Published April 28, 2010

How to Evaluate Potential Business Opportunities

Entrepreneurs have begun and failed at new businesses since capitalism was invented. However, most entrepreneurs who fail do not make mistakes during the start-up phase, but actually fail to fully analyze and evaluate business ideas and opportunities in the first place.

Before an entrepreneur starts a new small business, business ideas must pass a series of tests and questions before it is deemed a truly valid and valuable opportunity. Here are a few important initial questions you might ask yourself as part of a business opportunity evaluation.

  • Does your business idea have a demonstrated market need?
  • Is there sufficient demand for the product or service?
  • Is creating the product or service economically feasible?
  • Will there be a sufficient return on the investment of starting a new business?

While these are good initial questions, there are many more questions to ask as part of a business opportunity evaluation. If a business idea does have initial merit, one should also perform a more detailed business opportunity evaluation. One such method is the RAMP model developed by Ryan P. Allis, CEO of two successful marketing software and consulting companies.

RAMP stands for Return, Advantages, Market, and Potential. Here is an inside look at this method of evaluating business opportunities:

  • RETURN

    The big question that an entrepreneur should ask is whether a business opportunity will generate revenue, and ultimately, profit. Without a potential profit, a great business idea is just a great idea without financial merit. Can you make a product that generates more money than you expend? How much investment will you need to get the business idea off the ground? And ultimately, what are your or your investors' return requirements?

  • ADVANTAGES

    What makes your business idea better than others? Is your idea unique, and does it have minimal competition? Do you have intellectual property like a patent that gives your business idea an advantage?

  • MARKET

    Who will be your target consumer? Is there a need for your business idea? Can you fill a market need? For instance, you might think of a great business idea to produce a carbonated beverage flavored with roots, berries, and other natural flavors. However, in your RAMP evaluation you find that this type of product is already saturated on the market. The idea is good and a market exists, but the market is saturated from other competition and would not likely be profitable (see RETURN above).

  • POTENTIAL

    When you evaluate business opportunities, also think of the potential. Will there be sufficient financial reward? Do you see a potentially growing market for the product? Do you have others who believe in your business ideas?

    You as an entrepreneur have a lot of thinking to do. Come up with great business ideas. Be creative. Get enthusiastic about your ideas. However, always take the time to perform sound business opportunity evaluation. You can learn a lot about your business ideas and their potential by performing a simple RAMP analysis. Only after your genius idea passes the RAMP test should you begin to invest your time and money.