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Analyzing New Business Ideas & Opportunities

Jan 23, 2008
Every time I have a business idea or come across a new opportunity I analyze it using these criteria:
  • Is it really any different from what is currently on the marketplace?
  • What wants and needs am I fulfilling?
  • Who will be buying my products or service offering?
  • How strong are my competitors?
  • Is the market for my idea growing or shrinking?
  • Do I have the time and energy to follow through?
  • Who is going to handle what?
  • How much initial capital is required?
  • How am I going to raise extra funding?
  • What is my maximum total loss including money, time and effort?
  • What is the potential for return on my investment?
  • How long is the time frame between initial investment, break even point and getting a return?
  • What is my exit strategy?
I believe that one should be very careful about how they invest their money. Very often I see people that invest a huge sum of money when the potential for return is low and the risks are high. In this scenario it is better to leave your money earning interest in the bank.

The ideal business idea or opportunity for me, offers a potential for high return, with low initial investment. It focuses on a fast growing marketplace and there is something unique about the proposition.

Alternatively another great form of investment is when the potential for return might not be high but the risks are low, little effort is required and the profits are almost guaranteed. I will only usually consider this type of investment if the payback is rapid and the amount of work required is low.

Let me give you an example based on personal experience on how not to do it. One of the first businesses I started was a packaging company. The market was served by established players and it was being eroded by cheaper imports. Britain's manufacturing base (my customers) was declining as the UK was slowly turning into a service economy. Margins were tight and my customers were willing to change suppliers at the drop of the hat.

Although we did end being successful, the amount of effort and sheer stubbornness required was out of all proportion to the money making potential. This is a classic business idea that should be avoided at all costs! I vowed when I sold this business that next time I was going to get into a fast growing market place where exactly the opposite was true.

Your evaluation for investing in an opportunity might be different from mine, based on your propensity to risk. If you have a family to support than this reduces the amount of risk that you can take on. Your age, your sex and business background all greatly influence the types of opportunities that you can examine.

Before starting a new business, bear in mind that working as an employee has many advantages to being self employed. Your hours are fixed, the return of investment of time might be less but it is certainly guaranteed, at least for the short to medium term. Starting any new business especially for the first time is risky and demands extraordinary effort before any returns are forth coming.

How do you analyze any new business ideas or opportunities?
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