Weekly I am approached with new ideas for businesses. Ideas are easy, but few find true opportunity. Determining the difference between an idea and an opportunity is a critical first step in the evaluation of a business’s potential. Let me show you how I perform an opportunity analysis.
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Ideas vs Opportunities
An idea is a groundless supposition, while an opportunity has potential to allow you to meet a goal. <Click to Tweet>
The opportunity analysis is the process of determining if an idea is in fact an opportunity. The world of venture capital would call this doing your due diligence. I just call it doing your homework.
First – get clear on the basics
- What will you do? Be clear and concise!
- Who is the customer? Think of a list. How big?
- What is the pain that you are relieving? The pain helps you identify your value proposition.
- What is the market size of YOUR segment?
- What is the price?
The Addressable Market
Wade Myers (New Venture Lab) tells about a company selling software to PBS Stations in the US. Here is his data.
Annual Addressable Market 368 stations
x 5% switched software each year
x $50k/each software app install
x 20% probability (5 total competitors)
My Example – Lifestyle Product
Homeschool market 2 million families
High School Percent 50.00%
Dropout of HS Rate 50.00%
% of Market we expect 0.50%
Sales (units) 2500
Average sale per unit $200
Revenue = $500,000
Hope you get the idea. While all of this should be common sense, these basic steps are often overlooked. Doing a quick opportunity analysis can save you months of chasing a bad deal.
In this episode I mentioned a few resources, including:
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