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Mansfield University... Developing Tomorrow's Leaders Center for Entrepreneurial Leadership - Start a Business

Recognizing Opportunity

The following are conditions that indicate a good business opportunity:

  1. Strong cash flow
    Repeating or recurring income is best. A business that has a subscription, rent or lease arrangement, or regular direct drawdown of customer’s funds against term contracts, will have great regular cash flow. Businesses that have pre-pay or pay at time of sale or service are also good. Services or products which are delivered first, then billed for later, require a lot of financing and inevitably, collection and write off problems, and are harder to grow.
  2. Aspirins, not vitamins
    In the entrepreneurial world, solutions to problems that people consider a “real pain” or are urgent are often referred to as “aspirins.” Nice things to have are called “vitamins”. Solve customers urgent problems or pains and you will have a strong business. Solutions to problems are business opportunities. Big problems are big opportunities.
  3. Scalability
    A business that can grow exponentially will have great upside opportunity. Dot com businesses can be platforms that many customers can use from any geographical location. A storefront business has space limitations, and only so much product can be inventoried and sold at a time. Similarly, think business organization versus ‘practice’. An organization can keep growing to meet demand, while a practice relies on your own talent, and can’t grow beyond what you can do yourself (“solopreneur”).
  4. Sizzle
    The product is emotionally appealing to customers. Consumers more often make purchases based on emotional grounds than rational ones. (New shoes or insulation?)
  5. The market already exists
    A product or service no one knows how to use yet will take a lot of time and effort to get going.  The first product in a marketplace is rarely the most successful. Create solutions to needs that many customers already have and you will find a ready market.
  6. Growing market
    Businesses entering a growing market, like health care, have much greater opportunity. Growing markets have emerging products, services, and delivery mechanisms where a new business can find a niche. (Declining or mature markets will have cut-throat and destructive competition.) The odds are stacked in favor of business success.
  7. Reasonable capital requirements
    Billion dollar startups are rare. Businesses where production or delivery partners add value can reduce financing cost and startup risk. Be cautious of high labor costs and high overhead which can eat up financing before the product or service is generating necessary revenue. The business must raise sufficient capital to get through the startup period. The quicker a business can get running and generating revenue, the better.