According to the Small Business Administration (SBA), only half of the new businesses started each year are still in operation five years later. This means it is important to analyze business opportunities in the beginning to maximize the chances of success. Here are three strategies to assist entrepreneurs in identifying profitable business opportunities.
1. Focus on Solving a Problem
“If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.” -Albert Einstein.
To be an entrepreneur is to be a problem solver. The most critical step in identifying business opportunities is finding the right problem (for you) to solve – usually in the form of an unmet need or market inefficiency. The more significant the problem is, the larger the opportunity for profit. Look at business opportunities through the lens of a problem-solver.
One of the biggest mistakes entrepreneurs make is developing solutions in search of problems. For example, suppose you have long dreamed of opening an Italian restaurant. This is great but not likely to be successful if you open one in a block with three highly rated Italian restaurants with loyal customers in an area with a declining economic base. You are not solving a problem in this instance; you are proposing a solution. Your business opportunity should be a solution to an existing problem or a problem likely to occur in the near future.
2. Develop Solutions to the Problem
Once you identify a problem, you must develop a profitable business solution. Ideally, what could you do to solve the problem? For example, if you find a pent-up demand for vacation rentals in an area that is seeing an increase in tourists, determine what can be done to address the solution profitably.
Develop multiple solutions as part of your analysis. Then assess the merit of the various options. In the rental example, you could purchase a house and turn it into a vacation rental, purchase a hotel, or build a new vacation rental home. When developing solutions, utilize your professional network and find out what successful entrepreneurs have done in similar situations.
3. Assess Resources Needed to Implement your Solutions
Once a problem is identified and solutions are developed, you need to assess the resources required to implement your business solution. This requires an honest assessment, which can be difficult for some entrepreneurs. Do you truly have expertise in this industry, or will you need to rely on consultants heavily? If the latter, how much will that cost? Do you have the required capital or access to financing to implement your solutions, or will you need to obtain this? Be sure to incorporate any free resources that are available to entrepreneurs.
The difference between what you have and what you need is your resource gap. This should be addressed before you put your plans into action. Entrepreneurs are often so eager to get started that they forgo an honest resource assessment until after the business development is underway. This recipe for long-term failure can be avoided with additional planning.
Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.