Opportunity Analysis of New Business Venture - Essay Example

OPPORTUNITY ANALYSIS OF NEW BUSINESS VENTURE Introduction The saturated nature of the global business environment makes it very important that any new business venture be one that is rooted on the foundations of sound opportunity analysis (Remmers et al., 2014). This is because with such sound opportunity analysis in place, it is possible to identify the most unique and innovative business ideas that can penetrate through the saturated market (Saito & Delano, 2011). The market is considered saturated as there are mostly a lot of competitors doing the same thing in the same way (Rowen, 2008). An innovative business idea can therefore be considered as the one which is born into an industry with little or no competitors. Where there are many competitors also, it should be able to present the idea of the business venture in a way that uniquely identifies untapped opportunities on the market (Oladeji, 2008). This is the basis for the report, where a new business venture is being critiqued for its viability as an innovative business idea. This is being done with the opportunity analysis approach where a feasibility study is being performed in the areas of self-analysis, venture description, market research, industrial analysis, technical feasibility, financial feasibility, scenario versions, and scalability analysis (Mambula, 2002). Once these areas are analysed, it will be able to conclude on the feasibility of the business idea and how innovative it is to succeed on the saturated market. Opportunity Analysis Elements of self-analysis The entrepreneur is considered an important authority and stakeholder for the introduction of any new business idea that becomes the basis of a venture creation. This is because the ideologies, motivation, vision, and inspiration of doing business are mostly dependent on the entrepreneur and what he or she brings onboard the new venture (Schaper, 2002). What is more, there are some core entrepreneurial qualities and competences that have been considered critical for the overall management of the venture (McMillan & Naughton, 2012). Based on the entrepreneurial behaviour theory, there are three major human capital requirements that may be assessed from the entrepreneur leading the idea of starting the new venture. These are general human capital, entrepreneurship specific human capital, and venture specific human capital (World Bank, 2010). The general human capital includes such qualities and requirements as education, managerial human capital, capabilities, and demographic control variables (Charles, 2002). The entrepreneurship specific human capital also includes entrepreneurial capability, parental background and attitudes, whiles the venture specific human capital includes knowledge of the domain and motivations (Secretariat, UNCTAD, 2008). Based on all these named areas of analysis, the following grading matrix can be given to the entrepreneur. Human capital Characteristics Rating General Education High Managerial human capital High Capabilities High Demographic control variables Medium Entrepreneurship specific Entrepreneurial capability Medium Parental background Medium Attitudes High Venture specific Knowledge of the domain High Motivations High Proposed venture description The new venture brings onto the market a product named the Slate. The Slate is simply a customised young student version of a tablet computer. As a customised young student tablet, the product contains content of the preschool and early childhood educational syllabus that are often presented to and taught to the students in a manual manner. The value proposition for the product comes in several forms. In the first place, the Slate identifies and solves the issue of exposure of children to adult content whiles using the traditional or mainstream tablet computer. As the issue of age and content remains one of the most important for marketers (Liedholm & MacPherson, 2014), it is expected that the Slate will be seen as serving the right purpose for the right age group. Secondly, the Slate creates the value of inculcating information and communication technology skills in children at a very early age. As the world is currently experiencing a technological revolution, it is important that the younger generation will not be exempted from this modern experience. Last but not least, the Slate shall promote effectiveness and efficiency in the classroom during the delivery of curriculum lessons. Market research According to Mambula (2007), every market has its own characteristics comprising behaviouristic, geographic, psychographic, and demographic characteristics. In order to capture all these isolated market characteristics into a common paradigm, the researcher shall make use of the 4Ps of marketing model or theory. The 4Ps of marketing gives a strategic identification and characteristics of the market made up of the people, place, product, and promotion to use. The table below summarises the outcome of market research and strategy for the Slate. 4P Target Market strategy Product Slate The Slate has been differentiated from other tablet computers on the saturated market as it uniquely identifies the educational needs of early childhood students and students at the preschool level. People Early childhood and preschool students There continues to be calls to include younger people in the technological transformation process. Having the right product to serve this need however remains a challenge. Place Educational settings There are several educational setups in the country, making it possible to have a very large target segment from which the product will be sold. Promotion Instalment payment package Most schools take their fees from students in an instalment manner. This means that when the products are supplied to students, it will be helpful to create a payment promotion based on an instalment payment system Industrial analysis The Slate will be marketed within the larger tablet computer and smart phones industry and the tablet market. Since 2011, the market has been dominated by such major companies as Apple, Samsung, Asus, Lenovo, and Acer. The graph below shows the market share of the tablet market from 2011 to 2014. Source: Statistic (2015) From the figure above, it would be seen that even though the market has largely been dominated by Apple and Samsung, there remains a very reasonable market share for other companies, including the new venture. The Porter’s five forces can help have a more detailed industry analysis based on the table below. Force Description Threat level Threat of new entrant The market is open to new entrants since it operates a perfect market structure (Evans & Leighton, 2009). The idea of the Slate is however new when compared to mainstream tablets. Medium Threat of substitute product There are several toy computers that may serve some of the use of the Slate. These substitutes are however not in the tablet market and do not serve syllabus based needs. Medium Bargaining power of customers Since the idea is relatively new, customers do not have many options in terms of alternative competitors. This makes the bargaining power of customers low (Milford, 2010) Low Bargaining power of supplier The company has to rely on specialist suppliers to provide the raw materials and expertise needed to produce the Slate. This situation increases bargaining power of suppliers (Levy, 2013) High Intensity of competitive rivalry There is high threat of the ability of major industry leaders to imitate the idea. This situation could bring high intensity of competitive rivalry as those competitors have higher operating capital (Wang & Yudong, 2004) High Technical feasibility study In order to successfully produce and market the Slate, there are various technical expertises that will be required (Gu, 2009). The most important of this has to do with a production plant which will produce most of the parts of the hardware to be used in the product. Some of these are motherboard, keypads, covers, earpiece, and mouthpiece. Secondly, there are some technical components of the product that will be outsourced from other manufacturers. The outsourced components will mostly be the software aspects including the operating system to use. The targeted operating system for the product is the Android operating system from Google. Other hardware such as screen and earphones will also be outsourced. Once the parts have been made available, there will also have to be an assembling plant that will put all these parts together into a common device known as the Slate. The Slate will be patented based on its educational purpose where it contains specific curriculum contents to be delivered to younger children. The colour scheme and sound will all be focused on children and patented as such. All facilities including the plants will be managed by a skills labour force that will operate in a functional organisational structure (Hallberg, 2010). Financial feasibility study The cost of financing any project has been noted to be an important consideration to make when examining how feasible a new venture is (Elumilade, Asaolu & Adereti, 2006). In the light of this, there have been considerable estimations and projections made for the Slate in the first five years of its introduction. As noted by Cook and Nixson (2000), the first five years of a new venture marks the introduction phase where it is very important that the right capital injections will be made to ensure the success of the product on the market. The financial feasibility has been summarised in the budget presented in the table below. Period Ending Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Total Revenue 523,452 593,340 574,242 545,529.5 514,790 Cost of Revenue 314,157.6 323,450 343,234 323,850 310,493 Gross Profit 209,295.4 169,890 131,008 121679.5 104,297 Operating Expenses R&D 34,535 53,433 43,278 52,424 24,356 General Selling and Administrative 101,234 93,239 105,355 109,324 103,423 Total Operating Expenses 135,769 146,672 148,633 161,748 127,779 Operating income or loss 173,526.4 123,218 82,375 59,931.5 76,518 Income from continuing operations Total other income/Expenses net 6,743 6,443 6,534 6,033 4500 Earnings before interest and taxes 143,566 140,244 143,002 92,345 115,343 Interest expense 43,567 42,422 42,823 29,234 15,343 Income before tax 112,435 110,332 70,232 60,005 35,234 Income tax expense 9,434 9,924 9,239 9,144 8,503 Minority interest 245 (823) - - 843 Net income from continuing operations 132,345 114,245 72,329 49,432 55,324 In order to attain the projected revenue, the main source of income shall be through private shareholder entity where specific private investors shall be identified and approached for their capital investment based on the business proposal presented to them. Scenario versions In the first five years, the following scenario versions and the possible response that could be given in addressing them are summarised below What is the proposed start-up capital is not realised? In this case, the projected revenue for the venture shall be reduced to level suitable for internally generated funds. What if a similar product is launched ahead of the Slate? A new foreign market shall be identified and the product introduced into What if a market leader adopts the idea? A different foreign market will be identified and the product introduced into as a way of avoiding the competition What if a different company proposes a merger? The merger will be accepted if the company’s line of product does not conflict with the Slate but complements it (Fazio, Powell & Herr, 2013). What if a different company proposes an acquisition? Acquisition will not be allowed in the first five years. Scalability of the new venture Levitsky (2006) noted that scalability refers to the process of growing a venture larger while trying to keep intact, the businesses core mode of operation, culture and profitability. Once this is done, the business can be assured to increase sales and profitability without having its expenditure compromised (Hamel & Coimbatore, 2004). There are three aspects of guaranteeing scalability for the new venture. The first will be to have a comprehensive business plan that is designed to make the business grow (Fama & Jensen, 2013). The second will be to have an entrepreneurial base that has the passion to make the business grow (Obadan, 2003). The last will be to have an owner who has the capabilities and competence discussed earlier to have the growth agenda achievable (Hamilton & Mark, 2008). Conclusion The need for this report was necessitated by the saturated global market for the tablets and smart phone industry. As a new business idea came up in this area therefore, it was necessary that a thorough opportunity analysis would be conducted in the form of a feasibility study to know how well the idea fits into the current business climate. Based on the analysis that has been performed, the overall conclusion that can be given is that the Slate faces substantial level of competition particularly due to the fact that the business idea can easily be replicated by other major industry leaders whose focus has been on mainstream tablet production. Having this said, it remains important that the idea will still be pursued. This is because of the various strategic marketing options that has been identified and associated with the sale of the products. If for nothing at all, the product can successfully go through the product lifecycle to its maturity level. 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