Many small companies have floundered when the owners don’t stay the course. As a result, they hop on the next new thing that catches their attention. As a rule, you should devise a strategic planning process to decide a business’s direction and priorities. And then you should stick to it.
However, new business opportunities can present themselves out of the blue. For instance, a few years ago did anyone think you could use power trowels as grinding and polishing machines? Product development aside, there may also be products now available for licensing or businesses in part or all for sale.
When these things happen, you should have an approach for evaluating opportunities. Small businesses can ill afford biting off too much. You must use limited resources in the best possible way.
I use a five-step process for scoping opportunities and devising a strategic planning process. This way I cover all the bases and can compare different types of opportunities to each other. The process works whether it concerns developing a new offering or licensing it from someone else.
1. Identify customer needs
Start by describing the problem to be solved from the customers’ standpoint, including the pain they feel. Ask yourself what a successful solution would look like? How can you know you have succeeded in solving the problem? You need to figure out how to measure success and in what unit.
2. Define the opportunity
Unless it’s a new problem, customers currently solve their needs in some other way. They may use substitute products or services. Oftentimes, you need to understand more or less elaborate work-arounds. You also need a rough idea of potential customers, their numbers and their geographical location.
3. Determine the opportunity’s worth
Start with estimating how much it’s worth to a customer to solve the problem. Next look at what competitors charge and determine the cost of similar solutions. Imagine how much each customer would buy and how much they would pay. Then look at your cost of producing the product or service. Will this price adequately cover your costs and let you make some money?
4. Will it work
Next you need to define what a product or service would look like that meets customer needs. What features or design elements should it have? Can you imagine a virtual product and estimate strengths and weaknesses? How quickly could you develop, buy or outsource it? Can you do it in some other, more cost-effective way?
5. Define the market
Finally, put it all together and estimate the size and growth of a potential market. Pinpoint your competitors, their capabilities and market shares. Also hone in on viable substitutes. Picking up on the research under item 2, you can flesh out your key customers. You can also determine how much they could buy and if you need a distribution channel. Armed with this information, you’re ready to pounce!
However, some words to the wise
Document these opportunities and save them in a standard format. Then you can manage them as a portfolio, compare them to each other and spread risks over time. Maybe some opportunities are best worked through a bolt-on acquisition. Others may call for developing new products or buying a license. And still other opportunities will be long-term, while others may be short-timers.
Most importantly, at the day’s end you should have new initiatives in the pipeline to continually help develop your business.