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Assessing new business ventures

Nigeria is blessed with abundant resources that can be harnessed to create wealth for its citizens but investors have expressed worry over the poor business environment and non-supportive policies.

Despite these challenges, expatriates from Asia and other continents have been flocking into the country to offer services that are not available in the country. In addition, they are gradually taking over some jobs that Nigerians are capable of doing.

However, while some people are tapping into the opportunities, some are not seeing them at all.

Research has shown that when entrepreneurs or potential ones are faced with such opportunities, they are confused as to how to determine which will be more profitable.

It is often said that aspiring entrepreneurs find it easy to think of many business ideas but find it difficult to implement them. Business experts say they are prone to making mistakes as a result of their inexperience.

According to some successful business managers, the ability to turn ideas into money-making ventures will require having adequate knowledge of where the resources or business input are and how to source for them as well as attract customers.

They point out that the knowledge of business management techniques as well as the ability to manage through problems when they arise are important.

Most entrepreneurs are also not certain of the risks associated with the use of a new technology, service, or process.

To overcome the confusion and eventual loss of investment, business analysts have highlighted methodical approaches to selecting the business options that work best in the long term.

Make revenue and margin projections

Usually, when opportunities are presented by potential partners, they hold promises of revenue and margin possibilities.

While it is good to make assumptions, business analysts say it is important to create formula-based models that calculate overall revenue and margin based on assumptions.

The Chief Executive Officer of Adigo, Brad Volin, in a presentation on how to assess new business opportunities observes that there are two to five critical assumptions that have the most significant impact on achieving the overall revenue and margin projections.

He says the projections should be tested for effectiveness for a specific period, adding that failure to do so can result in wasted time and resources.

Volin advises that an opportunity should not be assessed by itself, but rather should be compared with other available business prospects.

Evaluate the resources and risk

Volin says other opportunities may not involve new technology because the area may be outsourced.

However, he says in every situation, there are resources required from the company.

According to him, it is important to identify the operations, support, marketing and sales resources, coupled with the engineering resources needed.

After identifying each of these resources, Volin says the level of risk involved for each one as to the likelihood of success should be evaluated.

Giving an example, he says many new opportunities require new sales effort.

“This effort might be in a new channel and customer base, so it may require hiring new salespeople. There is much risk involved in an effort like that, especially with regards to timing. If the hiring takes longer, the sales effort takes twice as long to put in place, the sales window of opportunity may be smaller and therefore the revenue less than forecast,” he says.

In addition, experts note that part of a financial assessment includes the amount the investor has in personal savings to add to the initial investment.

This, according to them is because banks typically require entrepreneurs to come up with a portion of the investment and willingness to take a risk with the lender. They say business owners should assess the financing available through the seller, investors and lenders when evaluating chances of succeeding.

Determine the opportunity cost

As a result of constraints in engineering and managerial resources, experts say businesses can only take on a limited number of new initiatives, and it is important to identify quickly what availability for new initiatives exists.

Volin says many small companies may have none because going after one new opportunity can result in significant distraction away from the existing core business.

For small companies, he explains that it may only be one to two initiatives, one of which may involve product extensions or support to existing business.

According to him, whatever opportunity is chosen means all the others are not chosen, and that defines the opportunity costs.

Conduct market analysis

In conducting market analysis, information gathered from the Small Business Development Corporation in Australia notes that the research should include the following:

Demand analysis: here you determine the type of demand that exists for your product or service (eg consumer, distributor), and establish the size of the market and its growth capacity.

Supply analysis: look at the life cycle of the industry. Is it the right time for you to be entering it? Also study the way the industry is structured and think about how that will affect your business.

Relationship analysis: how do the various groups within the industry interact? What is the bargaining power of buyers and suppliers? Is there a threat of substitute products or new entrants?

Assessing new business ventures was last modified: January 22nd, 2016 by Aderonke Bamidele
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Aderonke Bamidele

Aderonke Bamidele is an award-winning information entrepreneur with strong 8-figure online businesses. She has a passion for helping people who are searching for relevant information from the web to solve their day to day problems. Remember; knowledge is power. She also likes to write about things in general in her country and all over the world. From money making ideas to Latest news and celebrity gossips. Her passion for blogging is strictly inspired by things that she loves to talk about.

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