גירסה בעברית של מאמר זה תוכלו למצוא כאן.
As managers, we often need to seize on business opportunities as they present themselves.
Alas! Not always do we have the necessary time and scope required to do the analysis properly.
Naturally, we may resort to gut feeling, taking the dive...
But how deep is the water, anyway?
Luckily, there is method to the madness - a process available for assessing such opportunities, and we're here to help!
Five Steps And A Single Decision
It's not necessarily easy or short, but these are the stages to take a calculated risk on such opportunities:
Market Sizing and Structure
For-profit companies seek large opportunities, in a market they can understand and compete in.
The first challenge managements face, evaluating new opportunities, is therefore: What the opportunity size is?
Seemingly straight-forward, this could be a devilishly difficult task, for what is your "market", anyway?
Should your solution be unique or innovative enough, the very boundaries of the market tend to change as you look at them from different angles:
- Who are your customers?
- How are they segmented?
- What is the need you are addressing?
- Who would use the product, and who would take the purchasing decision?
- Who competes in this market?
- How are goods and services sold in it?
The next thing is to analyze the market for its players, their offerings, their business models, their pricing, and their target customers. Then we map the market to segments and subsegments on several axes, to find where your company can shine.
Finally, and this can be tricky, we put some numbers in place:
- How large is the market?
- How fast is it growing?
- Is the market saturated? Fragmented? Consolidated?
These questions should give us a sense of the economic potential of the opportunity, and to each company its own aspirations: Some would budge only for global domination of a multi billion market, while others would be content with much humble a goal.
Competitive Analysis
What do your competitors do?
How well do they do it? And what can you do that they cannot?
Understand your competitors positioning and offering:
- What do they say about themselves?
- What core functionalities do they offer?
- To what kind of customers?
- What is their business model?
- And what is the pricing model?
Articulate your own capabilities, offering, and how will you communicate it to the world:
- The features only you will offer
- The price only you can sustain
- The unserved segment you are targeting
- The moat you are to build, preventing others to surpass you
- And how will you capture this into a catch phrase?
Unique Value Proposition
What will you offer that no one else can?
Based on your unique vision of the market, on the meticulous segmentation you have made, you now:
- Concentrate the functionalities you plan to offer to your target customers. - Tailor the pricing model to balance growth and profitability
- Position yourself where you shine best
With that you go out to the world.
Go To Market
How will you reach customers?
Now that we know what are you selling to whom, distribution is the challenge:
- Channel partners: selection, onboarding
- Indoctrination, co-marketing
- Incentives, markups
- Customer pricing
- Exclusivity and terms
Alternatively, you may choose to access customers directly.
In this case, you will have to build a lead generation, qualification, and nurturing, funnel.
Fulfillment is another issue. What is the intended usage of your solution?
- Is it a physical product? You will need delivery through retail channels, or set a direct to consumer logistic chain.
- Is it an on-premises or private cloud solution? You will have to help configure the system, either by distributors / integrators, or by an in house customer success team.
- Is it a SaaS solution? You need self-service onboarding and support flows.
These varying options need to be analyze for their challenges and merits, so that you can take the best decision.
Contribution margins, Net profit
Will you make (enough) Money? A go-no go decision
Having defined the market, the product, the business model, we now analyze the potential.
First we account for all fixed costs, that is, costs that will not be affected by the success of our initiative:
- Marketing expenses
- General and administrative costs
- R&D and other extra ordinary costs
- Human resources
Then we account for unit economics:
- Sales targets: quantities and prices
- Costs of sales
- Delivery / production costs
These will generate the unit economics, and expected profit margins.
Now we analyze how the gross profit - the accumulation of said profit margins - covers the fixed costs, to generate periodic net profit or loss.
We will also understand break-even quantities, and we will be able to set KPIs - Key Performance Indicators that would in time help us monitor the progress.
Revenue Time Series, Profitability, and Go-No Go decision
Every project requires resource allocation before it bears fruit. The question is on what time-horizon are we judging this project, to evaluate its profitability.
The Discounted Cash Flow analysis tells us how expected stream of revenues - discounted to compensate for alternatives - turns to be profitable, or not.
We then broaden the base case through sensitivity analyses to find key performance indicators, break-even point, and finally, a go-no go decision - based on your ROI criteria.
For a detailed discussion about the financial planning, analysis, and evaluation of business endeavors, have a look at this post.
Come discuss your strategic opportunities with us: We can help. First with the analysis, then with implementation plans.