The First Step: Opportunity Screening

The First Step:   Opportunity Screening

At the very start of an Entrepreneurs adventure, the first step is most often the attempt to answer the question: What venture am I going to start? 

Unless one inherits an existing business or has had a “eureka” moment that immediately decides what product or service to embark on, the start-up question on what to do is the initial, and perhaps one of the more difficult steps to overcome. 

And this is where “Opportunity Screening” comes in. As the term suggests, starting an entrepreneurial venture is looking at various opportunities that can come our way. How to screen these opportunities and deciding on which one to “start-up” is the first step in any entrepreneurial adventure.
During my studies at the Asian Institute of Management in Manila, my professor in Entrepreneurship gave a very interesting analogy on “opportunity screening”. He likened this to going fishing. Specifically, fishing along a shore line and Spear Fishing. 

Shore or Surf fishing is when you cast a line and hope that a fish bites the bait. 
Spear fishing is going under the water via free-diving, snorkeling or scuba diving, and targetting the fish with a spear-gun or sling. 

With the fish being the opportunity or venture, these two types of fishing illustrates how entrepreneurs screen opportunities. 

Either you Surf Fish – prepare your resources, send out feelers and inquiries, and wait for replies or expressions of interest from various business proposals. 

Or you can Spear Fish – you get out into the business ocean, armed with your resources and pick out a target that you like, and shoot for it. 

After a lengthy and heated discussion during this class where our professor asked which type of fishing or opportunity screening is better, it was agreed upon that both are good ways of opportunity screening, and what is best is using both, depending on the following: 
a) Personality, Abilities, Strengths & Weaknesses of the Entrepreneur.
b) Available resources.
c) Industry & Market / Competitor conditions.
d) Existing organisation of the entrepreneur.

Whatever style you may choose, it is also best to be guided with some basic questions. Below is a worksheet that can help new and experienced entrepreneurs in picking out those opportunities that are worth building. (Adapted / Modified from: www.pmtraining.com.tw/article/5phase/Phase0.../OpportunityScreen.doc)‎

Bacon & Potatoes Opportunity Screening Worksheet:
This Opportunity Screening worksheet is used to help determine if an idea is worth enough to develop.  The Entrepreneur can use this worksheet to evaluate a number of factors in determining if a new product development project should be undertaken and identify the important issues in making that decision.

Opportunity Overview:
General information about the proposed product or perceived opportunity.
1. What is the opportunity?
2. What is the market need to be served by this idea?
3. What is the market or markets to be served?
4. What product or package improvements are needed by the key market(s)?

Fit with Core Capabilities:
Defines how well this product leverages the entrepreneur's existing strengths and core capabilities and competencies.   
1. Does the opportunity represent a fit with the entrepreneur's  personal vision and mission in life? (If not, state what should change and why.)
2. Does the entrepreneur have the necessary management capability, capacity and competency to manifest this opportunity into a reality?  (If not, what skills, etc. would have to be learned or acquired?)
3. Does the entrepreneur have the wherewithal  to understand the technology?  Can it integrate the technology, manufacture the technology, etc.?  (Has it been done, done in this entrepreneur's existing organization, has it been done by others?  What changes are necessary to be able to handle the technology?)
4. Does the entrepreneur know how to manufacture this and handle the required operations?  (If not, what needs to be learned, acquired or changed and why?)
5. Does the entrepreneur have the necessary skills to market this opportunity?  (If not, what's different about this opportunity and how would the entrepreneur  need to change to accommodate the opportunity?)


Barriers to Entry:
Careful consideration is required here since barriers can be positive and negative.
Negative: The entrepreneur cannot muster the resources necessary to enter the market effectively
Positive:  The entrepreneur can enter the market because of certain core competencies and capabilities that are unique to the entrepreneur (for this market).

1. Is there potential for a specialty market or niche market for this opportunity?
2. What will be the likely competitive response?  From our traditional competitors?  From unlikely competitors?
3. Are there any threats to the market?  (Environmental, regulatory, economic, technology, etc.)
4. Is there any potential for product displacement already in place?  Will this product cannibalize any current product mix?  Proposed or future product mix?  Will it displace a competitor's product?

Value Added:
Will the proposed product be perceived by existing and prospective customers as adding value to their shareholders, their customers, their employees, themselves, etc.?

1. How are the market needs and requirements for the proposed product currently being met?  (List the entrepreneur's and the competition's current or expected products and the needs they meet for various market segments.)
2. How will the new opportunity shift existing paradigms or perceptions (if any)?
3. Will the proposed change be perceived as valuable?  (If there are multiple targeted market segments, list any commonalties and differences for each segment.)
4. Can the proposed change be marketed as desirable?  (Are there different levels of "desirable" for different market segments?)

Essential Advantage:
Evaluate whether the critical blend of available or acquirable raw materials and the entrepreneur's capabilities will result in a product that is unique enough to provide our entrepreneur with sustainable strategic advantage.

1. Is there a competitive opening in one or more targeted market segment?  What unique characteristics or capabilities does the entrepreneur possess that will increase success for chosen market segments?
2. Is there a reasonable basis for a competitive advantage for the entrepreneur?  (For example, can we build it cheaper, does our brand carry a margin, will we be first to market, etc.?)

Long Term Sustained Revenue:
Objective: Long term profitable relationships are developed and maintained at the client level; the revenue stream from the market as a whole will continue into the foreseeable future.

1. Is the market too large or too small for the entrepreneur's participation with this product?  Ask the question of separate market segments and the combined, total market.
2. Can the entrepreneur achieve significant or adequate market penetration?  What are the drivers and the inhibitors to making the penetration larger?
3. What is the expected growth rate for the market?  What is the expected market share of this for the entrepreneur?  Why?

Market Position:
1. How should the product be positioned to achieve optimum performance in terms of market share and profitability?  Identify this for each targeted market segment.
2. Will the product have a positive or negative impact on the historic markets of the entrepreneur's existing products or services?  Will this product change customers' perceptions or expectations?  Will this change be good, bad or both?  (Explain)
3. Will the product alter or confuse the position we hold in the customer's mind?

Profitability:

1. Can the entrepreneur be cost competitive?  (Evaluate this for all targeted market segments.)
2. Can the entrepreneur safely finance the new product?  What are the financial risks?
3. What are the expected profit-levels for the market or market segments?
4. What is the expected return on invested capital?
5. What is the downside exposure to financial loss?  (Identify some worst case scenarios here.  Expand the scenarios and include "what-ifs" and why these scenarios may occur.)
6. Can the entrepreneur afford the downside exposure?  Can the entrepreneur take the risk?  Consider the worst case scenarios as a spectrum and show where the boundaries are if negative events take place.  Use these to justify taking the risks or not undertaking the project.

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Do you have other ways to screen entrepreneurial opportunities? Any questions on venture screening  I can help you with? Do drop me a note / comment below. Or email me at adrl@me.com - ADRL

Image credit: http://assets.samyroad.com/uploads/2705/attachment/67845/big_spear-fishing-perfect-timing.jpg