Entrepreneurship 101 – Identifying market opportunities

Remain permanently oberservant

Entrepreneurs are not born, they are trained. We all have a shot at success and fame and it all starts with one ever-persistent thought, “I want to make my own business.” In order to do so, you must find an opportunity to provide a product or service to the public that is either unique, slightly better than the competition, or less expensive than the competition. This is how you do it…
The need.
Eyes open and ears receptive. That is the first rule of entrepreneurship. You must learn to remain permanently observant. Like a program remains running in the background if you pull up another window over it on your laptop, your observance must follow suit. You will begin to notice minor nuances in random things throughout the day that could be made better tasting, more efficient, more aesthetically pleasing, etc. Now it is a matter of choosing what taps into your passion. Rule #2, entrepreneurship is controlled chaos. You need to frame what matters to you because the likelihood is that you will encounter something at some point that falls within that scope and when it does you must be able to isolate it from the chaos and create a path. Rule #3, timing is king. When the proper time arrives you will notice that the nuance and the path that you have created have a clear distinct end, or exit. When you reach this point, you have found a market need. It is something that can be improved or created anew that creates added value. Now it is a matter of planning and strategic refinement.

STORY: Jared and Rachel were eating some cheese. It was highly processed with ingredients you needed a Ph.D. to pronounce, was made 10,000 miles away, cost more than its weight in gold, and frankly tasted just slightly better than their younger brother’s Play-Doh. For their health, if not their sanity, they needed to make something better.

The resources.
Now that you have determined the need, you need to assess what is available to you, or not, that will allow you to provide a solution and capitalize on the opportunity. A simple tool called “SWOT” analysis will do the trick. Take a look:
Internal Factors (Strengths and Weaknesses): These are aspects that you have control over.
  1. What people, expertise, and capital do you have on hand that can be mobilized?
  2. Do you have an organizational structure that inhibits creativity and promotes bureaucracy?

External factors (Opportunities and Threats): These are aspects that you do not have control over.

  1. Are there more attractive financing rates at the moment or technological advances to aid in your manufacturing or marketing efforts?
  2. How have laws or taxes changed over the last year? Is there political unrest?
After completing this exercise by answering questions such as the examples above, you should be aware of what resources are available to you whether they are financial, human-capital, or intangibles such as intellectual property, that will aid you in bringing your solution to fruition.

STORY: Jared and Rachel know that they need better cheese, but how can they go about making it? They live at their grandmother’s house, where there is a computer, a kitchen with utensils, and their grandmother’s purse which contains $200…
They realize that they also have two employees, themselves, and that President Abraham Chacko has just passed legislation limiting the importation of gourmet dairy by raising tariffs. Bingo!
They have low labor costs, an open and flexible collaborative environment, access to expertise, capital equipment, and inexpensive financing, but most importantly, they have a potential niche, domestically produced gourmet cheese at a lower cost than the competition.

The industry.
Warren Buffet put it best when he described the perfect business as an “economic castle with an unbreachable moat.” That is, a business that has an overt competitive advantage and is difficult for others to copy and, at times, prohibitive of such action. As entrepreneurs we tend to create highly imaginative, disruptive, and theoretically profitable business models, but we also tend to forego asking ourselves two key survival questions: 1) “What does my industry look like now and what will it look like 5 years down the road?” and 2) “What competitive advantage do I have that is difficult for others to replicate?” My personal favorite framework to answer these questions is Porter’s 5 Forces. It focuses on the following areas:
  • New entrants and barriers to entry

How easy, or difficult, it is for potential competitors to enter your market space?

  • Substitutes

What other products/services can someone use if not yours (e.g. cell phone vs. land line)?

  • Supplier Power

Is there differentiation of inputs or more commoditization? Do you have the option to switch between suppliers of inputs or is there only a small number or providers?

  • Buyer Power

How dependent are your customers on your product? How informed are your customers? Are your customers a small consolidated group that can exert influence on your decisions or are they more decentralized and can be replaced by others easily?

  • Industry Rivalry

How sustainable is your competitive advantage and does it support long-run margin retention? What level of M&A activity is there (e.g. consolidation)? What does the labor pool look like and how is it affecting salary/wage levels?

This list is not exhaustive but knowing the answers to these simple questions will allow you to build a business model that is not only self-aware but also engaged with the relative position of its competition.

STORY: Jared and Rachel look at each other. Several minutes go by. One makes a hand gesture, but no verbal articulation. Ten minutes later Jared says “I don’t want Pedro from the corner store to take my cheese idea; we have to protect this thing.” Rachel makes her grandmother agree not to share their recipe with Pedro. They visit the store and see where he gets his cheese from. It’s from that town in France with the funny nasal pronunciation. The customers were almost always young mothers with healthy foods in their baskets and they all seemed to come from the same brand.

The solution – OPPORTUNITY.
Well congratulations to you! You have now answered a market need and have created a defensible position that will allow you to remain competitive against other players in the industry and retain margin ensuring profitability. Now, to make it a success, you need to create a strong and integrative marketing plan that will tailor the answer to your particular target market and their particular desires. Only at this point, where your customer accepts the product as something that they need and desire, and that only you can provide, is it that you have created a true solution, prior to that it is just another product/service. Differentiation is everything.

STORY: Jared and Rachel are super happy. They have brought their cheese to life. It is superior to the competition in every way. Now, they need to make customers aware. They quickly convince Uncle Randy to post flyers on the windows of every single local store, market, and light post where mothers of young children gather. That will be their true solution, their differentiated niche. They are going to provide better tasting, healthier, gourmet cheese that is also more affordable, and has a name that’s easy to remember. Le Slim Cheez.

-Manny Ortega

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This entry was posted on Thursday, April 14th, 2011 at 5:26 PM and is filed under Cool Stuff, News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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