Page 28 - Business Plans that Work A Guide for Small Business

Entrepreneurs Create the Future • 19

Figure 1.3 The Opportunity
The Entrepreneurial Process Is Opportunity Driven
Market demand is a key ingredient to measuring an opportunity:
• Customer payback less than one year?
• Do market share and growth potential equal 20 percent annual growth and is it
durable? 19
• Is the customer reachable?

Market structure and size:
• Emerging and/or fragmented? Opportunity
• $50 million or more, with a $1 billion potential?
• Proprietary barriers to entry?

Margin analysis helps differentiate an opportunity from an idea:
• Low cost provider (40 percent gross margin)?
• Low capital requirement versus the competition?
• Break even in one to twoyears?

In essence, the entrepreneur’s role is to manage and redefine the risk-
reward equation.

The Opportunity

At the heart of the process is the opportunity. Successful entrepreneurs
and investors know that a good idea is not necessarily a good opportunity.
In fact, for every 100 ideas presented to investors in the form of a busi-
ness plan or proposal of some kind, usually only 1 or sometimes 2 or 3
ever get funded. Over 80 percent of those rejections occur in the first few
minutes; another 10 to 15 percent are rejected after investors have read
the business plan carefully. Less than 10 percent attract enough inter est
to merit thorough due diligence and investigation over several weeks, and
even months. These are very slim odds. Would-be entrepreneurs chasing
ideas that are going nowhere have wasted countless hours and days. An
important skill, therefore, as an entrepreneur or an investor, is to be able
to quickly evaluate whether serious potential exists, and to decide how
much time and effort to invest.
Figure 1.3 summarizes the most important char acteristics of good op-
portunities. Underlying market demand drives the value creation poten-
tial because of the value-added properties of the product or service; the

19 “Durability of an opportunity” is a widely misunderstood concept. In entre-
preneurship, durability is when the investor gets her money back plus a market or
better return on investment.