11 Tips for Evaluating Business Opportunities

One of the keys to succeeding in business is knowing which opportunities to take advantage of and which to avoid. These 11 tips will help you evaluate which business opportunities are worth the risk.

1. Market Size

One of the most important business metrics to consider is market size. Start evaluating the opportunity by determining whether there is a market and how big the market is. If there doesn’t seem to be enough demand to generate a profit, you should probably pass on the opportunity.

2. Availability of Funding

Before you decide to take on a business opportunity, you need to make sure you can get the necessary startup funding. Investigate sources of funding, such as business loans and investors. If you can’t come up with the cash to get it off the ground, then it probably isn’t worth pursuing. Next, you need to evaluate how long it will take for the opportunity to be self-sustaining and how much additional money you will need to put into it until it is.

3. Skill Sets

If you are evaluating your own business opportunity, honestly examine how well your skill set fits the opportunity. Will you need to hire someone to make up for areas where you lack the necessary skills? If you are considering investing in someone else’s business, investigate the skillsets of their management and ownership. Do they seem competent? If the leadership seems unreliable, you may want to pass on the investment.

4. Risk Assessment

A risk assessment is an evaluation of the potential risks inherent in a business opportunity. This will help you determine whether the opportunity is too risky to be worth taking on. You should consider factors such as the economy and the competition.

5. Revenue

Another important consideration is how much revenue the opportunity is likely to generate and whether that is enough to generate a profit. You will need to consider not just how much money the opportunity can bring in, but how much the opportunity will cost.

6. Advantages

What makes this business opportunity better than others you might pursue instead? Is it a unique opportunity with few competitors? Does it come with intellectual property that provides a leg up on the competition?

7. Relationships

Relationships are important to the success of any business venture. An opportunity that comes with some built-in relationships can be advantageous for both the new opportunity and your existing business. Relationships to consider include customers, employees, partners, investors and vendors.

8. Passion

Do you have a passion for the new opportunity? Even an opportunity that seems like a moneymaker may be a bad pursuit if you have no interest in it. Running a business takes hard work and perseverance. The prospect of making money may not be enough to keep you going without a passion for the work.

9. Diversification

If the success of the opportunity heavily depends on one customer, trend or industry, the risk of taking on the opportunity goes up. Unless the potential for profits is enormous, it may be wiser to pursue an opportunity that is less likely to fail because one thing went wrong.

10. Limitations

Determine what the biggest potential downsides of the opportunity are. If it relies on new intellectual property, is that IP going to be easy for competitors to copy, thus negating your advantage? Will it take a long time to get the product to market? Does it rely on a trend that might turn out to be a fad?

11. Scalability

The profit potential for highly scalable opportunities is much greater than for those with less scalability. If you can easily ratchet up production to match an increase in demand, without a huge increase in investment, you will have an easier time generating a profit.

Being able to identify and take advantage of the right opportunities is a valuable skill for any investor or entrepreneur. These 11 tips will help you evaluate any potential business opportunity.

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