2.

2 OPPORTUNITY SCREENING

opportunity seeking comes the rigorous process of Opportunity Screening,

Because of the many opportunities possible for the entrepreneur, it is important to come

a short list of a few very promising opportunities, which could be scrutinized in

The Personal Screen

In screening opportunities, the entrepreneur first has to consider his or her

preferences and capabilities by asking three basic questions:

1. Do I have the drive to pursue this business opportunity to the end?

2. Will I spend all my time, effort, and money to make the business opportunity work?

3. Will I sacrifice my existing lifestyle, endure emotional hardship, and forego my usual

comforts to succeed in this business opportunity?

High Return

Medium Return

Good

Fair

Fair

Bad

Worst

Fair

Bad

Low Return

A more complex screening grid uses twelve criteria for screening opportunities.

‫دیا بہا‬
The 12 Rs of Opportunity Screening

1. Relevance to vision, mission, and objectives of the entrepreneur. The opportunity

must be aligned with what you have as your personal vision, mission, and objectives

for the enterprise you want to set up.

2. Resonance to values. Other than vision, mission, and objectives, the opportunity

must match the values and desired virtues that you have or wish to impart.
3. Reinforcement of Entrepreneurial Interests. How does the opportunity resonate

with the entrepreneur's personal interests, talents, and skills?

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ENTREPRENEURSHIP

4.

Revenues. In any e

potential of the pro

In any entrepreneurial endeavor, it is important to determine the sales

of the products or services you want to offer. Is there a big enough market

out there to grab and nurture for growth?

onsiveness to customer needs and wants. If the opportunity that you want to

bursue addresses the unfulfilled or underserved needs and wants of customers, then

you have a better chance of succeeding.

Reach. Opportunities that have good chances of expanding through branches,

distributorships, dealerships, or franchise outlets in order to attain rapid growth

are better opportunities.

7. Range. The opportunity can potentially lead to a wide range of possible product or

service offerings, thus, tapping many market segments of the industry.

8. Revolutionary Impact. If you think that the opportunity will most likely be the

"next big thing" or even a game-changer that will revolutionize the industry, then

there is a big potential for the chosen opportunity.

9. Returns. It is a fact that products with low costs of production and operations but are

sold at higher prices will definitely yield the highest returns on investments. Returns

can also be intangible; meaning, they come in the form of high profile recognition or

image projection.

10. Relative Ease of Implementation. Will the opportunity be relatively easy to

implement for the entrepreneur or will there be a lot of obstacles and competency

gaps to overcome?
11. Resources Required. Opportunities requiring fewer resources from the

entrepreneur may be more favored than those requiring more resources,

12. Risks. In an entrepreneurial endeavor, there will always be risks. However, some

opportunities carry more risks than others, such as those with high technological,

market, financial, and people risks.

These 12 criteria can be better managed if quantified and formed into a matrix to help

the entrepreneur concretize the evidence that the chosen opportunity (or opportunities)

is well worth pursuing

Table 2.3. Opportunity Screening Matrix

Criteria

Score

Sample

Weight

Very High Average Low Very

High

Low

Opportunity Screening Grid for each Opportunity

IMPACT

9. RETURNS

10. RELATIVE EASE OF

IMPLEMENTATION

Rating

11. RESOURCES REQUIRED

12. RISKS

Total Score

L1 L2 L

*Rating x Weight = Score

Note: Criteria numbers 1 to 10 are positive indicators; meaning, the more of them, the better

Criteria numbers 11 and 12 are negative indicators; meaning, the less of them, the better.

Hence, the rating system is reversed for the negative indicators.

The Pre-Feasibility Study

The ultimate goal of doing the opportunity screening matrix is to narrow down the

many opportunities into one or two most attractive ones. The next step is to conduct a

pre-feasibility study to ascertain the viability of the opportunity. The idea is to focus on a

few key items that could make or break the business concept. This time, the entrepreneur

must go down to the details and take time to consider the following factors that are

contained in a pre-feasibility study:

• Market potential and prospects

• Availability and appropriateness of technology

• Project investment and detailed cost estimates

• Financial forecast and determination of financial feasibility

Market Potential and Prospects

Market potential is based on the estimated number of possible customers who might

avail of the product or service. For a more realistic number, it would help to narrow down

your estimation to the relevant population or target customers in the area where you

want to operate your business (micromarket).

For entrepreneurs who are entering a business that caters to the basic customer

needs, such as food, clothes, beverages, furniture, appliances, housing, schooling and the

like, there would usually be demand and supply statistics available from government

institutions, industry associations, and research firms. In addition, the entrepreneur must

take note that the total market for these products is usually not the issue. Basic needs tend

to be commodities or "commoditized." Customers have the luxury of choosing among

many basic needs suppliers. That is why these suppliers try very hard to differentiate

themselves from one another by dividing the huge market into many customer segments.

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ENTREPRENEURSHIP
Segmenting the Market

Using a set of demographics (e.g., gender, age, place of residence, income class, etc.)

will be the most basic approach in determining the target segment. Keep in mind that

some general statistics for these demographics can be found online. If you want to go

into more details, then you might have to look into other specific classifications that are

relevant to the market you are targeting such as the psychological profiling and lifestyle

preferences of the different customer segments.

In this regard, the entrepreneur must be able to do actual field research like surveys,

focus group discussions, in-depth interviews, observation techniques, etc.

Assessing Competition

Market potential is also affected by the number of establishments supplying and

serving your target customers. This process would determine how saturated the market

is in the given area of coverage. The more suppliers and competitors there are within a

confined area, the greater the level of saturation.

On the one hand, it would be best for the entrepreneur to keep out of a market

where competition is fierce. On the other hand, some entrepreneurs prefer to enter the

biggest, richest, and most competitive markets in order to achieve high visibility and

growth potential. However, this is a high-risk proposition unless the entrepreneur is very

confident that he or she has a superior product or service that is at par (if not superior) to

others in the marketplace.

In order to assess one's strengths and weaknesses, there must be a comparison

made with the closest competitors. Profiling these competitors will help the entrepreneur

gauge their respective strengths and weaknesses and, therefore, enable the entrepreneur

to craft a strategy. By doing so, the entrepreneur would be able to get an idea of whether

he or she can compete with the existing competitors. If not, the entrepreneur should

change strategy by moving to a different location or by shifting to a less competitive target

segment in order to avoid competition. Alternatively, the product or service offering can

be improved to enhance its competitiveness.

Estimating Market Share and Sales

After estimating the number of potential target market or segment, the next thing

that the entrepreneur should assess is the potential market share he or she can attract.

Conservatively, the entrepreneur can go for a small market share unless the entrepreneur

has a very superior product or service that can immediately command a large market

share.

In a pre-feasibility study, the most important task is to quantify the market potential

in a systematic way. The first thing that the entrepreneur must do is to define the market

coverage or reach he or she wants to serve. The area could be as big as a country (or even

a continent) and as small as a neighborhood. The area would define the total population

being targeted. Second, the entrepreneur must determine the broad market segments

within this area or total targeted population. In a first level attempt at quantifying the

market, the entrepreneur could select such broad categories like gender, age, and income

class.

In the assessment of market potential, the entrepreneur should evaluate the relative

strength of the various suppliers or competitors in the marketplace by asking the following

questions:

• Who has dominance?

• Who has greater bargaining power?

• Which segments of the total market are saturated and over served and which

ones are relatively underserved?

Are there market segments which are more attractive than others for the

entrepreneur, either because of past expertise in the segment or weaker

competition in the segment?

Technology

of detailing the operations +

technology assessment. E

to determine whethe
There are at least four

ssessment and Operations Viability

der to get the enterprise going, the entrepreneur must go through the intricacies

o the operations that would be required by the business, which also includes

boy assessment. By going through this process, the entrepreneur would be able

ermine whether the product or service offering will meet customer demand or not.

re at least four target customer expectations affecting the scale and complexity of

an enterprise's operations:

1. Quantities demanded. This would determine the needed capacity of

operations.

2. Quality specifications demanded. This would dictate the following: (a)

quality of input or raw materials; (b) quality assurance process in transforming

input to output; (C) quality output that meet the operations, standards set; and

(d) quality outcomes for the customers who will be looking for specific results.

3. Delivery expectations. Knowing how much, how frequent, and when to deliver

to customers.

4. Price expectations. The selling price of the product or service would be

evaluated by the customers according to the value they would receive (in terms

of quality, delivery, and quantity) and this value added should be matched

against competitors.

Investment Requirements and Production/Servicing Costs

Now comes the challenging part, the entrepreneur needs to determine how much

money is needed to start the business opportunity with consideration to the technologies

and operating levels required. In this respect, there are three investments that need to be

funded:

Pre-Operating Costs. These are the costs related to the preparation for

the launch of the business. These include the pre-feasibility study, in-depth

feasibility study, market research, product development, organizational

development, and initial promotional costs.

2. Production/Service Facilities Investment. This refers to the long-term

investment for the actual business establishment, including investment in land,

buildings, machinery, equipment, computers, software, furniture, vehicles, etc.

If the business would be renting or leasing space, the leasehold improvement

(or renovation) would also be part of the facilities investment. '

3. Working Capital Investment. This includes the investment needed to

operationalize the business, composed of cash, accounts receivable, and

inventories (raw materials, work-in-process, and finished goods). The

entrepreneur must see to it that he or she has enough cash to cover the

inventories to be purchased (or manufactured), the accounts receivable to

accommodate customers, and the operating expenses to be incurred. These

operating expenses would include the following:

a. Employee salaries, wages, and benefits

b. Rent and lease expenses

c. Utilities

d. Transportation

e. Fees and licenses

f. Commissions

g. Office supplies, etc.

In effect, this part of the pre-feasibility study asks two questions:

1. Do I have enough resources to cover the necessary investments?

2. Would my sales estimates be significantly higher than my monthly production/

service costs in order to produce profits?

Financial Forecasts and Determination of Financial Feasibility

Upon completing the first three parts of the pre-feasibility study, the entrepreneur

should now be able to proceed in constructing his or her enterprise's financial forecasts

for the business. The financial forecasts refer to the monetary transactions that the
business is expected to engage in. Ultimately, the end result of the financial forecasts will

indicate the feasibility of the enterprise.

Income Statement

The income statement is a financial statement that measures an enterprise's

performance in terms of revenue and expenses over a certain period. Simply put, the

formula is:

REVENUES - EXPENSES = INCOME OR PROFIT (I OSS)

From revenues forecasted (quantities sold times the prices they are sold for),

the entrepreneur must subtract the estimated cost of goods sold corresponding to the

forecasted sales. This should give the gross profit. From the gross profit, the operating

expenses must be deducted to arrive at the operating profit. Then, the taxes due are

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ENTREPRENEURSHIP

Balance Sheet

Creating the balance sheet is a bit more complicated because one has to look at three

different things: assets, liabilities, and equities.

Assets represent all the investments in the enterprise including the initial investments

that you considered in the pre-feasibility study investment requirements). These include

cash (on hand and in bank), accounts receivable, inventory of goods, equipment and

machinery, facilities, vehicles, etc.

Financing the assets or investments are the liabilities and equity. Liabilities

represent the enterprise's debts to suppliers, to banks, to government, to employees, and

other financiers. Stockholders' equity represents the investors' investments in the stock

(or shares) of the business.

The balance sheet equation is:

ASSETS = LIABILITIES + EQUITY

Financial Ratios and Measurements

In any business endeavor, the investor or the entrepreneur himself or herself will

always be interested in knowing the payback period or how long will it take for him or her

to get back what he or she has invested in the enterprise.

However, payback period is just one of the many financial computations one can take

a look at in considering a particular business opportunity. But this will only be possible if

the entrepreneur can come up with financial statements. The inconie payback period can

be computed as follows:

PAYBACK PERIOD

TOTAL INVESTMENT

ANNUAL NET INCOME AFTER TAXES

To compute for the income payback period based on ABC Company's financial

statements, which specify investments of $1,500,000 and net income after taxes of

P500,000 a year, we can conclude that it would take around 3 years for the company to

recover the investment.

1.500,000

INCOME PAYBACK PERIOD =

3 years

500,000