Opportunities, opportunities… know how to pick ’em

When a firm is beginning to do well, cash flows are rising, debt levels are under control and momentum is building, then the business is now, and maybe for the first time in a while, has the comparative luxury of making choices about its future.

There are a lot of new business opportunities out there.  Should we diversify, should we extend our product line, should we invest more in our production equipment, expand the sales team?  Start on our next generation product or service?  Which ones should be tackled first?

Some say that one should go with the heart.  Others offer a more analytical approach, suggesting a set of screening criteria can be used.  Like many things in life, its not a case of either/or but both, since both approaches give insights that can inform and shape a decision.

Follow our passions

Life is short and time passes quickly.  If we are going to commit to something it may as well coincide with our passions, the things that get us excited and out of bed in the morning.  What are our interests?  Our Passions?  If there isn’t any excitement and enjoyment then it isn’t worth doing. If success and passion don’t coincide, then in my opinion, any success is more than a little hollow.  Follow your passion.

Screen it out

A company’s resources are limited and opportunities can have short “use-by” dates.  Being able to screen out opportunities quickly so that a short list can be scrutinized more closely is a must.

Here’s a quick list.  Some criteria need hurdles to be set specific to your industry and/or circumstances.  Others can be can be scored out of five, and say, if they don’t score 4 or more, they failed that criteria:

  1. Knowledge and understanding of industry
    1. Technology
    2. Value chain i.e. everyone in the chain and how they profit
    3. Markets
    4. Why consumers purchase
    5. Growth and other trends for the above
  2. Financial criteria (every business opportunity is also a financial investment decision)
    1. Hurdle rates for return on investment or internal rates of return
    2. Payback periods
    3. Maximum size investment
    4. Minimum size investment
    5. Does it pass a stress test?  What if sales are 40% below expectations, does it still stack up?
  3. Marketing criteria
    1. How compatible does it fit into our brand?
    2. What parts of the value chain can we credibly take part?
    3. Do we have the knowledge & experience to meaningfully contribute?

Passion excites.  Analysis keeps us grounded.  Put together, any firm is in a much better position to succeed.

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