Situation: A company has been presented with a new business opportunity. The opportunity is compatible with the company’s current business, but also involves skills and markets with which the company is not familiar. How do you evaluate a new business opportunity?
Advice from the CEOs:
- There are at least four critical questions to assess as you evaluate any new businesses opportunity:
- What is the total available market, and what is the immediately convertible market for the product or service?
- Can you acquire expertise in the new markets that this will open to you?
- Do you have a track record starting and nurturing new business within your company?
- Is there sufficient seed money available – through company funds or outside investment – to keep the effort going for at least a couple of years as you develop the core team that will operate this business and gain traction?
- If there is an offer of outside investment, consider how many months this funding will support the salaries of the team that will build this business, plus operating and overhead costs. You want to be sure to give yourself an adequate runway.
- New business development opportunities typically require huge energy, creativity and focus for the first few years. Key management will have to devote all of their effort during the start-up period. Can the company afford to lose the services of key personnel for the time that you estimate this effort will take?
- Before deciding to pursue this opportunity, take the time to investigate the market for this opportunity.
- In particular, look for other companies that have tried to enter this market, and learn from their experience.
- Develop a network of advisors who understand this market and can help you understand both the workings of the market and why companies may have struggled trying to enter the market.