How do you analyze a small business opportunity? How do you differentiate good small business investment opportunities from bad ones? How do you assess a business opportunity to know if it’s worth pursuing? Do you want to learn how to evaluate a business opportunity? Then i advice you read on.
“There are no bad business and investment opportunities, but there are bad entrepreneurs and investors.” – Rich Dad
Savvy entrepreneurs know that not all business opportunity that appears viable on the outside is really viable. It takes a trained or experienced eye to tell a good business opportunity from a bad one. So today, I will be sharing a checklist that will help you analyze or assess a business opportunity. If you are ready to learn, then below are six checklists to analyzing or assessing a business investment opportunity.
How to Evaluate Business Opportunities
The industry and market of the proposed business plays a vital role in helping you decide if a business opportunity is worth pursuing or investing in. You can analyze the market or industrial situation by asking yourself or the promoter the following questions:
- Does a market exist for the business idea?
- What is the size of the market?
- What is the growth rate of the industry?
These questions will help you gain a further insight into the nature of business opportunity you intend pursuing. It will also help you know if the promoting entrepreneur did his/her homework properly.
2. Length of the window of opportunity
Another point to consider when analyzing a business opportunity is its length of window. What I mean by length of window is this;
- How long can the business opportunity or investment remain accessible?
- Will the business investment remain open and accessible while you try to raise the required investment capital?
Based on my experience as an entrepreneur, I know that some good business opportunities come with a short access time frame, meaning they won’t be available for too long. It is important to know the length of window of an investment because the investment might not still be open by the time you’ve rounded up the required capital for its exploitation.
Examples of business opportunities with short window length are contract opportunities, where there are bidders and a stipulated time of contract execution.
3. Entrepreneur’s motivation and competence
The third thing to consider when assessing a business opportunity is the entrepreneurs’ or promoter’s motivation and competence. The competence factor is a critical criterion you must scrutinize carefully especially if you are investing in someone else business opportunity. The entrepreneur must be highly motivated, competent and experienced in game of entrepreneurship.
“An average person with average talents and average ambition can outstrip the most brilliant genius in our society; if that person has clear focused goals.” – Mary Kay Ash
Never invest in a startup where the promoting entrepreneur assigns himself huge salary. Never invest in a business venture where the entrepreneur’s primary objective or motivation is just to make money. Making money from a business idea or opportunity is something every entrepreneur loves but my point is; it shouldn’t be a primary motivation.
How to Analyze or Assess Small Business Investment Opportunities
“Business and investing are team sports.” – Rich Dad
The fourth thing to look out for when analyzing a business investment opportunity is the business management team. If you are the facilitator or originator of the business idea or opportunity, then you can decide or choose the business management team to bring on board. But if you are simply investing in someone else idea, then you have to assess the strength and weakness of the business management team.
“We need leaders, who add value to the people and the organization they lead; who work for the benefit of others and not just for their own personal gain. Leaders who inspire and motivate, not intimidate and manipulate; who live with people to know their problems in order to solve them and who follow a moral compass that points in the right directions regardless of the trends.” – Mary Kay Ash
To be on the safe side of any business or investment opportunity, you must think and analyze the business investment like a Venture Capitalist; otherwise called VCs. VCs prefer a strong team and an average product to a weak team and an excellent product. This is the major reason why most brilliant business ideas don’t get funded.
5. Capital, man power and technological requirements
Another issue you must analyze with respect to a business opportunity is the capital, man power and technological requirements. These three principals are very important especially when you want to assess the risk to reward ratio of a business or investment opportunity. They form the basis of business and investment risk analysis. If the requirement to pursue the business opportunity is extremely high with respect to the profit potential, then it’s not worth pursuing.
6. Economic Environment
The last on my checklist for analyzing business or investment opportunities is the economic environment where the business opportunity exists or is intended to be pursued. When assessing the economic environment, you must also take into consideration the fiscal or monetary policy of that environment or country, political situation and government’s policy.
“You are a product of your environment. So choose the environment that will best develop you toward your objective. Analyze your life in terms of its environment. Are the things around you helping you towards success? Or are they holding you back? – W. Clement Stone
This is important because some business and investment opportunities are favored by certain economic environments while others are not. For instance, some businesses thrive well in a socialist system of government, while others do well in environments where capitalism is the norm.
As a final note, these are my six checklists for analyzing or assessing a business investment opportunity. Though there are other factors to consider while carrying out a business opportunity analysis, these six checklists will give you a strong insight into any business or investment opportunity.