Business Opportunities - Chapter 4

Chapter 4: Business Opportunities

Learning Outcomes

  1. Determine the opportunity analysis process.

  2. Analyze businesses based on SWOT analysis and Business Model Canvas.

Introduction

  • An opportunity is a situation that enables an entrepreneur to offer products or services to interested or potential buyers or end-users.

  • Opportunities inspire individuals to become entrepreneurs and act as a link between individuals and the setting up of new ventures (Venkataraman, 2004).

  • With lucrative opportunities, individuals and firms can innovate, evolve, expand, or improve the provision of any products or services they may provide.

When is an Idea an Opportunity?

  • Create or add value to the customer.

  • Solve a significant problem, removing a pain point, or meeting demand.

  • Have a robust market, profit margin, and money marketing.

  • Good fit with founder & management team at the right time & place.

Opportunity Development Process

Stage 1: Identifying Opportunity

Stage 2: Evaluating Opportunity

Stage 3: Selecting Opportunity

1. Identify Opportunity

  • Search for opportunity: by purpose/by accident.

  • Recognize opportunity: collect ideas – generate ideas.

How to Search?

  • Experience and exposure.

  • Knowledge and skills.

  • “Special alertness”.

  • Social network.

  • Creativity.

  • Vigilance.

Emergence of Opportunity

  • Still not in existence.

  • Already in the market but failed to satisfy the customers – need improvement.

  • People discovered a problem.

  • Unfulfilled needs and wants. The entrepreneur later creates a business that is able to fulfill the needs or want and/or solve the problem.

How Changes in the Environment Provide Openings for Opportunities

  1. Structure of Population and Income

    • Number of teenagers higher than elderly/children -> Cyber cafes, cineplexes, recording studios

    • People have higher purchasing power -> Passenger cars, household furniture, DVD

  2. Social

    • Increase incident of housebreaking -> Grills, alarm, sensor, security systems

    • Increase interest in fitness -> Fitness center, dancing class, in-house equipment.

    • Increase mobility of population -> Handphone, laptop computers

    • Increasing dual-income family -> Restaurants, food delivery services.

  3. Technological Advances

    • Advances in biotechnology -> Biotech-related pharmaceutical products, food products.

    • Development of the internet -> E-commerce, improved communication Improve economic performance, Online marketing, cost control services

  4. Government Policies and Regulations

    • Increased driving standards -> Smoke emission control, helmet, seatbelt.

2. Evaluate Opportunity

  • Determine the most feasible to proceed.

  • Look into a few factors:

    • Market – competitors, lifecycle, etc.

    • Operation – processes involved, M&E requirements, etc.

    • Financial – cost, expenses, profit, etc.

3. Select Opportunity

  • To make decisions on the opportunity.

  • Factors:

    • Legality.

    • Competition.

    • Capital.

    • Risk.

Business Tools

  • SWOT Analysis

  • Business Model Canvas

SWOT Analysis - What?

  • One of the most effective business and decision-making tools.

  • An analysis of a firm by looking at its internal environment as well as its external environment.

  • Internal environment – those which can be controlled inside a firm which influences how well firm operates.

  • External environment – elements outside of the firm that may affect positively/negatively such as legal factors, economic factors, technological factors, demographic factors, etc.

  • Focuses on strengths (S), weaknesses (W), opportunities (O), and threats (T).

SWOT Analysis - Why?

  • To allow firms to develop strategies that will maximize strengths and capitalize on opportunities.

  • To help assess internal factors (strengths and weaknesses) and external factors (opportunities and threats) that might affect your business.

  • To increase awareness of the factors that go into making a business decision or establishing a business strategy.

  • To understand your competitive advantages & disadvantages, find things to improve about your firm, and understand why some aspects of your firm are struggling.

  • To guide you to build on what you do well, address what you're lacking, seize new openings, and minimize risks.

SWOT Analysis - How?

  1. List your strengths.

  2. List your weaknesses.

  3. Identify your opportunities.

  4. Identify your potential threats.

SWOT Analysis

Strengths (Internal Factors)

  • What are we really good at?

  • What are our best and unique skills?

  • What internal talent do we have (staff)?

  • What other resources do we have (funds)?

  • What are our advantages over competitors?

Weaknesses (Internal Factors)

  • What does our company lack (staff talent, funds, good location)?

  • What departments or sections within the company are lagging behind?

  • Where are we losing time and money?

  • What skills aren't up to the mark?

Opportunities (External Factors)

  • What are the market opportunities that we have?

  • What are the changes in our external environment that we can take advantage of (changing laws, changing customer preferences)?

  • Can we tap into new customer categories?

  • Are there related businesses (products or services) that we can get into?

Threats (External Factors)

  • What expertise do we lack in our efforts to use opportunities?

  • What is it that our competitors are doing better than us?

  • What's happening in the economy or industry that can adversely affect us?

  • What are our biggest obstacles?

SWOT Analysis Questions

Strengths (Internal)

  1. What do our customers love most?

  2. What are we more efficient at?

  3. What can we do for less money?

  4. What can we do in less time?

  5. What makes us stand out?

Weaknesses (Internal)

  1. Where do we lack efficiency?

  2. Where are we wasting money?

  3. Where are we wasting time and resources?

  4. What do our competitors do better?

  5. What are our top customer complaints?

Opportunities (External)

  1. What is missing in our market?

  2. What could we create or do better than a competitor?

  3. What new trends are occurring?

  4. What new technology could we use?

  5. What openings in the market are there?

Threats (External)

  1. What changes are occurring in our market?

  2. What technologies could replace what we do?

  3. What changes are occurring in the way we're being discovered?

  4. What social changes could threaten us?

  5. Are there any threatening government policies/regulations?

SWOT Examples

Example 1: Strengths, Weaknesses, Opportunities and Threats.
Strengths

  1. World's Strongest Brand

  2. Very High-Profit Margin

  3. Global Reach

  4. Expanding their Consumer End

Weaknesses

  1. Products Being High Priced

  2. Tracking Allegations

  3. Software Incompatibility

Opportunities

  1. Customer Growing Rate Constantly

  2. Using Green Technology

  3. Uses of Artificial Intelligence

Threats

  1. Increasing Competition

  2. Penetration in The Market

  3. Risk of A Significant Trade War

Example 2: Starbucks SWOT Analysis
Strengths

  • Valued at 44 billion

  • Good Track Record

  • Largest coffee house chain in the world

Weaknesses

  • Bad Publicity

  • Expensive Coffee

  • Coffee Bean Price Fluctuations

Opportunities

  • Market Expansion

  • Rising Coffee Demand in South Asian Markets

  • Extended Supply Range

Threats

  • Rising Coffee Bean Prices

  • Trademark Infringement

  • Imitation Goods

  • Weak Patent Rights in Expanding Markets

Example 3: McDonald's SWOT Analysis
Strengths

  1. Successful Advertisement & Brand name

  2. Collaboration with Coke

  3. Clean Environment & Play Space for Kids

  4. Professional Training for Employees

  5. Competitive Price

Weaknesses

  1. Weak Product Development

  2. Management of Franchisee/Joint Venture

Opportunities

  1. Internationalization (Serving Only 1%1\% of Population)

  2. Growing Dining out Market

Threats

  1. More Health Conscious Customer

  2. Threat from local Competitor in different Countries

  3. Global economic recession

  4. Playing in a mature and saturated Industry

Business Model Canvas (BMC)

  • The Business Model Canvas (BMC) gives you the structure of a business plan.

  • It has 9 building blocks:

    • Key Partners

    • Key Activities

    • Key Resources

    • Value Propositions

    • Customer Relationships

    • Channels

    • Customer Segments

    • Cost Structure

    • Revenue Streams

1. Customer Segments

  • Customers comprise the heart of any business model.

  • Without customers, no company can survive for long.

  • Important to group into distinct segments with common needs, common behaviors, or other attributes.

  • Deciding which segments to serve and which segments to ignore.

Customer Segments:

  • Mass Market

  • Niche Market

  • Segmented

  • Diversify

  • Multi-Sided Platform/Market

Market Segmentation Approaches

  • Geographical: continent, country, country region, city, density, climate, population, subway station, city area

  • Demographic: age, gender, family size, occupation, income, education, religion, race, nationality

  • Psychographic: lifestyle, social class, AIOs (activity, interest, opinion), personal values, attitudes

  • Behavioral: occasions, degree of loyalty, benefits sought, usage, buyer readiness stage, user status

2. Value Propositions

  • What differentiates the firm’s product or services from their competitors.

  • Summarize why a consumer should buy a product or use a service.

  • Convinces a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings.

  • Reason why customers turn to your company over another.

  • Uniqueness of the product or services is the competitive advantage to the firm.

Value Proposition Elements

  • Label

  • Features

  • Functions

  • Value proposition

  • Packaging

  • Convenience

  • Brand

  • Design

3. Channels

  • Describes how a company communicates with and reaches its customer segments to deliver its value proposition.

  • Types:

    • Distribution Channels

    • Marketing Channels

Distribution Channel

  • Manufacturer/Producer -> Wholesaler -> Retailer -> Consumer

  • Manufacturer/Producer -> Retailer -> Consumer

  • Manufacturer/Producer -> Consumer (E-Intermediaries)

Marketing Channels

  • Traditional Marketing: TV & Radio, Billboard Ads, Cold Calling, Trade Show, Newspaper, Print Ads, Direct Mail, Branding

  • Digital Marketing Channels: SEO, Email Marketing, Retargeting, PPC, Website, Content Marketing, SM Marketing, Mobile Marketing

4. Customer Relationship

  • Dictates the nature of the relationships that an organization will develop with its various customer segment.

  • Driven by customer acquisition, customer retention, and boosting sales (to get, keep, and grow your customer relationships).

Types of Customer Relationships:

  • Personal Assistance

  • Dedicated Personal Assistance

  • Self-Service

  • Automated Services

  • Communities

  • Co-creation

5. Revenue Streams

  • Identify how your business makes money.

  • Represents the cash a company generates from each customer segment

  • Source of revenue stream: one-time sales or recurring sales (usage fee, subscription-annual or monthly, renting, booking, licensing, brokerage, advertising).

  • Look at cost, competition, and also value to customer.

Types of Revenue Streams

  • Asset Sale

  • Usage Fee

  • Subscription Fee

  • Lending/Leasing/Renting

  • Licensing

  • Brokerage Fees

  • Advertising

6. Key Activities

  • List down all the important activities that are relevant to the business.

  • Tasks a company must carry out in order to fulfill its business purpose.

  • Required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues

  • Describes the most important things a company must do to make its business model work

  • Parallel with revenue streams so that an evaluation may be done on the impact of the revenue.

Key Activities Examples

  • Research & Development

  • Production

  • Marketing

  • Finance

  • Customer Service

  • Sales

7. Key Resources

  • Main inputs and assets the business uses to function effectively.

  • It is what business needs

  • Category: physical, financial, intellectual, or human

  • Obtain through leasing or owning these resources

Types of Key Resources

  • Physical resources: tangible resources, equipment, inventory, buildings

  • Intellectual resources: intangible resources, brand, patents, IP, and copyrights, collaboration

  • Human resources: Employees, knowledge pool, human resources

  • Financial resources: cash, lines of credit, and the ability to have stock

8. Key Partners

  • Relationships that you have with stakeholders (other businesses, government, consumers, suppliers, your manufacturers, business partners, etc.

  • Create will be forces that help your business succeed in areas that would be inefficient for you to do yourself.

Types of Partners

  • Strategic Alliance

  • Coopetition

  • Joint Venture

  • Buyer-Supplier

Types of partners elaborated

  1. Strategic alliances between non-competitors: This means that you and a company that you have no direct competition with, industry-wise, will partner together in ways that will benefit both of you.

    • Example: You can partner with a manufacturer to produce a part of your business product that you yourself may not be able to manufacture. In return, you have a contract to pay for these parts that your partner has made you.

  2. Coopetition: This is the strategic partnership between competitors. This one is a little wacky; it means that companies who may be directly competing will still work together to generate awareness for their shared industry, in the attempt to gain new users for all those in the industry to compete for.

  3. Joint Ventures to develop new businesses: Here you may join your company with another to create an entirely different entity, which may be more profitable for both of you than if you were to operate separately.

    • Example: Blu-ray is an optical disc format jointly developed by a group of the world’s leading consumer electronics, personal computer, and media manufacturers.

  4. Buyer-supplier relationships: Specifically, building reliable relationships with a buyer or supplier. You need to incorporate the characteristics of trust, quality, and commitment between the two entities.

9. Cost Structure

  • Final block, as we need to have all the previous components already defined so we can estimate the costs of each one.

  • Involves all the costs required for the running business.

  • Cost incur for business operation.

  • Focusing on value-driven (providing maximum value) or cost-driven (minimizing investment).

  • Fixed cost and variable cost.

The Canvas has nine elements:

  • Customer Segments: Who are the customers? What do they think? See? Feel? Do?

  • Value Propositions: What’s compelling about the proposition? Why do customers buy, use?

  • Channels: How are these propositions promoted, sold, and delivered? Why? Is it working?

  • Customer Relationships: How do you interact with the customer through their ‘journey’?

  • Revenue Streams: How does the business earn revenue from the value propositions?

  • Key Activities: What uniquely strategic things does the business do to deliver its proposition?

  • Key Resources: What unique strategic assets must the business have to compete?

  • Key Partnerships: What can the company not do so it can focus on its Key Activities?

  • Cost Structure: What are the business’ major cost drivers? How are they linked to revenue?

BMC Examples

Air Asia

  • Key Partners: Secondary Airport, Meal Caterer

  • Key Activities: Point-to-point route, Promotion, Utilization of craft, Extra services

  • Key Resources: Aircraft maintenance, Air Crew, Internet transaction platform, Operation & maintenance

  • Value Proposition: Low Fare

  • Customer Relationships: call center, website, sales office

  • Customer Segments: Price-conscious traveler

  • Channels: Call center, Website, Sales office

  • Cost Structure: Aircraft maintenance costs, Airport costs, Staff Salaries, Operation & maintenance fee

  • Revenue Streams: Platform fee, add-on services, Tickets

McDonald's

  • Key Partners: Suppliers, Delivery Providers

  • Key Activities: In-store Product Sale, Franchisees management, Marketing

  • Key Resources: Brand, Real Estate

  • Value Propositions: Cheap and quick food, good service and cleanliness, quality from a trusted brand

  • Customer Relationships: Customer Service

  • Customer Segments: Buyers, Become a successful entrepreneur and have more profit through the McDonald's brand name

  • Channels: Social Media, Website + Mobile App, Stores, Franchisees

  • Cost Structure: Salaries, Administration and Operations

  • Revenue Streams: Meal Sales, Royalties and License Fees, Rent Fees

Generic Example

  • Key Partners: Manufacturers, App Store, Developers, Phone Companies, Content Creators, Publishers

  • Key Activities: Software Development, Design, Quality Control, Manufacturing

  • Key Resources: Design Culture

  • Value Propositions: Think Different, Usability, Awesome Smooth Design

  • Customer Relationships: Self Service, Knowledgeable Sales & Customer Support

  • Customer Segments: Mass Market

  • Channels: Apple.com, Apple Stores, 3rd Party Retailers

  • Cost Structure: Economies of Scale; Cost Driven

  • Revenue Streams: Product Sales, Media and Licensing, Subscription Revenue Brand & Status

Starbucks

  • Key Partners: Coffee growers, Specialized coffee machine makers

  • Key Activities: R&D, Supply Chain management, Packaging and bottling plants

  • Key Resources: People Brand packaging Cost Structure Coffee and milk Marketing & R&D Rent People costs

  • Value Propositions: Unique coffee co-created with the customer, Third place between the home and the office, A place to hangout with friends, do homework

  • Customer Relationships: Long term Loyal

  • Customer Segments: Coffee affectionados Mobile professionals Students

  • Channels: Retail stores

  • Cost Structure: Unique coffee co-created with customer, Third place between the home and the office, A place to hangout with friends, do homework.

  • Revenue Streams: Retail sales

Consider this:

  • Uber, the world's largest taxi company, has no vehicles.

  • Facebook, the world's most popular media company, creates no content.

  • Alibaba, the world's most valuable retailer, has no inventory.

  • Airbnb, the world's largest accommodation provider, owns no real estate.

Summary

  • The development of opportunity begins with the identification of opportunity.

  • SWOT Analysis comprises both the internal and external environments of a firm.

  • BMC explains how a firm produces, supplies, and captures value. Through BMC, an entrepreneur plans for future business opportunities.