Small opportunities are often the beginning of great enterprises – Demosthenes
Opening Case Study:
Grabbing Opportunity: Sanjeev Bikhchandani
With the dynamics of the job market today, registering with one or more job sites has become imperative in any organization. Apparently, job market gossip is among the favourite topics in any organization. This market had been operating only based on referrals and recommendations for a long time. Hence, there existed a gap between the demanding employers and the deserving candidates. The intermediaries who could play a role in between were the consultancies, and the employers had to depend only on these sources for getting their requirement filled. In this stint, InfoEdge (better recognized with its brand called ‘naukri.com’) made its appearance as a research and survey company. InfoEdge surveyed on trademarks registered by pharmaceutical companies and the salary standards for all levels of employment. These analyses were further customized and sent as reports to organizations. Also, these reports were sent to the students of prime engineering colleges who were given job offers right after their graduation. Idea booming well, InfoEdge was encouraged to ponder more and this instigated the job portal called ‘Naukri.com’. Thus, Naukri.com clutched this unorganized sector and held it as its platform for pioneering in the field of job portal creation. This is where Sanjeev Bikhchandani, Co-founder and CEO, InfoEdge, found his food for thought. He capitalized on this idea and understood that exploring opportunities was not only in the area of job searches but also in the analysis of market standards and benchmarks in the industry. The idea, further, was to accumulate or create a database of vacancies and aspiring candidates to map the requirement accordingly. The process was to be devoid of intermediaries for the mapping to be perfect. The database collection was only one part of the job. Though the idea of this database seemed great, without placing it at the arm length of the, it proved no value to him. There was a better hit envisaged if it could be carried to reach the audience’s desktop more easily than sending it in couriers. In 1996, Sanjeev was exposed to the technology called ‘World Wide Web’. He used the financial aid received from his family to register a website. He named the website based on the Hindi word for a job called ‘naukri’. Thus, ‘Naukri.com’ made its inception in 1997. The biggest strength of Naukri.com was that it had pioneered in this field and created a new era. Nevertheless, there were many players later on, including the MNCs who came in with better innovations and utilities, but Naukri.com still retains the biggest pie of job portal market.
A key question that all would-be entrepreneurs face is discovering the business opportunity that is right for them. Should the new startup pay attention on introducing an innovative product or service based on an unmet need? Should the venture choose an existing product or service from one market and present it in another where it may not be available? Or should the firm depend on a tried and tested formula that has worked elsewhere, such as a franchise operation? The only way for the entrepreneurs to find answers to these questions is to evaluate a business opportunity & grab it by understanding its associated potential and risks.
There are many sources for new venture opportunities for entrepreneurs. Obviously, when an entrepreneur observes inefficiency in the market, and has an idea of how to correct that inefficiency, and has the resources and potential or at least the ability to bring together the resources and competence needed to correct that inefficiency — that could be a very appealing business idea. Additionally, if he discovers a product or service that is being consumed in one market, that product is not available in his market, he can possibly import that product or service, and start that business in his home country.
Here are a few guidelines that will aid an entrepreneur to grab a business opportunity:
Guideline 1: Identify an Unmet Customer Need
The question that confronts any entrepreneur who is thinking of starting a new business or company is how to find the opportunity that’s right for him? Many sources of ideas can be derived from existing businesses, such as franchises. An entrepreneur can license the right to provide a business idea. He can work on a concept with an employer who, for some reason, has interest in developing that business. He can tap numerous sources for new ideas for businesses. Conceivably the most promising source of ideas for new business comes from customers – paying attention to what customers say. That is something an entrepreneur ought to do continuously, in order to understand what customers want, where they want it, how they want a product or service supplied, when they want it supplied, and at what price.
There are several examples of a start-up that evaluated an opportunity and started a successful business venture. In the age of the Internet, there is no scarcity of instances of entrepreneurs who started a company based on a perceived need. For example, consider E-Bay. They saw an opportunity to connect people through launching a virtual flea market. It offered a platform that connected buyers and sellers directly. Other ventures have found parallel models. For example, take PayPal, a company whose co-founder Elon Musk was a Penn and Wharton graduate. The company offered people the prospect to pay online. Flycast is another business venture started by a former Wharton MBA student, Rick Thompson. It dealt with the issues of advertising on-line. All of these start-ups have one thing in common. They addressed an unmet need in the marketplace.
There is no alternative for understanding the unmet needs of customers. It allows an entrepreneur to discover whether he is capable to supply those needs, at the price customers want to pay, and still make a profit.
Guideline 2: Conduct Customer, Competitor & Industry Analysis
After a would-be entrepreneur has recognized what he or she thinks is a promising unmet need he has to move through the process of evaluating and identifying the risks that should be considered in deciding whether or not to chase that business opportunity.
The first step that every entrepreneur should follow is to ask the question, is the market real? In order to know that, the first thing he should do is conduct what is called a customer analysis. It can be done in a technical way by conducting surveys. Or perhaps, in a less technical way, he can attempt to answer the question, “Who is my customer?” What does the customer want to buy? When does the customer want to buy? What price is the customer willing to pay? So, asking the “W questions” — who, where, what, when — is the first step. At the end of the day, the one thing every entrepreneur is looking for is profits, and the profits will come from customers. That is why an entrepreneur needs to ask himself, is there a market here?
The second question that an entrepreneur should ask himself is: who else is supplying that particular market? That is termed as competitor analysis. An entrepreneur must ask himself who else are there in this market, and what are they doing for the customers. Are they supplying a similar substitute product or service as he has in mind? That is the second thing he needs to establish, and by doing that, he can understand better what need is not met at a given point of time. That will also give him the chance to zero in on the price points and feature points of where he can differentiate his product from existing players in the market.
Next, he also needs to conduct a broader industry analysis to comprehend the attractiveness of the industry he’s going to enter. Is the industry budding or dwindling? What influence do the suppliers have in this industry? How many consumers are there? Are there alternate products? Are there any hurdles to entry? If so, what are they? That is very significant for him to understand, as it will help him to realize whether the industry he’s thinking of entering is attractive.
Also, he may need to understand the rules & regulations that affect that industry. Are there any terms & conditions that he would be subject to? This in particular applies in the life sciences sector, where there are stringent regulations that control the supply of products into the market. In the United States, the FDA, the Food and Drug Administration, is a major regulator. Every country around the world has a regulator in the life science sector. So, these are the high level questions that he may need to ask himself.
Once he has answered these questions, and identified the need, given the competition and all the regulatory constraints that exist in that market, it will offer him an opportunity to tailor his service or product — or combination of the service and product — to that marketplace. The logic that should be followed is first to identify & understand the need, and then tailor the product and/or service to that need, as opposed to saying, “Well, I have an idea. And now let me think how I can shove it down the distribution channel.” Typically, the latter plan doesn’t work. More often than not, the former approach works. This is the approach where the entrepreneur identifies the need, performs a rigorous analysis of understanding who else is there as a competitor and what constraints exist, and how he can differentiate his product or service in a meaningful way. When he approaches a new opportunity in this fashion, and when he introduces a product and/or service, he can expect to have substantial sales and growth for his company.
Guideline 3: Take Risks into Account
In addition to conducting market analysis and competitive analysis, and also looking at the industry and government, there are financial risks that entrepreneur should take into account. One method of thinking about the various risks an entrepreneur is faced with — or, for that matter, an investor in an entrepreneurial venture is faced with — is to divide them down into several buckets.
Let’s begin with the first bucket, the company risk. Well, here, the largest source of risk is the founders. Do they have the resources not just to start the company, but also grow the company? Practice has shown that the dominance of individuals such as Bill Gates or Michael Dell, Steve Jobs is essential, that can not only start companies, but also manage its growth. A second source of risk is technology risk. To the degree that an entrepreneur’s company employs technology, there are apparently issues of, how long will this technology be the leading edge? Secondly, are there any intellectual property issues that need to be addressed? Finally, there exists the product risk. If the entrepreneur hasn’t developed a product yet, can he manufacture it? Will it work? All these issues are under the bucket of company risk.
A second bucket for the sources of risk is the market for the product. An entrepreneur needs to be aware of two big uncertainties. First, what is the customer’s willingness to buy? And second, what is the pace, if he is successful, at which competitors will be able to imitate him? One of the things he has to think about when he enters that market is how he can create barriers to imitation, so that if he is successful, the competition won’t be able to imitate him very quickly.
A third bucket comprises of risks associated with the industry. Are there any factors in that industry that relate to availability of supply? In some cases, an entrepreneur needs to have certain raw materials that are in limited supply, and that some suppliers might be able to take advantage of that. Barriers to entry might change. Regulations might change, and adversely or positively affect his business.
Lastly, there are financial risks. And here, the question is, will the entrepreneur be able to raise the money early on? At what valuation will he be able to do it? Will he be able to raise follow-up money? And then, from the investor’s standpoint, obviously there’s a risk that if the company is very successful when it is time for, say, a public offering, will the public market be open? At the time an entrepreneur makes the investment, he doesn’t know what the state of the capital market will be in five to seven years from the date he makes the investment. That’s a big risk the investor is assuming. Obviously, it’s a big risk for the entrepreneur to be able to have some liquidity, and perhaps realize the fruits of his investment, of his time, talent, and in some cases the money he puts into that venture.
Guideline 4: Avoid Common Mistakes
In the history of establishing new ventures by entrepreneurs, there are some common biggest mistakes entrepreneurs are found to make at the initial stage of identifying business opportunities. The most frequent mistake that entrepreneur tend to make is to assume that everybody in the market is like them. If they like the product, everybody else will. Sometimes – rather too often — entrepreneurs, and especially entrepreneurs with an engineering background, are too focused on the engineering features or technology features of the particular product, rather than on the need that they are trying to fulfill. Customers don’t buy technology. Customers buy products that add value. Customers buy products that they need, in order to satisfy some issue that they wish to satisfy. But not the technology, per se; it is the services of the technology that matter.
Very often, entrepreneurs — particularly smart entrepreneurs — are overwhelmed by the technological aspect, and they pay too little attention to what the customers want. This is the most frequent issue at the early stage that entrepreneurs are faced with.
Guideline 5: A Piece of Advice for Start-ups
One advice for potential entrepreneurs who are thinking about starting their own venture is to overcome the hesitation of starting a new business. Mostly people are so secured in their 9 to 5 jobs that even the thought of leaving it and starting an own venture scares them. People are hesitant to start new businesses, because they think they don’t have the characteristics of what would make for a successful entrepreneur. Also, they assume it’s too risky to be an entrepreneur. Researches around the world have shown that there are no unique characteristics, or traits that distinguish entrepreneurs from non-entrepreneurs, and successful entrepreneurs from unsuccessful entrepreneurs.
The main message to entrepreneurs here is that each one of us has what it takes to be exceptionally successful entrepreneur. It is no more risky to start own business than working for General Motors. As one can recall, General Motors filed for bankruptcy not so long ago. So, the perception that working for a large company is somehow safer, is not, of course, borne out by the reality. The underlying message is, each one of us has what it takes; it is time to get started