, that an entrepreneur can quickly lose his objectivity and become blinded to the potential pitfalls associated with the business. Many of us foolishly consider that if an opportunity exists, it must be the open door God wants us to walk through. Keep in mind that just because a door is open, doesn’t mean its the right door for you. While venturing into any new business can be daunting and filled with uncertainty, it can also be a time of exhilaration, not to mention a lot of fun. But do yourself a favor before you journey into the unknown; check your motivations. Know why you are doing this, and know the risks before you take the jump.
One suggestion as you evaluate a business opportunity, is to try and place yourself in a position of subjectivity when evaluating the potential of the business. For example, ask yourself what information a hypothetical investor would require to evaluate an investment position in your business.
Let’s think about some of the key questions someone may ask before making the decision to invest in your business:
Does the business solve a real problem? The business is either providing a product or service that fills a need for which no other solution exists, or it is targeting a market that already exists. If so, what unique differentiators set this business opportunity apart from those solutions that already exist? If the product or service is not designed to solve an unmet problem, does the potential business rely on creating a new market? To create a new market means creative advertising and marketing to build a customer base, that has the expendable income to purchase your produce or service.
Who is your customer? Do you have an understanding of who your potential customer is? Do you know how you will reach your demographic? Have you tested your idea on a market sample? Many would-be entrepreneurs spend time researching the market, but never talk to potential customers to determine product or service viability, specifications, pricing considerations as well as possible channels for product distribution.
Who is your competition? Does your solution provide a better option than what is currently available? Does the competitor(s) have a loyal customer following that will be reluctant to change to a new market entry? Is there enough revenue opportunity for an additional participant in the market you are pursuing? Are the barriers to entry into the market so low that the opportunity for additional competitors is significant?
Have you created a sample pro-forma? Have you run the numbers to determine projected costs and revenues? In evaluating your startup costs it is always wise to add a financial buffer to address any hidden costs. Based on a very conservative estimate of income, you should calculate financial requirements to bring the business to break even. What is the potential financial upside, and what is the potential financial downside? Can you financially endure through any potential downsides?
Is the business sustainable and scalable? Is the initial idea provide enough opportunity to build and maintain a strong business? Have you considered follow-on products or the ability to expand into new markets? Are the resources and raw materials readily available to execute the business plan? Does your business plan depend on a work force? How easily will you be able to acquire and adequately train employees?
Can you quickly bring a scaled down version of your product or service to market? If you can bring your product or service to market with the least amount of costs and overhead, this will give you the ability to quickly test your business, your pricing strategy, and your market. With limited financial commitment, you can determine if your plan needs adjustment, or if it is even the right business to pursue.
Even the best business has the potential to fail because of circumstances outside your control. Before beginning any new endeavor, my husband and I have always prayed over the situation, and while he has trusted me in the process of evaluating the opportunity, we have jointly considered the risks. As a key part of our process we would always discuss the worst case scenarios that could occur. We then would jointly make the determination if we were comfortable living with the worst case, should it occur (and it has on more than one occasion). While you need to go through a qualitative and quantitative analysis of the opportunity before you, ultimately the question you need to ask yourself is: “Does this fit within my life vision?”
Colleene Isaacs is part of the ‘Ask a BAM Mentor‘ panel of mentors. Colleene serves as an advisor to early stage kingdom-focused startups and assists non-profit organizations in under-developed economies to develop sustainable models for income generation. Colleene has over 27 years of business experience and has been the founder of her own restaurant business, as well as a co-founder of a technology-based company. She has served in various management roles for technology companies, including training and development, customer service, business and channel development, and marketing. Colleene has been married to Robert, her high school sweetheart, for 40 years and they have 2 children and 3 grandchildren. Colleene is passionate about using her gifts to help others discover and live out their unique God-imprinted design for His kingdom purpose.
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