Published in the Idaho Statesman Business Insider, July 6, 2011
I recently spoke to BSU Professor Kent Neupert’s MBA class on opportunity recognition. How do we know when an idea is a good business opportunity?
This is an important question for entrepreneurs and for investors. Seemingly great ideas don’t necessarily result in viable businesses. The idea has to be paired with a market that will demand the product.
For example, an entrepreneur may have a terrific salsa recipe that has been in the family for generations. Family and friends encourage her to go into the salsa business because everyone loves this homemade salsa. Is this an opportunity worth pursuing?
Or some professors have developed a computer game platform that can be used by teachers to create learning quests. Early research shows that some students may be able learn faster and retain more by using the game rather than more traditional teaching methods. Is this an opportunity worth pursuing?
Here are three questions they might ask themselves before leaping into either business:
1. Is there an unmet need in the market place?
2. Is the market large enough to allow the company to make a profit?
3. Can the market be reached for reasonable cost?
Let’s see how these questions might be applied to these two ideas.
Need. It’s hard to argue that the market place needs another salsa. The supermarket shelves are filled with national brands. Specialty stores such as the Boise Co-op carry smaller less known brands, even local brands.
On the other hand, there is a trend in education to reduce costs by deploying more technology. If in fact this gaming platform does lead to improved student outcomes along with lower cost delivery, then it seems to speak to an unmet need.
Size. Clearly both of these markets are huge. It would not be unreasonable to assume there are hundreds of millions of dollars spent each year on salsa and on technology in education, just in the United States. And the worldwide market must be considerably larger.
Distribution. Customers have to be able to learn about and find the product or service. How might that happen with these two ideas? The consumer products market is quite mature. Most people will go to a retail store to purchase a product like salsa. This is an exceedingly difficult and costly market to penetrate. While it may be possible to build an Internet-based salsa business, shipping costs will likely be a significant barrier.
With regard to the technology product for education, distribution is not as defined as with consumer products. Reaching the market will depend upon which market. Will the target be school districts, home schooled children or individual teachers, just to name a few? But since technology is frequently marketed through on line techniques, it may be possible to cost-effectively reach the market.
Dr. Kevin Learned is a counselor at the Idaho Small Business Development Center (www.idahosbdc.org) at Boise State University where he specializes in counseling with entrepreneurs seeking equity capital. He is a member of the Boise Angel Fund, and is a principal in Loon Creek Capital (www.looncreekcapital.com), which assists angels in forming angel funds. He can be reached by email to firstname.lastname@example.org.