The following is an embedded Slidecast (audio and slides) published to our new SlideShare profile that presents the webinar we did on assessing departmental or new business opportunities.
See also the text below the player for a written summary of the presentation. The entire length of this Slidecast is approximately 23 minutes.
The nice thing about this format is you can not only view the slides, but also hear the presentation though your computer’s speakers. You can page through the slides to preview once you hit play. This allows you to zero in on the part of the discussion that interests you most. You can also go back to pick up slides and audio you may have missed or want to review.
Assessing New Business Opportunities
Every business (and startup) is constantly identifying new opportunities. Typically the goal is to bring in new sources of revenue, but it might also be for strategic reasons such as developing a partnership, distribution channels, new technology or combination. Often, new opportunities are very exciting and the company’s resources may be invested based on a hunch or whim. An early decision on approaching new opportunities sets in motion a lot of inertia, and will have a major impact on company direction for 6-36 months. Therefore, a methodical approach to assessing new opportunities is critical for long term company success.
In general, most opportunities should be evaluated on 3 levels:
- Revenue / margin / ROI
- Resources / risk
- Opportunity cost (by investing in this, what other options are thereby eliminated?)
Revenue / margin / breakeven
Often, there are rosy scenarios for revenue and margin possibilities. Of course, assumptions have to be made, but it is important to create formulaic models that calculate overall revenue and margin based on assumptions that drive a financial model. Changing these assumptions, often it becomes clear that there are 2-5 critical assumptions that have the most significant impact on achieving the overall revenue and margin projections. These are termed “Key Assumptions”. It is these Key Assumptions that should be proven during the ‘beta’ period. Failure to do so can result in lots of wasted time and resources pursuing an unprofitable opportunity.
After the model is vetted, there should be 6, 12, 18, 24 month revenue and margin projections. Each company should have hurdles in place that the projections are measured against. Is the revenue enough? It may be a lot of revenue, but what is the actual margin or profit produced? What is the break even and ROI? Do not assess an opportunity by itself, but rather compare it to the other opportunities available. Choose the highest.
Resources / risk
Some new opportunities may involve commercializing new technology, which typically involves some level of unknowns. Other opportunities may not involve new technology because that area is outsourced. However, in every situation there are resources required from the company. It is important to identify the operations, support, marketing and sales resources, let alone the engineering resources needed. After identifying each of these resources, evaluate the level of risk involved for each one as to the likelihood of success. For example, many new opportunities require a new sales effort. This effort might be in a new channel and customer base, so it might require hiring new salespeople. There is much risk involved in an effort like that, especially with regard to timing. If the hiring takes longer, the sales effort takes twice as long to put in place, the sales window of opportunity may be smaller, and thus the revenue less than forecast.
Every organization is constrained. There simply are not endless engineering resources, let alone management focus. An organization can only take on a limited number of new initiatives, and it is important to identify up front what availability for new initiatives exists. For very small companies it may be zero! That is because going after even one new opportunity can result in significant distraction away from the existing core business. For small companies, it may only be 1-2 initiatives, one of which might consumed by product extensions or support to existing business. That leaves only one ‘at-bat’ possibly per year, to go after something new. So whatever opportunity is chosen means all the others are not chosen, and that defines the Opportunity costs.
Choosing to go after a new opportunity is critical to the long term success of most businesses. Often this starts a ball rolling that lasts for 6-18 months, so it is important to choose carefully. Often a lot of emotion is involved in new ideas, but taking a methodical approach works best in the long term. Key to this is evaluating multiple ideas at the same time using consistent criteria, so an objective ‘rack and stack’ hierarchy is produced. Lastly, be sure to identify milestones every 6 weeks that validate the assumptions made in the analysis. This serves to continually fine-tune the project and verify progress is being made timely. This will identify the best opportunity for the company, rather than a pet project that a particular person or group is interested in that gains a life of its own.