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Determine Market Potential

FastTrac, Kauffman Foundation

Once you have established that an opportunity matches your business’s vision, goals, and financial indicators, you are ready to assess its market potential by examining specific key factors. Market research will enable you to more accurately assess the following points:

Ability to compete – Which opportunity offers the potential for you to compete most effectively in the marketplace based on a price/cost advantage or market differentiator? If you will not be able to compete effectively, be wary of such an endeavor. Build on your strengths to increase the chances of future successes.

Duration of the opportunity – Will the opportunity last long enough for you to seize it and reap its rewards? Duration is critical to determining attractiveness. For example, a new product or service based on a long-term trend, such as a changing demographic, has an enduring window of opportunity. One based on a fad, such as the latest fashion trend, has a limited life. Another consideration is how long you have before competition might flood the marketplace.

Growth potential – In many cases, long-term growth rather than immediate rewards make one opportunity more attractive than another. An entrepreneur may decide to offer a new product in a growth area rather than pursuing sales of existing products that have minimum growth potential. Is the sales potential sufficient to make it worthwhile? Even if you can dominate a small market, it may not be worth your while.

Risks and rewards – A certain amount of risk is involved in all entrepreneurial ventures, and growth is no different. How much will the opportunity cost to pursue in terms
of time, money, and physical resources? What is your potential return on your investment? Are the risks acceptable to you and your business? Do the rewards compensate for the risks?

Keep in mind that typically the risks associated with growth opportunities increase as you move away from products and markets you know into products and markets that are new to you. Costs for researching and developing new products and researching and penetrating new markets will also increase.

© 2006 Ewing Marion Kauffman Foundation. All rights reserved.

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