You are on page 1of 7

Business Idea & Opportunity Evaluation

You have what seems to be a great idea, but now is the time to see if it is actually a commercial
opportunity.

The difference between an idea and an opportunity is whether:

 You can build it and get it into the market;

 Customers will buy it;

 There aren’t too many competitors detracting from your efforts;

 At the end of the day you can still make a profit from it.

The common pitfalls which you should consider and look out for initially are:

 Judging your ideas too quickly without critically raising questions and queries;

 Stopping with your first good idea and sticking with it rather than brainstorming your idea and
developing it substantially;

 Obeying rules that don’t exist rather than questioning and examining your assumptions and
testing them. It could be possible to come up with a unique idea by questioning what is
currently seen as a standard or acceptable.

The Opportunity Evaluation process can be excellent in helping you focus on key issues in developing
your invention and will challenge your thinking of how to develop it further. There are no right or wrong
answers in an opportunity evaluation – only informed evidence that an invention will succeed or fail.

To evaluate opportunities, ask the following questions:

1. What is the need you fill or problem you solve? (Value Proposition)

2. Who are you selling to? (Target Market)

3. How will you make money? (Revenue Model)

4. How will you differentiate your company from what is already out there? (Unique selling
proposition)

5. What are the barriers to entry?

6. How many competitors do you have and of what quality are they? (Competitive Analysis)

7. How big is your market in dollars? (Market Size)

8. How fast is the market growing or shrinking? (Market Growth)


9. What percentage of the market do you believe you could gain? (Market Share)

10. What type of company will this be? (Lifestyle or High Potential, Sole Proprietorship or
Corporation)

11. How much will it cost to get started? (Start-up Costs)

12. Do you plan to use debt capital or raise investment? If so, how much and what type?
(Investment needs)

13. Do you plan to sell your company or go public (list the company on the stock markets) one day?
(Exit Strategy)

14. If you take on investment, how much money do you think your investors will get back in return?
(Return on Investment)

The RAMP Model

Let’s take the above questions and term them into a model that you can use to evaluate your business
ideas. This is called the RAMP model.

Let’s start with the first letter, R, which stands for Return. Return really is return on investment.

 Discuss Exit Strategy (acquisition or IPO).

 Is it profitable? Will your revenues be higher than your expenses?

 Time to break even. How long will it take before you have positive cash flow? How long until the
company begins to have an aggregate net income?

 Investment Needed. How much money will it take to start up this venture?

Now let’s look at A. A stands for advantages.

 Look at the cost structure (suppliers, what each element will cost to source or manufacture).

 Barriers to entry (large competitors, regulations, patents, large capital requirements).

 Intellectual Property. Do you have a proprietary advantage such as a patents or exclusive


licenses on what you will be selling?

 Distribution Channel. How will you be selling your product? Will you sell it direct to the
consumer via the Internet, sell it to wholesales, sell it to businesses, or sell it to retail stores? If
you can develop a unique distribution channel this can surely be an advantage.

Now let’s look at M. M stands for Market.


 The Need. Is there big need for this product or service? Try to avoid ideas that sound cool but
there is no real need for. Make sure your product or service fills a need or solves a problem.

 Target market. Who are you selling to? Businesses? Consumers? What demographics? What is
the size of the market?

 Pricing. What will you charge, what will be the price, will there be a high enough markup?

Finally let’s look at P. P stands for potential.

 Risk vs. Reward. How risky is the opportunity? Will there be a high reward for the founders and
investors if the company succeeds?

 The Team. Is the team right for the business? Do the members of the team have knowledge in
this area?

 Timing. Is the market ready for your product? You may have a great idea for flying cars, but if
consumers are not ready for your product you may not be able to turn your idea into a
successful business.

 Goal Fit. Does the business concept fit the goals of the team to create a high potential or
lifestyle business?

By using the RAMP model you should be able to do a thorough job analyzing your business ideas and
opportunities presented to you.

If you identify a flaw or your idea really is not an opportunity, leave your idea behind. Don’t stop here
though. Learn from the experience and start on developing your next great idea that is also a good
commercial opportunity.

Before an entrepreneur starts a new small business, business ideas must pass a series of tests and
questions before it is deemed a truly valid and valuable opportunity. Here are a few important initial
questions you might ask yourself as part of a business opportunity evaluation.

 Does your business idea have a demonstrated market need?

 Is there sufficient demand for the product or service?

 Is creating the product or service economically feasible?

 Will there be a sufficient return on the investment of starting a new business?

While these are good initial questions, there are many more questions to ask as part of a business
opportunity evaluation. If a business idea does have initial merit, one should also perform a more
detailed business opportunity evaluation. One such method is the RAMP model developed by Ryan P.
Allis, CEO of two successful marketing software and consulting companies.

RAMP stands for Return, Advantages, Market, and Potential. Here is an inside look at this method of
evaluating business opportunities:

 RETURN

The big question that an entrepreneur should ask is whether a business opportunity will generate
revenue, and ultimately, profit. Without a potential profit, a great business idea is just a great idea
without financial merit. Can you make a product that generates more money than you expend? How
much investment will you need to get the business idea off the ground? And ultimately, what are your
or your investors’ return requirements?

 ADVANTAGES

What makes your business idea better than others? Is your idea unique, and does it have minimal
competition? Do you have intellectual property like a patent that gives your business idea an
advantage?

 MARKET

Who will be your target consumer? Is there a need for your business idea? Can you fill a market need?
For instance, you might think of a great business idea to produce a carbonated beverage flavored with
roots, berries, and other natural flavors. However, in your RAMP evaluation you find that this type of
product is already saturated on the market. The idea is good and a market exists, but the market is
saturated from other competition and would not likely be profitable (see RETURN above).

 POTENTIAL

When you evaluate business opportunities, also think of the potential. Will there be sufficient financial
reward? Do you see a potentially growing market for the product? Do you have others who believe in
your business ideas?

You as an entrepreneur have a lot of thinking to do. Come up with great business ideas. Be creative. Get
enthusiastic about your ideas. However, always take the time to perform sound business opportunity
evaluation. You can learn a lot about your business ideas and their potential by performing a simple
RAMP analysis. Only after your genius idea passes the RAMP test should you begin to invest your time
and money.

How To Use The Pugh Matrix

What is it?

The Pugh Matrix was developed by Stuart Pugh who was a professor and head of the design division at
the University of Strathclyde in Glasgow.
It is also called a variety of names including Pugh method, Pugh analysis, decision matrix method,
decision matrix, decision grid, selection grid, selection matrix, problem matrix, problem selection matrix,
problem selection grid, solution matrix, criteria rating form, criteria-based matrix, opportunity analysis.

As a decision making model, it is obviously used to choose between a list of alternatives.

The most important criteria in the decision are chosen, and the alternatives are compared using these
criteria.

There are variations and how to use the criteria and we will look at those later on.

Who uses it?

Is typically used in teams can just as easily be used by individuals. An interesting variation in team
decision-making is for each individual to create his own pew matrix and then as a team the Pugh
matrices are compared.

What for?

Typically, a Pugh matrix is used to evaluate various alternatives against a baseline. For example, a
company has five alternative processes to the one it's using, and it wants to know if any of the five is
better or not.

It is also used when only one solution is possible, only one product can be brought to market, has only
sufficient financing for one solution or where the optimal alternative is required, and you are deciding
on the basis of multiple criteria.

It can also be used where there are many alternatives, none of which are quite suitable. The Pugh matrix
can be used to choose the best aspects of the various concepts to produce a hybrid, which hopefully will
be better than the alternatives used initially.

A Pugh matrix example

Let's say we're deciding between four alternatives, A, B, C, D. We already have a system in place and
want to know if one of these four systems would be better for us.

We decide what our criteria are. We pick the four most important, the ones that absolutely must be
included. Let's call them 1,2,3 and 4. (These can be price, time, ease of production, man-hours, whatever
is most important. In companies, for example, they may get the customer/client involved here to ensure
their satisfaction with the end result).
Let's draw our Pugh matrix. We put the alternatives across the top, and we are going to assess these
with respect to the criteria, which we draw in on the left.

Our baseline is the system we have in place at the moment, so we score this a nought against our
criteria. Our diagram will look like this.

Now consider option A. In relation to criteria 1, do we consider that it is better, the same as, or worse
than the baseline? If it's better we give it a +1, if it's the same we give it a 0, and if it's worse we give it a
-1. Let's say it's +1.

In terms of criteria 2, it's the same as the baseline. For criteria 3 it's better, and for criteria 4 its worse.

Our chart now looks like this.

We assess each of the alternatives B, C and D in the same way, filling in all the blanks.

So now we know the number of pluses, the number of minuses and the total score for each alternative,
allowing us to make a more rational or objective decision. In this case it's obviously D, with three pluses
and no minuses.

Weighting

We can also give each criterion a weighting. For example, if our first criteria is a 2, and the second
criteria is twice as important we give that a four. The third criteria is somewhere in between, so it's a
three. And the last criteria is probably the most important so that it gets a five. (It was funny writing
that!!)

Our chart now looks like this.

Criteria 1 has a weighting of two. So all the numbers to the right of it are multiplied by two. Criteria four
has a weighting of 5, so it's results are multiplied by five, etc.
Our Pugh matrix example now looks like this:

In our case the end result is the same, but depending on the number of criteria and the variables, the
weighting you use can cause very different end results.

A further variation

Instead of the three-point scale we have used here, it it possible to use a five-point scale. For example:

 +2 - much better than

 +1 - better than

 0 - equal to

 -1 - worse than

 -2 - much worse than

This can even be a 7 point scale, but anything finer may just complicate things unnecessarily.

You might also like