Business opportunities are all around you. You may be impatiently standing in line waiting for a service, or frustratingly using a product you think is inferior, or working for a big corporation you feel overlooks potential customers, and suddenly you realize—“there must be a better way.” And there’s your business opportunity.

Interestingly, most solid, profitable businesses are developed from rather mundane ideas. While it might take a Levi Strauss to invent blue jeans or a Steve Jobs and Steve Wozniak to create a personal computer, many other businesses are required for selling jeans or providing services, software, and components for computers. That could lead you to start a company like the Gap (which began by only selling Levi’s) or Adobe Software (used by scads of graphic designers who also loved Mac computers). Many great business opportunities are to be found building on others’ concepts, and they do not require strikingly new ideas.

Granted, if you hope for a huge investment from professional venture capital firms, you’ll probably need a big, bold, market-changing idea. Those ideas create and change industries, and economies depend on entrepreneurial inventiveness. If you’ve got a great, new idea, you may be able to change the world.

But you don’t have to be the most inventive or original person to become a highly successful entrepreneur. Planning a business around a totally new concept can be more risky than building an enterprise on more commonplace possibilities. After all, many business opportunities lie out there.

Are you an industry insider?

Precisely because they are so immersed in a particular product or service industry, some people see opportunities that others less familiar with the territory would miss. For example, no one would be in a better position to know what types of new kitchen utensils would be useful for restaurants than a working chef. Likewise, a manager of rock bands might see the need for better software to track bookings and billings than would a software engineer. No matter what your industry or area of expertise, you should be constantly looking to spot these kinds of opportunities.

What is a business opportunity?

A business opportunity occurs when you see a chance to provide a product, service, or information to other people. What you provide can be something new. Or it can be a better or cheaper version of an existing product or service, or just a more convenient way of delivering an existing product or service. In its most basic form, an opportunity means that something is missing from current market choices, and that circumstances are ripe for taking advantage of that lack.

Lots of business opportunities exist, but that doesn’t mean they’re all viable. To be viable, an opportunity must lead to a sustainable business, one that

1. Is profitable, that is, it can bring in more money than it costs to operate

2. Reaps profits of sufficient volume to meet your financial goals

A lot of business ideas simply can’t be made profitable. Others are profitable but don’t generate sufficient income to support the entrepreneur, much less employees. Often solo inventors or craftspeople, who may create a much-needed or desirable product or service, find the market so small or so expensive to reach, that they can’t generate enough revenue to make producing their wares worthwhile.

en·tre·pre·neur·ship key terms

B2B

A business that sells a product or service to another business, either for that company’s own use or for that company to resell to consumers.

B2C

A business that sells a product or service directly to the consumer or end user.

Business model

Describes what a company does and the structure it puts into place to make money. Business models include designing and manufacturing a product that is sold to other businesses (B2B); providing access to a software application online and selling it on a subscription basis; or providing a marketplace online for people to sell their products or services and charging a commission on sales.

Feasibility analysis

A preliminary study undertaken to determine whether something is viable, and whether to proceed.

Niche

A specialized, clearly identifiable group within a larger target market that a company chooses to focus on and serve.

Opportunity identification

Discovery and evaluation of conditions that could potentially lead to a successful business. These conditions include changes in the market, such as customer preferences, trends, or purchasing patterns, and changes in the competitive landscape, such as when competitors leave the market or weaken. In many cases, opportunities can be identified by understanding how new technology, new distribution channels, new business models, or new emerging markets can be leveraged.

Prototype

The initial design that will become the standard for your production.

Shared ownership model

With this type of business model, a company provides a product, a service, or information to a group of customers who do not need access to the commodity so frequently that they need or want to own their own personal version. In other words, several people “share” one commodity.

Subscription model

With this type of business model, customers receive and pay for a product or service on a regular, ongoing basis, usually monthly.

Where does inspiration come from?

In looking at where business ideas come from, entrepreneurs usually report that their business inspiration came from one or more of the following.

■ Previous work experience. Many entrepreneurs get their inspiration when they realize that they could offer something new or better in a field they already know. Often they’ve worked in a company where they’ve felt frustrated that their employer has not responded to changing conditions or has neglected customers. The better you know an industry, a product, or a market, the more likely you may realize how you can fill an unmet need. Consider some of the unmet needs of former customers, some of the skills you developed that might be transferable to another industry, or some things your former employers did poorly that you think you could improve upon.

■ Hobbies or personal interests. Many people dream of turning their hobby or interests into a business. As with previous work experience, being involved with a personal interest often sparks ideas for businesses. You may wish for a product or service that either doesn’t exist or that isn’t available conveniently or affordably. You might even have already made contacts at suppliers, identified potential customers, or found good distribution channels. Moreover, you know you like your idea, and you may be able to work in an environment you enjoy (whether it’s outdoors, or in foreign locations, or in a space close to home where you can take your dog to work). Inevitably, though, having to earn money doing something changes the way you feel about it. Before you forge ahead with a business based on a hobby, examine the pros and cons.

Hobby businesses

Pros:

■ You know you like it

■ You build on your existing knowledge base

■ You may already have contacts—suppliers, potential customers, distribution channels

Cons:

■ You lose your source of relaxation

■ Your skills may be insufficient as a professional

■ You will have to make decisions based on pleasing customers rather than yourself

■ You may not be able to earn enough money

■ Someone else’s work experience. Often the work experience of a family member or close friend can spark an idea. Familiarity with an industry or existing business gives you some knowledge of potential opportunities, just as your own work experience or hobbies do.

■ Systematic research. Activities such as undertaking market research or attending business opportunity seminars have sparked ideas for a number of entrepreneurs. For example, you may be interested in a growth field such as clean energy. To start a new business in the field, you could immerse yourself in data and information to discover what’s needed or missing.

■ An “Aha!” moment. Most of us have at some time in our life encountered a personal need, a business situation, or an idea when fiddling around with equipment or technology, and instantly thought up a way to approach it better. Of course, most “Aha!” moments are likely based on past experience and expertise, even though we may not be consciously aware of the connection at the time.

It’s helpful to learn about where other successful entrepreneurs got their inspiration, but that doesn’t mean it will determine your path. Thousands of different kinds of businesses, products, and niches beckon you when you widen your horizons. Rest assured that every industry in every sector has opportunities for entrepreneurs like you.

REAL-WORLD RECAP

Where does inspiration come from?

■ Previous work experience

■ Hobbies or personal interests

■ Someone else’s work experience

■ Systematic research

■ An “Aha!” moment

Opportunities in old industries

New industries clearly offer a great many business opportunities that attract entrepreneurs. After all, they’re exciting and they’re in the news. Because new industries often grow rapidly, opportunities abound for innovative businesses and brand-new concepts.

But, old industries also often hold entrepreneurial opportunities. Here’s why: As industries age, big corporations tend to dominate them. That should mean it’s extremely hard to compete in old industries. And it is, usually. However, once these big companies get huge, they often start to neglect or eliminate some of their smaller—but still profitable—customers or market niches.

Huge corporations regularly jettison customers, product lines, or even entire divisions that don’t meet certain revenue levels—often in the tens or even hundreds of millions of dollars. Or, as companies expand, they develop increasingly bureaucratic procedures that alienate many of their long-time customers. Yet that doesn’t mean those customers or product lines couldn’t be profitable for smaller, hungrier companies.

For example, when the first supermarkets opened in the ’30s and ’40s, these stores, relatively small by today’s standards, bought out local grocers, bakeries, and butcher shops, often shutting down neighborhood stores. The trend toward consolidation continued throughout the ’50s and ’60s, and as more and more people moved to the suburbs, increasingly large supermarkets sprang up there to serve them. The dawn of the “superstore” in the ’70s and ’80s led to the rise of big discount stores, such as Walmart and Target, and some of these stores eventually carried groceries as well, eliminating more neighborhood grocers. This consolidation of supermarkets, which continues today, has created opportunity for more specialty grocery stores, both large, such as Trader Joe’s and Whole Foods, and small, such as bakeries, butcher shops, and farmers markets—many of the types of stores that supermarkets put out of business decades before.

Other innovative food suppliers that deliver directly to homes continue to change the food shopping and buying landscape. These include community supported agriculture (CSAs) and fresh-food meal kits that provide pre-measured portions of all the ingredients customers need to assemble a recipe of their choosing. In 2015, US consumers spent more than $1 billion dollars on meal kits alone.

Apply technology in non-technology industries and markets

New technologies often create whole new industries, leading to an explosion of new businesses. Whenever a technology or device is invented—let’s say television, the computer, or the Internet—the first, often huge, business opportunities come from making and selling those specific technologies. The second wave comes from making and selling peripheral products or support services for those technologies.

But there’s a third wave of very real business opportunities—when entrepreneurs begin to make, sell, and implement those new technologies in processes and equipment for specific industries. For example, the first wave of “cloud”-based applications (applications based in the Internet) was designed for the general corporate market (such as Salesforce CRM, an Internet-based customer relationship application) or for the general consumer market (such as Google Docs). Then, entrepreneurs seized on these new technologies to develop cloud-based solutions for specific industries, creating many new successful businesses.

See pages 38–39

Traditional to entrepreneurial

Virtually any skill that has historically been harnessed to fulfill a traditional job can be turned into an entrepreneurial venture. Here are some examples of how traditional jobs and skills can be applied to entrepreneurial goals.

TRADITIONAL JOB/HOBBY	ENTREPRENEURIAL APPLICATION
Skilled cook/baker	Open a restaurant, bakery, catering company; start a line of specialty food products
Associate in law firm	Set up a legal practice; develop software for the legal industry in an area you see as lacking
Fashion salesperson or apparel buyer	Start a clothing design or manufacturing company; create a website to sell apparel
Engineer in large manufacturing company	Found a start-up based on a new idea in your field; become a consultant to manufacturing companies
Sports enthusiast	Develop new equipment for your sport; open an online sporting goods store; offer personal training services; start a sports camp
Animal lover	Establish a chain of doggie daycare facilities; develop a new line of pet food products

The Successful Business Concept

The basis of all business is meeting needs and wants. You can devise a wonderful new product, or create a fantastic new service, but if it doesn’t address some real and, ideally, important need or desire, people won’t buy it and inevitably, your business will fail. Even Thomas Edison recognized this fact when he said, “Anything that won’t sell, I don’t want to invent.”

Of course, great companies have been built on what seems to be totally new ideas—things that people didn’t know they needed or wanted until someone created them. No one knew that it would be absolutely critical to walk around with 10,000 songs available at all times until the invention of the iPod, right? Yet, there had been MP3 players before that, and Sony Walkmans even earlier. Indeed, the desire for music is as old as humankind. What the iPod represented was a substantially improved, enjoyable, and intuitive way to meet a longstanding need and wish for music-on-demand.

Some entrepreneurial businesses turn out to be far more successful than others. What sets those apart? What do highly successful companies do—or seize on—that gives them greater growth?

A company is more than its concept. Success also depends on a concept’s execution—management, marketing, financial management, and many other operational considerations. Increasingly, however, a company’s values and corporate culture contribute to its long-term viability and its appeal to customers and employees alike.

Better, faster, cheaper

In business, “better, faster, cheaper” is the mantra for how to differentiate your product or service from other similar products or services. (In the high-tech industry, it’s often “smaller, faster, cheaper” because more-compact size is highly desirable in components.)

The beauty of this mantra is its simplicity: People indeed always look for a better, cheaper product. And “faster” can apply to how the product works or performs, or how a customer gets it, or how quickly you get it to market.

Remember this phrase as you assess the viability of a business opportunity. In other words, ask yourself: Will your product be better, faster, or cheaper than the competition’s?

Factors of a successful business concept

As you develop your business concept, keep in mind that successful businesses incorporate at least one of the following factors that are basic to a successful business concept.

■ Innovation. The most exciting, and often most risky, entrepreneurial companies are innovative companies. They bring something to the market that either is new or significantly alters and improves on an existing offering. It can mean developing and deploying new technology. But more often, it involves building on an existing product or service, or improving on it, or finding a new use for it. For example, search engines existed long before Google. The company’s founders, Larry Page and Sergey Brin, came up with a new, more effective way of ranking search results (an algorithm based on how many other pages linked to a page and their importance) that searchers found more reliable. Innovation is not limited to technology. Many successful companies innovate in low-tech, no-tech, or services industries.

■ Underserved or new market. Many entrepreneurial companies succeed by bringing a proven product or service to a market for which there is greater demand than competitors can currently satisfy, establishing a location that has been overlooked by competitors, or identifying a market that has not yet been served or dominated by a competitor. These can be new markets, such as introducing a product or service to a new country. At other times, markets are growing, and there just aren’t enough competitors in the same geographic location. Markets can also become underserved when large companies abandon or neglect smaller portions of their current customer base. Sometimes an innovative company leads the way and others follow once the innovators have built or created customer demand. This often leads to “me-too” businesses that can achieve remarkable success. For example, after SuperCuts built acceptance for low-cost hair services, other companies, such as Great Clips, came in and followed on that success. Great Clips now has more than twice as many locations as SuperCuts.

REAL-WORLD RECAP

Factors of a successful business concept

■ Innovation

■ Underserved or new market

■ Lower price

■ Higher quality

■ Convenience

■ Service

■ New delivery method or distribution channel

■ Increased integration

■ Lower price. Customers often are tempted by lower cost options, and being a low-cost leader is a time-honored strategy for a business concept. Unless you have some sort of strategic advantage, though, such as a unique production or distribution method, secret supply sources, or arrangements with partners that make your own costs consistently lower, this can be a strategy difficult to sustain in the long term. If your only key differentiator is that you provide a cheaper product or service, it is fairly easy for someone else to beat you at your own game. SuperCuts, for instance, was able to be profitable with low-cost hair care services because it standardized procedures, enabling the company to serve customers faster and with lower-paid stylists, thus giving it an ongoing cost advantage.

■ Higher quality. Often innovation comes in the form of higher, or different, quality. An entrepreneur may recognize an opportunity because of a lack of high-quality offerings in an otherwise robust market, or may notice customers expressing dissatisfaction with current options. For example, many people like the convenience and price of fast food, but often find it not terribly healthy. In 1993, Steve Ells, a culinary-taught chef working at one of the best restaurants in America, decided to open a fast food Mexican restaurant based on high-quality, often organic, ingredients. His company—Chipotle—became the forerunner of a new trend in the prepared food industry, later reaching a market value of over $10 billion.

■ Convenience. Making a product or service available in a more convenient way for customers can create a viable business opportunity. A neighborhood hardware store might have higher prices, say, or a mobile pet-grooming service that goes to pet owners’ homes might provide the same products or services as a storefront service but far more conveniently, thereby attracting and retaining customers. Enterprise Rent-A-Car, for example, picks up customers at their residence or place of business, for free. This added convenience sets Enterprise apart from the competition.

■ Service. A number of highly successful companies seized business opportunities made possible by the opportunity to provide better service than competitors. “Better service” can be defined in various ways. The obvious way is to give customers more personal attention—the department store Nordstrom, for one, has staked out a competitive advantage based on its high quality of service, particularly its return policy and its ample sales staff. Another type of better service is to take care of customers faster. FedEx founder Fred Smith pioneered a way to deliver mail and packages overnight—thus combining service with innovation.

■ New delivery system or distribution channel. Often, you don’t need to sell anything much better or differently than your competitors—you simply have to sell it by different methods or through different channels. Some successful companies have been founded by creating or using new sales channels. Tupperware pioneered in-home parties to sell food storage containers. One of the earliest companies to see the possibilities in the Internet as a sales channel was Amazon.com. Because wholesale book distribution companies already existed that could deliver individual copies of books to customers, Amazon did not need to buy inventory to open what it claimed to be “the world’s largest bookstore.” Amazon leveraged that operational advantage to use a new channel to reach customers.

■ Increased integration. Integration refers to a situation where a company controls more steps in the design, production, and sale of its product or services rather than relying on outside suppliers. This can create a competitive advantage because it gives the company more power to oversee the quality at every stage of a product’s life, and also because there may be increased profit margins. Vertical integration may be particularly useful for companies that want to gain a competitive advantage based on quality—such as Apple or Starbucks, both companies that maintain control over more stages of design, production, and sales than other electronics companies or coffee shops. Still, it is often difficult for one company to manage all the various functions well, and often vertically integrated companies do not benefit from suppliers’ ingenuity or cost-cutting methods.

If you build it, will they come?

One of the biggest mistakes entrepreneurs make is focusing more on their product or service than on understanding their customers. You could have what you think is the coolest new idea on the planet, but if no one is interested in buying it, then you don’t have a business.

During the Internet boom of the late ‘90s, Webvan’s concept of delivering virtually everything to people’s homes—from groceries to prescriptions, dry cleaning, and movie rentals—seemed like a brilliant one, and it received over three-quarters of a billion dollars in funding!

It turned out that customers were used to going to their favorite grocery store and liked picking out their own produce and meat; not enough of them were willing to pay for the convenience of delivery. The company’s demise was one of the most spectacular during the so-called “dot-com bust.”

Characteristics of highly successful businesses

You know you have a great business idea—but does it have the potential to become highly successful? You may be satisfied with running a one-person show that provides a comfortable income. But if you have dreams of a company that will become a household name, employ thousands of well-paid workers, make an initial public offering (IPO) of company stock, and make you rich, your business should have most of the following traits:

■ Compelling, executable business idea. The basis for the business itself must be rock-solid. You must have a truly effective and impressive product or service that fills a real need in the market. And you must be able to build a business around it, over a reasonable period, with a reasonable amount of money.

■ Large market and potential for high or rapid growth. Certain businesses that you could come up with might offer a great product or service and become successful enough to provide a very high income for you. But you need to have a sizable and expanding market to grow large, as well as to attract the kind of investment you’ll require to expand. If you want to be the next Google, you need investors, and they will look for a speedy, high return on the funds they put into your business.

■ Growing industry. You’ll have far better luck building a highly successful company in a healthy, growing industry than in one that is flat or shrinking. Yes, some businesses do grow significantly in old, mature industries, but it’s easier to grow when your industry is growing too.

■ It’s a business, not just a product. Many would-be entrepreneurs dream up great ideas and devise wonderful new products. But some are destined to be “inventors,” not “entrepreneurs.” Often, one good product idea is not sufficient to support an entire business. A song is a product and may have a short shelf-life; a music publishing company is a business, in for the long haul.

■ Capable entrepreneur and strong team. One of the most important contributors to business success is a company’s management. Being a visionary entrepreneur, or having one at your right hand, isn’t enough; you have to be able to assemble a quality team, capable of both developing the product and managing the company.

■ Original idea, but not completely new one. Most widely successful companies build on concepts and markets pioneered by others. But why not just implement your own truly new and groundbreaking concept? Because a novel product or invention typically requires a very large budget, to educate customers on how the concept works and why they need it. That takes time and money, so sometimes it pays not to be first. Many people have become fabulously wealthy by letting the first or second company in the market invest in developing demand and proving the concept—and then coming up with an improved version.

REAL-WORLD RECAP

Characteristics of highly successful businesses

■ Compelling, executable business idea

■ Large market and potential for high or rapid growth

■ Growing industry

■ It’s a business, not just a product

■ Capable entrepreneur and strong team

■ Original idea, but not completely new one

See page 40

A company’s values and integrity

Every company must make money. You can’t stay in business unless you eventually earn a profit. Yet studies of business success over time have shown that companies that emphasize goals in addition to making money succeed better, and survive longer, than companies whose sole motivation is profit.

As you develop your business concept, keep in mind those values that you want your company to embody. These values can be aimed externally, at achieving some business, social, or environmental goal. Or they can be aimed internally, at creating a certain type of workplace or quality of product or service. Or they can be aimed at both.

Articulating your company’s values to employees, suppliers, and even your customers can strengthen their commitment to your business. Values-driven companies often achieve greater success in attracting and retaining good employees, and they can usually better weather short-term financial setbacks because employees and management share a commitment to goals in addition to financial rewards.

A company is likewise strengthened by maintaining integrity in all aspects of its dealings—with employees, customers, suppliers, and the community. Certainly, you will face situations where it appears that you will be at a disadvantage if you’re more honest than your competitors or fairer than other employers. Nevertheless, the long-term benefits of earning and keeping a reputation for integrity outweigh the perceived immediate disadvantages. A clear policy of honesty and fairness makes decision-making in difficult situations easier, inspires customer and employee loyalty, and helps avoid costly lawsuits and regulatory fines. It’s also the right thing to do.

One of the first decisions you’ll make

Thinking through and deciding on your business model is critical, because it’s fundamental to your company’s viability. Even the best concept will have a hard time succeeding if it’s not supported by the right business model.

What Is Your Business Model?

Now that you’ve articulated a vision for your business idea, you need to consider a number of other factors as you begin to ground your vision in reality. These real, practical, nuts-and-bolts aspects of running a business will ultimately determine your success. No matter how brilliant the idea, execution in business is everything!

One of the first things you will do is identify your business model.

The term “business model” describes what your company does and how you make money. For example, will you make a product? If so, how will you sell it? To wholesalers? To consumers? If to consumers, will you sell directly or use intermediaries? If you use intermediaries, will you use distributors or retailers to reach consumers, or will you open your own brick-and-mortar storefront or e-commerce website? Or perhaps you won’t sell your product to consumers at all, but lease it to them. And how will you make your product? Will you design and manufacture it yourself, or will you outsource manufacture and then assemble components?

If you sell a service, will it be for a flat fee, on an hourly or time-and-materials basis, or perhaps via a subscription? Will you provide the service yourself or engage others to work for you? Or perhaps you won’t sell a product or service at all, but be an intermediary—a broker of some type between buyers and sellers.

In other words, what structure are you putting in place to make your money? What’s your business model?

You have many different types of business models to choose from. By figuring out your own best model, you’ll begin providing more definition and structure to your business concept.

Understanding your business model thoroughly is critical for planning the activities of your business. You have to know how you intend to make money to determine who your real customer is, how to set prices, what kinds of profit margins you can reasonably expect, what kind (if any) of customer service to provide, and the like.

For example, many online companies make money the traditional way: by selling something directly to customers at a profit—a conventional e-commerce company. Other companies behave more like “land-based” media companies, making money through advertising. Some online companies bring people together, acting as brokers, such as online dating or vacation rental sites. Subscription-based software applications that operate in the cloud, such as customer relationship management (CRM) software, are yet another model.

ENTREPRENEUR’S WORKSHEET

Business Opportunities

Answer the following questions to come up with possible business opportunities. Use both common and unconventional ideas. Use the business idea(s) you come up with here as a basis for some of the other exercises throughout this book.

ENTREPRENEUR’S WORKSHEET

Your Bright Idea

Use this space to record your initial business ideas. This will become a starting point for defining your business concept.

ENTREPRENEUR’S WORKSHEET

Basic Business concept

Using this worksheet as a guide, outline your business concept as you presently conceive it.

While most business models have been around for a long time—selling products directly to customers, for instance—business models continuously evolve. This is particularly true as new technologies, especially those spawned by the Internet, create new ways to bring customers and people together. And new business models will certainly yet develop. Perhaps you’ll invent one for your business!

Barriers to entry

Certain obstacles will stand in the way of a company—either yours or a competitor’s—attempting to enter a given market. Significant barriers to entry make it harder to succeed in an entrepreneurial venture. But once you’re established, these same barriers to entry stand in the way of competitors coming after you:

■ Substantial initial investment required

■ Limited distribution channels

■ Entrenched customer loyalty to existing offerings

■ High “switching costs” for customers to move to new offerings

■ Aggressively low prices from competitors

■ Intellectual property protections, such as patents

■ Government regulations, tariffs, trade restrictions

■ Language or cultural differences

■ Market saturation and oversupply

For more on barriers to entry, see pages 132–134.

Types of business models

WHAT YOU DO

■ Design physical products/merchandise

■ Manufacture physical products/merchandise

■ Sell physical products/merchandise

■ Create information/content/data

■ Aggregate or distribute information/content/data

■ Provide personal or business services

■ Provide expert advice/consultation

■ Provide money/financing

■ Provide labor/human resources

■ Transport products/people

■ Provide infrastructure/telecommunications

■ Provide a marketplace—physical or online—for others to sell goods or services

You will very likely employ more than one business model. For instance, let’s say you have an e-commerce, transaction-based website that sells yoga clothing and accessories (made by other companies) directly to consumers. If your website attracts a lot of users, you may also want to sell advertising on that site to manufacturers of yoga clothing or other items that appeal to a yoga clientele. If you’re highly successful, you might decide to also open brick-and-mortar stores, design some of your own yoga products, or even offer yoga retreats.

It’s also probable that your business model will change over time. But it’s important that you have a clear sense of which business models will be primary at the time you launch your company.

See pages 44–45

If you submit your business plan for an online business to a potential investor, include a clear statement of your business model, specifying what percentage of your income will come from which business models.

HOW YOU SELL IT

Direct sales to consumer/end user: Either as B2C (business to consumer) sales as a retailer, on the Internet, in-person, and so on; or B2B (business to business) or B2G (business to government) by selling directly to other companies or governmental entities.

Wholesale sales: Using intermediaries, whether brick-and-mortar or online retailers, distributors, and so on, to reach customers.

Brokering: Bringing others together for transactions; taking a commission on sales (such as in real estate or financing), or providing your service on a subscription basis (such as with online dating sites), or charging a flat or hourly fee.

Leasing: Providing your product, service, or information to customers for a set period of time for a fee but without their taking ownership of the asset.

Shared ownership: Providing your product, service, or information to a group of customers who do not need access to it so frequently that they need or want to own their own personal version; in other words, several people “share” one commodity.

Subscription service: Providing your product, service, or information to customers on an ongoing basis.

Per use fee: Charging customers for your product, service, or information each time they use it, without an ongoing commitment or set period.

Advertising/sponsorships: Receiving payment from other businesses that make their company or products known to your customers.

Licensing/franchising: Allowing others to use your content, brand, design, or business practices in their own companies for a period of time.

Auction: Selling the product or service to the highest bidder.

Donations/grants: Receiving funds from others without their receiving goods or services in return, done because they support your cause or efforts; this is primarily a business model for not-for-profit, charitable businesses, but for-profit social ventures might also receive these.

Feasibility Analysis

At this early stage, when you are just fleshing out your business concept and business model, you will certainly not have all the information you need to know whether your business can succeed, whether you can execute on your idea, or how much money you can reasonably expect to make. You will not, for instance, have done a financial analysis at this point, so you won’t know what your costs and profits will likely be. To do that, you’ll develop a complete business plan—a critical step in your entrepreneurial process.

Nevertheless, a feasibility analysis provides a chance to begin to flesh out your initial business idea, see which components are already in place to make it possible, see which are not, and do a quick assessment of whether you can pull this off. Before you develop the in-depth, specific components of your business plan, take time to see if it seems feasible—and identify the roadblocks you’ll likely face.

Doing a feasibility analysis gives you the opportunity to open your eyes, ask yourself some tough questions, then determine whether your idea, as originally conceived, needs to be modified, refocused, or changed dramatically. (Or perhaps even scrapped altogether. It’s better to drop an unworkable idea early on and move on to a different, potentially more successful idea.)

How involved your feasibility analysis is will depend a bit on how unusual your idea is or how hard your market is to reach. The more novel your concept, or the more unproven your marketing and sales channel, the more investigation you’ll need to do to figure out whether the necessary building blocks are available to you or whether you’ll have to create those too.

Let’s say you’ve got an idea for an entirely new product—tasty meals that come in self-heating packages, no microwave required. You originally plan first to sell them in airports so passengers can carry hot meals on board to eat while they fly. You can look at many things fairly quickly to test the feasibility of this idea. Does such packaging already exist and is it proven? Would airlines allow such packages on planes? How expensive is it for you to get space in airports to sell these? That’s on top of the bigger question: Would flyers even want this? Doing a quick feasibility analysis, you might realize that, even if the concept of self-heating meals is workable, you’d be better off introducing them to college students, both because of the complications of dealing with airports and airlines, and because a younger target market might be more open to novel products.

A feasibility analysis vs. a business plan

How does a feasibility analysis differ from creating a full-fledged business plan? Think of developing and planning your business as entailing a few components:

1. VISION. Identifying and articulating your business idea and concept.

2. FEASIBILITY ANALYSIS. Challenging your concept, identifying which components are in place to make it realistic to easily execute, recognizing the biggest obstacles you’ll likely face.

3. BUSINESS PLAN. Clarifying your business strategy in detail, describing how you’re going to execute on your vision, developing the major components of your business, projecting detailed financial forecasts.

4. MARKETING/OPERATIONS/TECHNOLOGY PLANS. Describing in detail and developing budgets for the internal aspects of how you’ll run your business day-to-day.

But if you pursue something more proven—let’s say you’re opening an Italian restaurant on a street that’s already a major destination for diners—your feasibility analysis will be much less involved. Is there space available in that neighborhood? Are the rents too high to operate profitably? Do you personally have the restaurant experience necessary to make this a success? Can you find a great Italian cook?

ENTREPRENEUR’S WORKSHEET

Your Business Model

Check out which components you’ll use below in your business model, elaborating on each choice in the space provided. Then draft a short paragraph of your business model in the summary section.

With every feasibility analysis, start by evaluating yourself. Are you really suited to run a business? Do you yourself have the knowledge and skills to pull this off? Can you assemble a winning team?

A feasibility analysis only begins your business plan—and your questioning and exploring. You should continually challenge your assumptions. The entrepreneurs most willing to ask themselves the tough questions are most likely to succeed.

The Feasibility Analysis worksheet on pages 48–49 helps you evaluate your basic business concept. You’ll need to do some basic business research to fill it out. See Chapter 3 for more on research.

See pages 48–49

Creating a Product Prototype

If you plan to create a product, one of your first steps is to actually design and build at least one sample product (unless the costs are substantial even for the first one). This will be your product prototype—the initial design that will become the standard for your production. The process of completing a prototype helps you work through a number of critical issues. Think of this as part of your feasibility analysis for a product-based business.

You’ll likely have to build many models before you get to a final prototype. Even after you’ve come to your “final” prototype, you’ll make changes as you get to production.

For example, take one of the simplest examples of developing a prototype: one for a new packaged specialty food item, let’s say pasta sauce. The designer—in this case, the chef—would keep trying many recipes until they came up with their prototype: that is, the sauce they want to eventually bottle and sell. At that point, some evaluation should be made of how realistic that recipe is to produce on a mass scale. Even so, once dealing with production, the entrepreneur or business owner might realize certain ingredients cost too much to include or they will have too short a shelf-life to be viable as a commercial product, and the actual production model will have to be changed.

Likewise, let’s say you are developing a new cloud-based software application. Building the entire application and coding all the functionalities of your site will be hugely expensive—making it financially impossible to build a complete working prototype. In fact, you’ll need to raise substantial money from investors even to build your site. But you still need a prototype to show to your investors. In such a case, you might design a prototype site primarily with images, to demonstrate what kind of functionality will eventually be programmed once you receive financing.

Find your niche

One way to seize a business opportunity is to specialize in a single or a few specific, clearly defined, narrow—or niche—markets.

When selling a consumer product or service, a good way to choose a niche is to focus your marketing efforts on a specific demographic group. For example, certain companies make cell phones designed for easy use by seniors or children. These companies wouldn’t be able to compete with huge producers of cell phones for the greater and more technically savvy consumer market, but they can get a piece of the pie by specializing in these narrow market groups.

Companies selling to businesses may often adapt a product or service for a specific industry. Specializing in a niche market significantly increases the reach and effectiveness of your marketing dollars. And being a specialist often allows you to charge higher fees, too.

For an in-depth discussion on defining a niche, see pages 137–140.

Even during the prototype phase, begin to look at cost and pricing. This is critical information to discover during this phase, and it involves doing some initial research into your raw materials and production costs, and what the market will bear with regard to your product’s pricing. If your product is truly unique, you’ll have to make your best educated guess as to what price you can command. Always overestimate your costs and underestimate the price you will get. Remember, as you’ll learn in later chapters, your product’s profitability will depend not only on the cost of raw goods and production, but also on labor costs (including your own time), overhead (expenses such as rent, utilities, and salaries), and the shipping and distribution costs involved in selling the product.

In many cases, you need to take into account design considerations that will affect the manufacturing of the product. Design goes beyond the mere “look and feel” of a product. You must also consider how the various components of your product will integrate with each other and how they can be designed to reduce cost and complexity in manufacturing. If the ears designed for the teddy bear you plan to manufacture are too complicated to be sewn on easily, or the new amplifier you’re designing doesn’t integrate seamlessly with the rest of the off-the-shelf components you plan to use in your high-end stereo systems, you need to catch the problem in the prototype stage—otherwise you risk losing a ton of money after you go into production.

Finally, although you may think you have the expertise to design the product yourself, and the desire to manufacture the product in your own company, actually attempting to fabricate a prototype will put this notion to the test. If you lack the skills to do it yourself, you may have to hire an outside design firm to get you through the prototyping stage. This will cost you money—depending on the product in question, sometimes a substantial amount. And building production facilities can be extremely costly and time consuming, requiring you to raise additional money for your entrepreneurial venture and taking even more time before you can get your product into the marketplace. Unless you’re a craftsperson turning out one-of-a-kind goods, or are making limited quantities of something you can assemble using standard or off-the-shelf components, making a product usually requires outside providers at some stage of the process—whether in design or manufacturing or both.

As you develop your prototype, focus particularly on the issues outlined in the following graphic:

The benefits of prototype production

Building a prototype accomplishes many things: It helps you work out the design and functions, clarifies the steps and components going into your product, identifies problem areas, gives you a better indication of costs, produces something to show funders and potential customers, and helps make your business concept seem real.

Importantly, you’ll save yourself a great deal of time and money by producing prototypes before submitting orders to suppliers or sending design specifications out for manufacturing.

EVALUATE YOUR PROTOTYPE

As you develop your prototype, focus particularly on the following issues:

Will the product work?

Can it be produced in sufficient quantities/bulk?

Can you afford to make the product?

Will you need to create the product on your own?

ENTREPRENEUR’S WORKSHEET

Feasibility Analysis

Complete this worksheet after conducting your initial research to identify which areas of your business are the strongest and which are likely to present major challenges. Rate each of the following areas on a scale of 1–10 — with 1 being “not at all” to 10 being “completely.” The higher your scores in each area, the less risk you will likely face. Those areas with very low scores will probably make it more difficult for your business to be developed and, ultimately, successful. You will need to spend more time on those areas as you develop your complete business plan.

challenge

Innovate in a mature and overcrowded market

solution

Introduce a new business model

REAL-WORLD CASE

Entering a Mature Industry: How Zipcar Created a New Business Model

When Henry Ford invented the Model T in 1906, he launched more than merely the automobile industry. Within a decade after the first Model T took to the road, the rental car industry began. More than 100 years later, a few large corporations own the handful of leading rental car brands. Mature industries such as this are notoriously difficult for new competitors to penetrate. But Zipcar did—by introducing a new business model.

In 1999, Robin Chase sat in a café in Cambridge, Massachusetts, with her friend Antje Danielson. Danielson had just returned from Berlin where she saw the success of a new concept in rental cars—“car-sharing.” It was the height of the dot-com boom, and Chase, a serial entrepreneur and 42-year-old mother of three, was eager to start her own company. Not long after that conversation in the café, Chase would launch her own car-sharing company—Zipcar.

The idea was simple in concept: Allow people to use cars only when they needed them, just for the amount of time they needed, if only for an hour or a few hours. They’d be spared the expense of owning and maintaining an automobile. Millions of Americans need a car, but the economics of owning one simply aren’t there for them, especially in urban areas where they can use public transportation. Many more people do invest in automobiles, but grossly underuse these expensive assets. And too many cars choke U.S. roadways, causing traffic jams, creating delays, and accelerating global climate change.

Of course, people could always turn to a traditional rental car service, but those require rentals of a minimum of a day, and the cost and inconvenience to rent a car simply to pick up groceries, visit a big-box store to buy things in bulk, or drive to a party in the suburbs doesn’t make much sense.

Car-sharing is a concept born of the Internet Age. Although the concept of sharing ownership of an expensive resource like an automobile has been around for decades, the logistics of scheduling, figuring out charge rates, tracking locations, and making cars conveniently available to people scattered over a large geographic area meant that executing the concept wasn’t feasible. Robin Chase immediately saw that the convergence of technology, economics, urban culture, environmental concerns, and young people increasingly accustomed to sharing over the Internet would open up a tremendous business opportunity. The time was right.

Starting in Cambridge, the company bought a small fleet of cars and offered to rent them by the hour to city residents. To be eligible, people had to first join Zipcar by paying an annual membership fee, have their driving record checked, and then obtain a personalized electronic “Zipcard.” They could reserve cars by the hour, 24/7, 365 days a year. They were directed to the Zipcar parked closest to their neighborhood, and would use their Zipcard to unlock the door and start the engine. Zipcar paid for the car, the insurance, the maintenance, the gas, and the parking.

First and foremost, what made Zipcar viable was a new business model—in essence, a “subscription” to share cars. Customers are not merely “renters,” they are “members.” The second factor was cost. While Zipcar’s daily rates compare to rental car agencies’ prices, members can rent by the hour and pay far less than a daily rate. But, from Zipcar’s point of view, renting a car for 15 single hours at $8 an hour nets them far more than renting that same car for a day at $80.

The third factor was convenience. Zipcar purchases parking rights in multiple locations throughout urban areas, with the goal of putting a Zipcar within a 10-minute walk of any member. Finally, technology. Each Zipcar windshield is equipped with an RFID transmitter, which sends the signal to members’ Zipcards, allowing them to unlock the car. An automated system tracks the time the member has the car and the mileage they accumulate. Some cars have GPS systems installed. Zipcar doesn’t track customer locations, but in the rare instance when a car goes missing, the GPS can locate it.

While the core idea was to rent cars out by the hour, that model also creates positive environmental results. Fewer people in the cities Zipcar serves now need to own individual cars, and the ones who rent from the company use the cars more sensibly than do private car owners, the company believes. With drivers paying an hourly rate to rent their Zipcars, they think twice before making those impulse trips. “Instead of driving 12,000 miles a year, which is what the average city dweller does, [Zipcar drivers] drive 500 miles a year,” explained Chase in a Ted Talk. “If I’m going to go buy some ice cream, do I really want to spend eight dollars to go buy the ice cream? Or maybe I’ll do without.”¹

Zipcar has a fanatically loyal customer base. It spends very little on marketing, as most new business comes from word of mouth. Chase noticed early on that the car-sharing model fostered a genuine sense of community. Zipcar members who lived in nearby neighborhoods grew to recognize each other. Some cities even have local Zipcar gatherings where people who “share” the neighborhood Zipcar fleet socialize.

Zipcar has grown rapidly, becoming the leading car-sharing service in the United States. On June 1, 2010, Zipcar made its initial public offering (IPO), for $75 million. Since then, many other competitors of Zipcar have emerged, including very popular ride-sharing services like Uber or Lyft. And not only have the legacy car rental agencies launched their own car-sharing services, one of them—Avis—acquired Zipcar in 2013 for approximately $500 million. ■

1. www.ted.com/talks/robin_chase_on_zipcar_and_her_next_big_idea

questions

1. Robin Chase first targeted college students and urban dwellers for Zipcar; how do you think this contributed to her success?

2. Shared ownership is an increasingly popular business model; what other products and services do you think would suit this business model?

3. How do you think Zipcar can compete effectively, now that ride-sharing companies and large rental car companies have entered the field?

4. What other companies have introduced new business models?

EXERCISE: critical thinking

WOULDN’T IT BE NICE IF…?

Goal:

Evaluate a business opportunity.

What to do:

Your wealthy aunt owns commercial real estate all over town. When one of her tenants, a nonalcoholic beverage company, goes bankrupt, your aunt acquires the company’s bottling equipment. She wants to help you start your own business. Because you’re her favorite, she’s willing to give you the space lease-free for the first year, and will sell you the equipment for just $1. You drink a lot of different kinds of beverages, so you’re intrigued.

Having read this chapter, you realize you need to determine the feasibility of a business before you plunge in.

1. Make a list of the positive attributes of this opportunity.

2. What kinds of nonalcoholic beverages might you be interested in making?

3. What do you think might make this type of beverage succeed? Are there examples of this type of beverage selling well already?

4. Who are your competitors? How would you rate how strong your competition is?

5. Your aunt is giving you a head start, but you’ll still need funds to buy ingredients, bottles, and packaging, and to do marketing, employ staff, and pay utilities. Very roughly, how much money do you think you’ll need to get started?

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