In Part 1 of the Identifying Opportunities Series I discussed markets vs customers and how I like to think about market segments. In Part 2 I will focus on how opportunities and innovations come about.
It may seem overly simple, but business opportunities and innovations come from one place - problems. Identifying and truly understanding the problem is not as simple. I like to categorize problems into 3 buckets:
- market inefficiencies
- product or service gaps
- customer driven issues
It may be easier to see how the first two categories can lead to business opportunities and innovations. The third category, customers, may be more difficult.
Customers drive business and create businesses. For example, a service company may have a client that in turn provides services to a different end user. This waterfall affect demonstrates how customers may have their own customers to serve. Additionally, customers may drive a business in one location to open a 2nd location, making the business more accessible to a greater market segment.
Regardless of the problem category, understanding why the problem exists and who it affects is critical when evaluating an opportunity. Problems exist for one simple reason - there is a friction between two different entities. These entities may be business to consumer (or product to consumer/business), consumer to consumer (how a transaction or relationship is or is not working) or business to business. If the friction (often called pain-point) affects enough people then removing that friction, via innovation, is the first check-point when identifying a "good" business opportunity.
Assuming our opportunity affects a large number of people, the next step is to determine "will the business float," ie, will the opportunity work as a business. I want to be clear, at this point we are not creating a business plan, but instead a basic top-level gut-check on our potential opportunity. I find answering the following questions really helps clarify both the opportunity and what potential issues the business could face.
Is the market real?
–Who is the customer?
–What do they want and at what price?
–When do they want to buy it?
–Where do they want to buy it / use it?
What are the barriers to entry?
–Regulatory (FDA, CPSC, etc…)
Looking at industry trends
–Is the industry growing or shrinking?
–What can affect the industry?
The last question I like to consider is "What are the risks?" And that is where we will pick things up in the next post.