Last week we discussed that the first step in starting a business is to identify a need in the community. Establishing the size of that need is called assessing demand. It is a waste of time to jump into business plan development before doing thoroughly and proper demand assessment first. Before you can sell anything, you have to understand who you are selling to.
You have to create a complete picture of your customer and know why they want your product and how they will use it. By determining who will buy your products, you can fine tune the various aspects of your marketing message to appeal to this group and to avoid wasting time and money on non-customers.
Today we are going to discuss on how to identify opportunities that can lead to generation of a business idea.
Finding a good idea is the first step in the task of converting an entrepreneur’s creativity into an opportunity. Many entrepreneurs gain ideas from daily encounters with challenges, new knowledge or through sharing with others.
For an idea to be an opportunity it must be attractive, durable and timely. It should also be packaged into an attractive product or service, which creates or adds value for the customer. Finding good ideas and converting them into opportunities is a conscious, deliberate and creative process.
Business opportunities can arise when entrepreneurs use their skills, expertise or aptitude to provide a product or service to the market. Solving existing problems like poverty in rural areas, rising price of a certain product or looming danger of using kerosene or charcoal in closed rooms could all become opportunities to start a business.
Evaluating business opportunities
In order to determine whether or not a business idea will translate into a lucrative opportunity which possesses the qualities of being timely, attractive and durable, the entrepreneur must follow a strategy of evaluating or screening the revealed opportunity.
The criteria used to screen opportunities could include among others the following:
Economies of scale – profitability assessment; cost of production and potential selling price,
Personal criteria such as passion and interest in the business venture.
Strategic differentiation this refers to how an entrepreneur positions herself to take advantage of the given market conditions against competitors. For example, an entrepreneur may decide to start a business that will base on building capacity on business management, financial accountability, book keeping, record keeping and purchasing systems.
Growth strategies in business
Bateman & Snell (1999) define strategy as a pattern of action and resource allocation to achieve the goals of an organization. Growth or expansion of the business means expanding the amount of trade it undertakes. It also means that the resources, systems and structures of the business venture will need some expansion.
Purpose of growth strategy
The purpose of business growth is to increase the stream of inflows hence more profits and reaching more customers. However, proper timing is critical to the success of implementation of any growth strategy. By answering the following key questions one is able to judge if the time is right to implement any growth strategy:
Can the business cope with expansion, or is it working at full capacity?
Do you have sufficient resources and systems in place to optimally carry out the existing business and expand without exerting adverse pressure to the business
If new initiatives are likely to disrupt existing performance, how will the owner ensure his/her customers don’t lose out?
Before one decides to invest extra resources to expand the product portfolio in the business, the entrepreneur needs to be sure that the core business activity is performing well. It is also important to review the key business income sources to ensure that the business has sufficient funds to support growth.
Growth strategies and methods available for energy businesses
Most growth strategies are based on either internal growth or external growth, or a combination of both.
Internal growth: Internal growth is achieved through bringing new and existing resources together in an innovative combination to create new value. This means growing the business through increasing market share, developing new products and entering new markets.
Strategies used in internal growth are:
Increasing market share; for example one can adopt aggressive marketing leading to sale of more improved product or quality products.
Expansion and growth in turnover, volume, income or profit and increasing efficiency in delivery; e.g., looking for ways to sell more products at lesser costs
Achieving economies of scale and command of technology and distribution; e.g., expanding production levels of briquettes to cut down unit cost.
Expansion into new market areas and niches through differentiating existing products or creating new;
Expanding into new locations.
The external growth strategies deal with factors outside the MSME and market environment – i.e., beyond the boundaries of existing business. The options are:
Vertical integration: this is attained when an MSME ventures into business above or below current one in the value addition chain; e.g., a briquettes retailer starts making them or merging his/her retail business with a manufacturer of the same product
Horizontal integration: this happens when an MSME integrates business that is in the same level; e.g., two MSMEs dealing with production of charcoal stoves combine their business to form one.
Lateral integration: this occurs when an MSME diversifies to another slightly different sector or line of business; e.g., Used clothes dealer starting to sell agricultural products
Growth methods that have and could be adopted to attain both internal and external growth are joint venture, franchising, alliances, licensing and dealership:
Managing growth in business.
Growth in a business must be achieved and there must be a strategy for achieving it. It is obvious that growth puts a tremendous strain on resources of the business. Therefore this growth must be planned, additional resources required must be raised and managed effectively to lead to desired outcome.
In order to achieve the goals of growth two key things must be done; developing a business plan and sourcing for funding for growth activities. These are discussed below. In addition performance monitoring must be done through preparation of reports.
Prepared by Veneranda Sumila
Tanzania Private Sector Foundation (TPSF)