Assess Your Idea Are you re-inventing the wheel? Here are some tips to help you find out what's currently on the market and whether your idea is original and/or commercially viable.Talk to potential customers. You may want them to sign a non-disclosure agreement. (Samples are in the Resources Section for this topic) Go to trade shows. Start with shows put on by local chambers of commerce & business associations. Do a preliminary product search. You can do this online by searching patent sites. Use patent sites to help assess the commercial potential of your product, research the competition, avoid infringing on someone else's patent, refine your idea and locate potential licensing companies. If you find an existing patent for the same product, consider ending the process now.
Opportunity Screening AnalysisThe first step in identifying a suitable business opportunity is to outline your concept, begin to define the scope of your business, and to evaluate the viability each of the principal parts of your prospective business. In order to do this effectively, you must first understand the dynamics that are affecting the industry and marketplace in which you will compete.
- Industry Overview
- Product/Service Delivery
- Marketplace Analysis
- Marketing Dynamics
- Distribution and Sales Dynamics
- Financial Estimates
- Opportunity Screening Analysis
1. Industry AnalysisThe Industry Analysis section dispassionately describes and outlines the industry in which you will compete. When finished with this section, you and your readers should understand the dynamics, problems, and opportunities driving your industry.What is the industry that addresses this market?
- NAICS Code
- Market Capitalization
- Growth Rate
- Number of competitors
- Relative size of competitors
- What trends are important in this industry?
- Sociocultural trends?
- Demographic trends?
- Technology trends?
- Economic trends?
- Geopolitical trends?
- How does this industry segment the market?
2. Product/Service DeliveryThe Product and Services section is a detailed description of the products and/or services currently being sold in the industry. You should not assume that the reader is familiar with these products/services, so be sure to explain and describe them carefully.
- What exactly are the types of products or services being offered in the industry?
- What aren't they? Carefully describe.
- What is unique about these products/services?
- What are their key features and benefits?
- Do the industry competitors benefit from any proprietary rights to the products/services (for example, technology, patents, copyrights, trade secrets, etc.)?
- What differentiates the competitors, and what are the similarities?
3. Marketplace AnalysisThe Marketplace Analysis section dispassionately describes and outlines the marketplace in which you will compete. When finished with this section, you and your readers should understand the dynamics, problems, and opportunities driving your marketplace.
- What is the market that the industry currently serves?
- How large is it?
- What is its growth potential?
- What motivates customer purchase decisions?
4. Marketing DynamicsThe Marketing Strategy section of your plan will make or break the prospects for your venture. In the Marketing Strategy section, show how you are going to fit into your marketplace. What are unmet needs in the marketplace and how are you going to fill them? How will you differentiate your product or service from your competitors? What unique features, benefits, or capabilities will you bring to the marketplace? Who are your customers?
- Who are the target customers of the marketplace?
- What problems are being solved for them?
- What are their profiles?
- What motivates their buying decisions?
- What are the strengths of the products/services currently being offered?
- Who are the key competitors?
- How do they differentiate their products or services?
- How are the products or services currently priced?
- What are gross revenues per unit sold?
- What are anticipated annual sales?
5. Distribution & Sales DynamicsHow does the market reach its customers? How does the market close the sale with its customers? Remember, "Nothing happens until the sale is made."
- What distribution channels does the marketplace currently use (e.g., direct sales, mail-order, wholesalers, etc.)?
- How does the marketplace currently communicate with customers (e.g., advertising, promotions, etc.)?
- How does the marketplace currently sell its products or services?
- Who does the selling (internal sales people, manufacturing representatives, etc.)?
- What are the costs associated with this sales strategy?
- Which costs are fixed?
- Which are variable?
6. Financial EstimatesThe Pro Forma Financial Estimates should illustrate what the average competitor should expect within the industry and marketplace that you have defined. For purposes of this analysis, set both variable and fixed costs to equal 50% of COGS. Summarize estimates made in previous sections:
A. Annual unit sales: __________
B. Price per unit: __________
C. Variable cost per unit (production and sales): __________
D. Fixed costs (admin, production, and sales): __________
E. One-time start-up costs* (eqpmt, mktg, legal, etc.): __________
F. Working capital rqd* (receivables, inventory, etc.): __________
Calculate estimated annual gross revenues and income:
G. Estimated annual revenues (AxB): __________
H. Estimated annual variable costs (AxC): __________
I. Estimated annual contribution margin (G-H-D): __________
Calculate break-even figures:
J. Contribution margin per unit (B-C): __________
K. Annual break-even quantity (D/J): __________
L. Ratio of break-even to expected quantities (K/A): __________
Estimate the money you will initially need to start your business:
M. Total up-front funds required (E+F): __________
N. Additional units to cover up-front funds (M/J): __________
O. Break-even quantity with up-front funds (K+N): __________
Calculate financial performance figures:
P. Payback period for startup funds (M/I): __________
Q. Annual return on start-up investment (I/M): __________
R Variable cost to price ratio (C/B): __________
S. Contribution margin ratio (I/G): __________
7. Opportunity Screening AnalysisIn this final section, you will evaluate the all of the information from the previous sections to determine the probability that a new venture will succeed in the industry and marketplace that you have analyzed.
|Market Size Potential|
|Venture Growth Rate|
|Market Share (year three)|
|Return on assets|
|Cash flow breakeven|
|Rates of return|
|Total Points by ranking|
|Overall total points (OTP)|
|Average core (OTP/16)|
High=3; Average=2; Low=1
- Do these results look attractive enough to proceed with the development of a new venture in this industry?
- How can we improve the probability of success of a new venture in this industry?
- If we were to start a new venture in this industry, what size (scale) and scope (breadth of product offerings) would have the greatest probability of success?
- What other information do we need in order to make an effective decision to proceed with a new venture in this industry, or to choose another industry for analysis?