How to Evaluate Potential Business Opportunities

evaluating potential business opportunities

Most entrepreneurs who fail made their mistake in the planning phase of evaluating business opportunities. They dive in too fast instead of thinking through different angles in potential business opportunities and ideas.

For specific business ideas, see MoreBusiness.com’s vast Business Ideas section.

Evaluating Business Opportunities

Before an entrepreneur starts or invests in a company, business ideas must pass a series of tests and questions before one is deemed a truly valid and valuable opportunity.

Here are a few important initial questions to 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?
  • What is the cost of NOT pursuing this business opportunity (also known as business opportunity cost)?

While these are good initial questions, there are many more questions to ask as part of a business opportunity evaluation.

The Merit of Potential Business Opportunities

If a business idea does have initial merit, you should also perform a more detailed business opportunity evaluation. One such method is the RAMP model developed by Ryan P. Allis, CEO of several 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:

1. 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 spend?
  • How much investment will you need to get the business idea off the ground?
  • And ultimately, what are your or your investors’ return requirements?

2. Advantages

To identify the advantages of pursuing this potential business opportunity, look at factors that this idea has that others don’t.

  • 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?

3. Market

Another pillar in your business evaluation process is analyzing the market. If there isn’t a big enough market for your product or service, you should rethink whether this business opportunity makes sense.

  • 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 might find that this type of product is already saturated in the market. The idea is good and a market exists, but if the market is flooded with competitors it would not likely be profitable (see Return above).

4. Potential

The bottom line of any business is to make money. Without positive cash flow, you won’t succeed. Business owners with the best of intentions often fail because the financial potential isn’t big enough.

  • 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?
  • Are there other businesses that are similar (which is a validation that this potential business opportunity could be worth pursuing)?

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.

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