Updated: Dec 6, 2020
For the success-aspiring entrepreneurs, being triumphant on their first venture is like winning a jackpot. And while it is true that owning a business entails risks, identifying a good business opportunity is one of the first steps to increase your odds of success.
One of the major definable characteristics of a good business opportunity is attractiveness. A business' attractiveness can be evaluated to some extent. Here are some ways to you can do this.
Evaluating Business Attractiveness
1 Look for fresh business concepts
Every now and then, creative and innovative products and services enter the marketplace. Keeping an eye on fresh business concepts gives you the opportunity to catch a rising business trend that has good momentum.
It is, however, very important to carefully study a particular business idea before you dismiss or accept it. Not all trending businesses at the moment can surely make it long term.
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2 Is at the early stage of the business life cycle
As taught in most business schools, business life cycle has five stages (1):
due diligence- period of diligent researching whether a business idea is viable and worth pursuing;
startup- considered as a high-risk period after initially launching the business and there are less resources available for use;
growth- the business is stable characterized by regular and rising income;
expansion- key characteristics of the expansion stage are expanding products and services lines, reaching new regions or markets, and/or acquiring or merging with other companies.
maturity/ exit- this is the point when business owners decide what to do next after growing and expanding; aging founders may look into recruiting younger people with strong leadership and management knowledge and skills; or for any other reason, business owners may decide to exit the business.
The idea here is to be aware of a business' behavior in relation to its life cycle/ stages. Getting into a business venture that already has a lot of powerful and dominant players can present some challenges for smaller startup firms to compete.
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In addition, if you try to jump on the bandwagon when there is already a very strong business activity, chances are it will be followed by a slowing of momentum before it could eventually once again recover, expand, and reach another peak. Thus, you could also experience a slow down, posing some great challenges for startups.
Nonetheless, you should also remember that nothing is absolute in life, including business ventures. Therefore, you must be prepared to efficiently handle the risks you're taking at any point of your business career.
3 Overall trend is growing
Be keen to observe a business's trend. Do your own diligence to recognize a fad from a trend. Avoid the hype and use your sound logic to evaluate what a good business opportunity is.
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In case you still want to take chances on business fads, it is utterly important to know when to get out once you've gain some profit.
4 Products and services are based on "needs" rather than "wants"
It is every person's basic instinct to meet his needs. It is what motivates us to behave in a certain manner. As an aspiring entrepreneur, you can capitalize on this knowledge.
While at the university, we were taught about Maslow's hierarchy of needs, a well-known motivation theory. In his theory, Abraham Maslow described physiological, safety/ security, and belongingness and love needs as the lower-order needs while self-esteem and self-actualization as the higher-order needs (2).
As you can observe, the lower-order needs are related to our physical and social health. On the other hand, the higher-order needs are linked to our psychological well-being.
Hence, try researching about products and services related to people's:
phyiological (food, sex, comfort, rest, physical activity, and other physical health-related products and services)
safety (physiological and psychological safety; freedom from any kind of harm or threat),
social (affection, intimacy, social support, meaningful relationship with others, acceptance by others, protection from social isolation, parenting),
self-esteem (worthiness, self-respect, respect from others, good body image), and
self-actualization (recognition of one's potential, autonomy, power, knowledge and skills acquisition, coping skills, self-fulfillment, spiritual well-being) needs.
Think outside the box and ask yourself, "How can I meet my target customers' needs?"
5 Industry is not saturated
Having competitors is good because it motivates every business owner to strive hard optimizing their products and services. Hence, benefiting the customers.
However, an attractive business opportunity is one that is not yet saturated or crowded. When there's already too much similar products and services in the marketplace, consumer demand is being shared by the surplus of suppliers.
This could have a negative effect on the price and eventually on your potential profit. Remember the law of supply and demand.
6 Is not easily affected by its raw materials' market price fluctuations
The price volatility of your products and services' raw materials can have a significant impact on your profit margin. It is important that you conduct a diligent study on how your raw materials' (e.g. oil, gasoline, coal, gold, water, flour, metal, wheat, raw milk, etc.) price fluctuations can impact your ability to make a profit. Efficient pricing is also a crucial element in business success.
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(1) Legum, Benjamin; Stiles, Amber; Vondrann, Jenifer. (2019). Engineering Innovation. From Idea To Market Through Concepts and Case Studies. Berlin/Boston: Walter de Gruyter GmbH
(2) Schermerhorn Jr., John; Bachrach, Daniel. (2018). Exploring Management. Sixth Edition. USA: John Wiley & Sons, Inc.