How To Market New Business

Introduction

Millions of businesses are launched around the globe every year. Generally less than 10% of these businesses are eventually harvested through mergers and acquisitions, management buy-outs, listings, etc. An entrepreneur need to integrate many aspects of a business to eventually ensure the successful harvesting of it. This whole process should start by asking the right questions. Some key questions that entrepreneurs need to ask when embarking on a new business venture are:

Is there a genuine window of opportunity?
Does their profile match that of the opportunity?
Are the economics of the venture acceptable?
Can they achieve a competitive edge?
Are the potential harvesting dynamics sound?

This article highlights the type of questions that entrepreneurs need to ask and answer satisfactorily before embarking on a new venture for which they have an exit strategy mindset.

Is There a Genuine Window of Opportunity?

The pace of change in the world is increasing very rapidly. This creates tremendous opportunities for the prepared entrepreneur. Questions that entrepreneurs need to ask to ensure that a proper window of opportunity really exists, are:

Is the growth rate of the industry or sector high enough? A growth rate that is above 25% per annum and improving normally creates many opportunities.
Is the potential size of the market big enough? The market should normally be big enough to cater for several role-players. A current market size of $50 million can quickly grow into billions of dollars (if coupled with a high growth rate).
Is there a need for the products and/or services of the new venture? Proper market research is a pre-requisite.
Is the venture financially attractive? A detailed financial analysis and projections of the business are essential.
Is the opportunity sustainable over time? The dynamics of the venture should be sustainable enough for the business to be harvested.

Does the Entrepreneurs’ Profile Match That of the Opportunity?

When the right team meets the right opportunity a lot of money can be made. To ensure that the entrepreneurs’ profile do match the opportunity they need to ask the following questions about themselves:

Are they passionate about the venture? This creates energy, motivation to others and an environment conducive to learning.
Do the entrepreneurs have the right skills to make a success of the venture? If they don’t they need to be able to acquire people with these skills.
Where are they in relation to their personal Sigmoid curves? Entrepreneurs should be in a phase of their lives where they are willing to take on the responsibilities that goes along with entrepreneurship.
Do they have the right mindset to successfully build the business? – Entrepreneurs should have personalities that ensure that the task will be completed.
Does the risks of the venture fall within their risk profiles? The risks for the entrepreneurs should be in line with their personal risk profiles.

Are the Economics of the Venture Acceptable?

Businesses are generally measured on their financial performance. Although this is just one of the criteria of a successful business, it is absolutely crucial that it is in place. The type of questions that entrepreneurs should ask about the economics of a business are:

Is there enough sales potential? – If everything else is in place, but there is not enough turnover potential, then the business is doomed from the start.
Is the gross profit margins high enough? The gross profit margins should be high enough to easily cover the expenses, allow for flexibility in pricing and enough profitability. A minimum of 30% would normally be considered as adequate.
Will break-even be reached quick enough? Break-even and payback periods should be short enough to cater for the specific type of venture. An IT venture should normally make its money in a couple of months where a mining operation can take several years.
Is the capital requirement reachable? This should not be prohibitive for the venture or be of such a nature that the entrepreneurs equity will be diluted too much.
Is the expected return on investment acceptable? This should exceed the risk-free interest rate plus the risk of embarking on the venture. Normally a return of much higher than 20% would be required.

Can the Entrepreneurs Achieve a Competitive Edge?

It is important for the entrepreneurs to ensure that they are realistic about their expectations and especially that they have the potential to gain a competitive edge through the proposed venture. They need to look at the following questions:

Are there enough barriers to entry? It should be difficult for companies to enter this industry. Lack of expertise, finances, proprietary rights, contracts, contacts, etc. can act as barriers to entry.
Can they add significant value to the customers? It is important to have a product and/or service offering that really adds value to the client.
Is it possible to get a significant market share? A market share of 20% plus is preferable. The market share can be in a specific niche market (product, service or geographic).
Is there something that distinguishes this venture from others in the industry? It is important that a company can distinguish itself substantially in some way from the competition.
Do they have the ability to cut costs significantly compared to competition? This can for instance be achieved through economies of scale, production methods and purchasing agreements.

Are the Potential Harvesting Dynamics Sound?

Entrepreneurs need to ensure that the business will be harvestable by asking the following type of questions:

Is it possible to separate the entrepreneur from the venture? This can be achieved through proper systems, training and succession planning.
Are the trends in the industry favourable for harvesting purposes? Timing is very important in choosing a business and also in the harvesting thereof.
Is the profitability and cashflows of the venture sustainable? The business should not rely on one customer or product and should preferably have annuity income streams and a sound variety of suppliers, customers, products and services.
Can the entrepreneurs sustain their competitive advantage in the long run? The intellectual property that exists in a company, its reputation, relationships and systems all play a role here.
Is the business harvestable? The business and/or industry should not just be a flash in the pan. A real need should exist over time for the type of business. Some types of business are more easily harvested than others (e.g. a manufacturing concern is more sought after in general than a consultancy service company).

Summary

The first step in creating an exit strategy for a company is to choose a new venture that will eventually be harvestable. An entrepreneur should ask in-depth questions about choosing the right venture and then do a thorough research to come up with the answers. The chances of a successful harvest of the business are thereby drastically improved through a proper fit between the entrepreneur, the business venture and the exit potential of the business. Choosing a new business venture should form an integral part of the exit strategy of any company and should be managed professionally.