1.

INTRODUCTION

Venture opportunity screening is the assessment of an idea’s commercial potential to produce

revenue growth, financial performance, and value.

Developing a sufficiently detailed understanding of which markets offer the greatest

opportunity and whether that opportunity is sustainable or can be a complex task. Many
factors must be considered, such as application requirement, cost of change to fabricators,
processing conditions, market size, market potential and competition.

Additionally, shifting trends which open or close the potential market opportunity must be
fully assessed. The complexity of this exercise is compounded where multiple market
segments are being analysed.

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2. OPPORTUNITY FOCUS

To effectively screen an opportunity there must be a focus on possible positive and negative
outcomes if pursued. The screening process should not begin with strategy which derives
from the nature of the opportunity, financial and spreadsheet analysis which flow from the
former, or estimations of how much the company is worth and who will own what shares.

These starting points, and others, usually place the cart before the horse. Also, many
entrepreneurs who start businesses particularly those for whom the ventures are their first run
out of cash faster than they bring in customers and profitable sales.

There are lots of reasons why this happens, but one thing is certain that these entrepreneurs
have not focused on the right opportunity. Over the years, those with experience in business
and in specific market areas have developed rules to guide them in screening opportunities.
For example, during the initial stages of the irrational exuberance about the dot-com
phenomenon, number of “clicks” changed to attracting “eyeballs,” which changed to page
view. Many investors got caught up in false metrics. Those who survived the NASDAQ crash
of 2000–2001 understood that dot-com survivors would be the ones who executed
transactions. Number of customers, amounts of the transactions, and repeat transactions
became the recognized standards.

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3. SCREENING CRITERIA: THE CHARACTERISTICS OF HIGH-POTENTIAL
VENTURES

Venture capitalists, savvy entrepreneurs, and investors also use this concept of boundaries in
screening ventures. Exhibit 5.8 summarizes criteria used by venture capitalists to evaluate
opportunities, many of which tend to have a high-technology bias. As will be seen later,
venture capital investors reject 60 to 70 percent of the new ventures presented early in the
review process, based on how the entrepreneurs satisfy these criteria.

However, these criteria are not the exclusive d domain of venture capitalists. The criteria are
based on good business sense that is used by successful entrepreneurs, angels, private
investors, and venture capitalists. Consider the following examples of great small companies
built without a dime of professional venture capital:

 .Paul Tobin, who built Cellular One in eastern Massachusetts from the ground up to
$100 million in revenue in five years, started Roamer Plus with less than $300,000 of
internally generated funds from other ventures. Within two years, it grew to a $15
million profitable annual sales rate.
 Entrepreneur and educator Ed Marram founded Geo-Systems without any money
but with one paying customer. He sold the company in 2005 after 29 years of double-
digit revenue growth.
 In 1986 Pleasant Rowland founded the Pleasant Company as a mail-order catalog
company selling the American Girls Collection of historical dolls. She had begun the
company with the modest royalties she received from writing children’s books, and
did not have enough capital to compete in stores with the likes of Mattel’s Barbie. 18
By 1992 she had grown the company to $65 million in sales. Mattel acquired it in
1998 for $700 million, and under Rowland’s continued management, the company
had sales of $300 million in 1999 and 2000.
 At age 66, Charlie Butcher had to decide whether to buy out an equal partner in his
100-year-old industrial polish and wax business (Butcher Polish) with less than $10
million in sales. This niche business had high gross margins, very low working capital
and fixed-asset requirements for increased sales, substantial steady growth of more
than 18 percent per year, and excellent products. He acquired the company with a
bank loan and seller financing, and increased sales to over $50 million by 1993. The

3
 company continues to be highly profitable. Butcher vows never to utilize venture
capital money or to take the company public.
 The point here is focus on the opportunity and, implicitly, the customer, the
marketplace, and the industry. Exhibit 5.8 shows how higher- and lower potential o
opportunities can be placed based on their potential outcomes. The criteria provide
some quantitative ways in which an entrepreneur can make judgments about the
industry and market, competitive advantage, economic status and harvest potential,
management team, and whether these issues add up to a compelling o opportunity.
For example, dominant strength in any one of these criteria can readily translate into a
winning entry, whereas a single flaw can be fatal

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4. MARKET ISSUES

Higher-potential business can identify a market niche for a product or service that meets an
important customer need and provides high value-added benefit to customers. This invariably
means the product or service eliminates or drastically reduces a major pain point for a
customer or end user, customers are often willing to pay a premium for convenience and
efficiency. Customers are reachable and receptive to the product or service, with no other
brand or loyalties. The life of the product or service exists beyond the time needed to recover
the investment and earn a profit.

Lower-potential opportunities are represented by a poor understanding of customer

requirement and market demands. They also frequently target expensive-to-reach customers
that are loyal to existing brands in slow growth markets.

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4.1. MARKET STRUCTURE

Market structure is significant and is indicated by the number of sellers, distribution channels,
market size and growth rate, level of differentiation, number of buyers, sensitivity of demand,
and other forces around competitive advantage.

A fragmented or emerging industry often contains vacuums and asymmetries that create
unfilled market niches and market where resource ownership and cost advantages can be
achieved. In addition, those where information is profitable, but not so strong as to be
overwhelming, are promising. An example of a market with an information gap is that
experienced by an entrepreneur who encountered a large New York company that wanted to
sell a small, old office building in downtown Boston. This office building with a book value
of about $200,000, was viewed by the financially oriented firm as a low-value asset, and the
company wanted to dispose it off so that the resulting cash could be put to work for a higher
return. The buyer who had done more homework than the out-of-town seller, bought the
building for $200,000 and resold it in less than 6 months for more than $8 million.

Industries that are highly concentrated, perfectly competitive or declining are typically more
likely to fail. The capital requirement and costs to achieve distribution and marketing
presence can be prohibitive, while price cutting and other competitive strategies in highly
concentrated markets can be significant barrier to entry. Response by established competitors
can come through product strategy, legal tactics, and distribution control can cause significant
response.

The airline industry, after deregulation, is an example of a competitive market where many of
the recent entrants have difficulty. The unattractiveness of perfectly competitive industries is
captured by the comment of prominent Boston venture capitalist William Egan, who put it
this way: “I want to be in a no auction market.”

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4.2. MARKET SIZE

A minimum market size of $100 million sales is attractive. In the medical and life sciences
today, this target boundary is $500 million. Such a market size means, it is possible to
achieve significant sales by capturing roughly 5 percent or less and thus not threating
competitors. For example, to achieve a sales level of $1 million in a $100 million market
requires only 1 percent of the market.

However, such a market can also be too large. A multibillion-dollar market in maturity with
long established players can translate into competition from existing players resulting in
lower margins and profitability. Further, an unknown market, or one that is less than $10
million in sales also unattractive.

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4.3. GROWTH RATE

A successful market is always growing. An annual growth rate of 30 to 50 percent creates

riches for new entrants as companies will focus on growth through new customers versus
taking share from competitors. A $100 million market growing at 50 percent per year has the
potential to become a $1 billion industry in only a few years, and if a new venture can capture
just 2 percent of sales in that first year, it can attain sales of $1 million. If it just maintains its
market share over the next few years, sales will grow significantly.

4.4. MARKET CAPACITY

Another signal of desirable market opportunity is full capacity in a growth situation that is
fulfilling demand the existing suppliers cannot meet. Timing is vital, which means the
entrepreneur should be asking, can a new entrant fill that demand before the other players
decide to?

4.5. MARKET SHARE ATTAINABLE

The potential to be a leader in the market and capture at least a 20 percent share can create a
high value for a company. For example, a firm with less than $15 million in sales became
dominant in its small market niche with a 70 percent market share. The company was
acquired for $23 million in cash.

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4.6. COST STURUCTURE

The goal for a firm is to become the low-cost provider and avoid declining revenue
conditions. Attractive opportunities exist in industries where economies of scale work to the
advantage of a new venture. Firms with lower cost customer acquisition costs also allow
room for increased profitability.

For instance, consider the operating leverage of Johnsonville Sausage. Its variable costs were
6 percent labour and 94 percent materials. What aggressive incentives could management put
in place for the 6 percent to manage and to control the 94 percent? Imagine the disasters that
would occur if the scenario were reversed!

A word of caution from Scott W. Kunkel and Charles W. Hofer, who observed, overall,
industry structure . . . had a much smaller impact on new venture performance than has
previously been suggested in the literature. This finding could be the result of one of several
possibilities:

1. Industry structure impacts the performance of established firms, but does not have a
significant impact on new venture performance.
2. The most important industry structural variables influencing new ventures are different
from those which impact established firms and thus research has yet to identify the
industry structural variables that are most important in the new venture environment.
3. Industry structure does not have a significant direct impact on firm performance, as
hypothesized by scholars in the three fields of study. Instead, the impact of industry
structure is strongly mitigated by other factors, including the strategy selected for entry.

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5. ECONOMICS
1. Profits after tax
High and durable gross margins usually translate into strong and durable after tax
profits. Attractive opportunities have potential for durable profits of 10 to 20 percent,
and those with after tax profits of less than 5 percent are quite fragile.

2. Time to Breakeven and Positive Cash Flow

As mentioned previously, breakeven and positive cash flow for attractive companies
are possible within two years. Once the time to breakeven and positive cash flow is
greater than three years, the attractiveness of the opportunity diminishes accordingly.

3. ROI Potential
An important corollary to forgiving economics is reward. Very attractive
opportunities have the potential to yield a return on investment of 25 percent or more
per year. During the 1980s, many venture capital funds achieved only single-digit
returns on investment. High and durable gross margins and high and durable after-tax
profits usually yield high earnings per share and high return on stockholders’ equity,
thus generating a satisfactory harvest price for a company. This is most likely true
whether the company is sold through an initial public offering or privately, or whether
it is acquired. Given the risk typically involved, a return on investment potential of
less than 15 percent to 20 percent per year is unattractive.

10
4. Capital Requirements
Ventures that can be funded and have capital requirements that are low to moderate
are attractive. Realistically, most-higher potential businesses need significant amounts
of cash—several hundred thousand dollars and up—to get started. Businesses that can
be started with little or no capital are rare, but they do exist. One such venture was
launched in Boston in 1971 with $7,500 of the founder’s capital and grew to over $30
million in sales by 1989. In today’s venture capital market, the first round of financing
is typically $1 million to $2 million or more for a start-up. Some higher potential
ventures, such as those in the service sector or “cash sales” businesses, have lower
capital requirements than do high-technology manufacturing firms with large research
and development expenditures. If the venture needs too much money or cannot be
funded, it is unattractive. An extreme example is a venture that a team of students
recently proposed to repair satellites. The students believed that the required start-up
capital was in the $50 million to $200 million range. Projects of this magnitude are in
the domain of the government and the very large corporation, rather than that of the
entrepreneur and the venture capitalist.

5. Internal Rate of Return (IRR) Potential

Is the risk–reward relationship attractive enough? The response to this question can be
quite personal, but the most attractive opportunities often have the promise of—and
deliver on—a very substantial upside of 5 to 10 times the original investment in 5 to
10 years. Of course, the extraordinary successes can yield 50 to 100 times or more,
but these are exceptions. A 25 percent or more annual compound rate of return is
considered very healthy. In the early 1990s, those investments considered basically
risk free had yields of 3 percent to 8 percent.

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 6. Free Cash Flow (FCF) Characteristics
Free cash flow is a way of understanding a number of crucial financial dimensions of
any business: the robustness of its economics; its capital requirements, both working
and fixed assets; its capacity to service external debt and equity claims; and its
capacity to sustain growth. We define unleveraged free cash flow (FCF) as earnings
before interest but after taxes (EBIAT) plus amortization (A) and depreciation (D)
less spontaneous working capital requirements (WC) less capital expenditures
(CAPex), or FCF EBIAT [A + D] – [+ or – WC] – CAPex. EBIAT is driven by sales,
profitability, and asset intensity. Low-asset-intensive, high-margin businesses
generate the highest profits and sustainable growth.

When reading their P&L (profit and loss) reports, business managers must understand
the cash flow characteristics of sales and expenses. They should keep in mind that the
accountant records sales revenue when sales are made — regardless of when cash is
received from customers.

The accountant records expenses to match expenses with sales revenue and to put
expenses in the period where they belong — regardless of when cash is paid for the
expenses. The manager should not assume that sales revenue equals cash inflow, and that
expenses equal cash outflow.

The cash flow characteristics of sales and expense are summarized as follows:

 Cash sales generate immediate cash inflow. Keep in mind that sales returns and sales
price adjustments after the point of sale reduce cash flow.
 Credit sales do not generate immediate cash inflow. There’s no cash flow until the
customers’ receivables are actually collected. There’s a cash flow lag from credit
sales.
 Many operating costs are not paid until several weeks (or months) after they are
recorded as an expense; and a few operating costs are paid before the costs are
charged to expense.
 Depreciation expense is recorded by reducing the book value of an asset and does not
involve cash outlay in the period when it is recorded. The business paid out cash when
the asset was acquired. (Amortization expense on intangible assets is the same.)

7. Gross Margin
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The potential for high and durable gross margins (i.e., the unit selling price less all
direct and variable costs) is important. Gross margins exceeding 40 percent to 50
percent provide a tremendous built-in cushion that allows for more error and more
flexibility to learn from mistakes than do gross margins of 20 percent or less. High
and durable gross margins, in turn, mean that a venture can reach breakeven earlier,
preferably within the first two years. Thus, for example, if gross margins are just 20
percent, for every $1 increase in fixed costs (e.g., insurance, salaries, rent, and
utilities), sales need to increase $5 just to stay even. If gross margins are 75 percent,
however, a $1 increase in fixed costs requires a sales increase of just $1.33. One
entrepreneur, who built the international division of an emerging software company to
$17 million in highly profitable sales in just five years (when he was 25 years old),
offers an example of the cushion provided by high and durable gross margins. He
stresses there is simply no substitute for outrageous gross margins by saying, “It
allows you to make all kinds of mistakes that would kill a normal company. And we
made them all. But our high gross margins covered all the learning tuition and still left
a good profit.” Gross margins of less than 20 percent, particularly if they are fragile,
are unattractive.

Gross margin is a required income statement entry that reflects

total revenue minus cost of goods sold (COGS).  Gross margin is a
company's profit before operating expenses, interest payments and taxes. Gross
margin is also known as gross profit.

Gross margin is important because it reflects the core profitability of a company

before overhead costs, and it illustrates the financial success of a product or service. 

Gross margin is used to calculate gross profit margin, which is calculated by simply

dividing gross margin by total revenue (gross margin / total revenue). Calculating
gross profit margin allows you to compare similar companies to each other and to the
industry as a whole to determine relative profitability. Companies with higher gross
profit margins have a competitive edge over rivals, whether because they can charge a
higher price for good/services (as reflected in higher revenues) or because they pay
less for direct costs (as reflected in lower costs of goods sold).

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8. Time to Breakeven- Cash Flow and Profit & Loss
New businesses that can quickly achieve a positive cash flow and become self-
sustaining are highly desirable. It is often the second year before this is possible, but
the sooner the better. Obviously, simply having a longer window does not mean the
business will be lousy. TCL is a Chinese home appliances producer that now enjoys a
significant share of Vietnam’s TV market alongside more well-known brands like
Samsung, Sony, and Panasonic. However, when it first entered Vietnam in 1998, it
took TCL three years to gain the trust of Vietnamese consumers before it started to
breakeven.

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6. HARVEST ISSUES

1. Value-Added Potential
New ventures that are based on strategic value in an industry, such as valuable
technology, are attractive, while those with low or no strategic value are less
attractive. For example, most observers contend that a product technology of
compelling strategic value to Xerox was owned, in the mid-1980s, by a small
company with about $10 million in sales and showing a prior-year loss of $1.5
million. Xerox purchased the company for $56 million. Opportunities with extremely
large capital commitments, whose value on exit can be severely eroded by
unanticipated circumstances, are less attractive. Nuclear power is a good example.
Thus one characteristic of businesses that command a premium price is that they have
high value added strategic importance to their acquirer, such as distribution, customer
base, geographic coverage, proprietary technology, contractual rights, and the like.
Such companies might be valued at four, five, or even six times (or more) last year’s
sales, whereas perhaps 60 percent to 80 percent of companies might be purchased at .
75 to 1.25 times sales.

2. Valuation Multiples and Comparable

Consistent with the previous point, there is a large spread in the value the capital
markets place on private and public companies. Part of your analysis is to identify
some historical boundaries for valuations placed on companies in the
market/industry/technology area you intend to pursue.

3. Exit Mechanism and Strategy

Businesses that are eventually sold privately or to the public or acquired, usually are
started and grown with a harvest objective in mind. Attractive companies that realize
capital gains from the sale of their businesses have, or envision, a harvest or exit
mechanism. Unattractive opportunities do not have an exit mechanism in mind.
Planning is critical because, as is often said, it is much harder to get out of a business
than to get into it. Giving some serious thought to the options and likelihood that the
company can eventually be harvested is an important initial and ongoing aspect of the
entrepreneurial process.

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4. Capital Market Context
The context in which the sale or acquisition of the company occurs is largely driven
by the capital markets at that particular time. Timing can be a critical component of
the exit mechanism because, as one study indicated, since World War II, the average
bull market on Wall Street has lasted just six months. For a keener appreciation of the
critical difference the capital markets can make, one only has to recall the stock
market crash of October 19, 1987, the bank credit crunches of 1990–1992 and 2007,
or the bear market of 2001–2003. By the end of 1987, the valuation of the Venture
Capital 100 index dropped 43 percent, and private company valuations followed.
Initial public offerings are especially vulnerable to the vicissitudes of the capital
markets; here the timing is vital. Some of the most successful companies seem to have
been launched when debt and equity capital were most available and relatively cheap.

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7. COMPETITIVE ADVANTAGE ISSUES

A competitive advantage is an advantage over competitors gained by offering consumers

greater value, either by means of lower prices or by providing greater benefits and service
that justifies higher prices. When a firm sustains profits that exceed the average for its
industry, the firm is said to possess a competitive advantage over its rivals. The goal of much
of business strategy is to achieve a sustainable competitive advantage. Michael Porter
identified two basic types of competitive advantage cost advantage .A competitive advantage
exists when the firm is able to deliver the same benefits as competitors but at a lower cost
(cost advantage), or deliver benefits that exceed those of competing products (differentiation
advantage). Thus, a competitive advantage enables the firm to create superior value for its
customers and superior profits for itself.

Cost and differentiation advantages are known as positional advantages since they describe
the firm's position in the industry as a leader in either cost or differentiation. A resource-
based view emphasizes that a firm utilizes its resources and capabilities to create a
competitive advantage that ultimately results in superior value creation. The following
diagram combines the resource-based and positioning views to illustrate the concept of
competitive advantage.

How Companies through which get Competitive advantages:

Any business with a competitive advantage is able to attract more customers than its
competitors by having some special factor that no one else possesses. The key to capturing
competitive advantage is knowing what your customers want and finding a way to give it to
them. Very few sources of competitive advantage last very long however, so businesses are
engaged in a never ending search to find new angles to beat their competitors.

It’s all about finding some way of differentiating products and services from other offerings.
The whole purpose of business strategy is to find new sources of competitive advantaged will
present you the four main competitive advantages. Remember that even so you can probably
be the best only at one of them, you still need to be good enough in all the others. The one
that you are the best in is the winning factor and all the others are the qualifying factors. Why

17
qualifying and why winning because the winning factor makes you win on the market and the
qualifying factors keep you in the game.

 Ideas are a dime a dozen. Perhaps one out of a hundred becomes a truly great
business, and one in 10 to 15 becomes a higher-potential business. The complex
transformation of an idea into a true opportunity is akin to a caterpillar becoming a
butterfly.
 High-potential opportunities invariably solve an important problem, want, or need that
someone is willing to pay for now. In renowned venture capitalist Arthur Rock’s
words, “I look for ideas that will change the way people live and work.”
 There are decided patterns in superior opportunities, and recognizing these patterns is
an entrepreneurial skill aspiring entrepreneurs need to develop.
 Rapid changes and disruptions in technology, regulation, information flows, and the
like cause opportunity creation. The journey from idea to high-potential opportunity
requires navigating an undulating, constantly changing, three-dimensional relief map
while inventing the vehicle and road map along the way.
 Some of the best opportunities actually require some of the least amounts of capital,
especially via the Internet.
 The best opportunities often don’t start out that way. They are crafted, shaped,
moulded, and reinvented in real time and market space. Fit with the entrepreneur and
resources, the timing, and the balance of risk and reward govern the ultimate
potential.
 The highest-potential ventures are found in high growth markets, with high gross
margins, and robust free cash flow characteristics, because their underlying products
or services add significantly greater value to the customer, compared with the next
best alternatives.
 Trial and error, or learning by doing alone, is not enough for developing breakthrough
ventures, which require experience, creativity, and conceptualizing.

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7.1. COMPETITIVE ADVANTAGE ISSUE

1. Variable and Fixed Cost

An attractive opportunity usually requires the lowest marketing and distribution cost and
can be the lowest-cost producer. Being unable to achieve and sustain a position as a low-
cost producer. Being unable to achieve and sustain a position as a low-cost producer
shortens the life expectancy of a new venture.

For example, Bowman was unable to remain competitive in the market for electronic
calculators after the producers of large-scale integrated circuits, such as Hewlett-Packard,
entered the business. Being unable to achieve and sustain a position as a low-cost
producer shortens the life expectancy of a new venture.

2. Degree of Control Attractive

Attractive opportunities have potential for moderate to strong control over prices, costs,
and channels of distribution. Fragmented markets where there is no dominant competitor
have this potential. These markets usually have a market leader with a 20 percent market
share or less.

For example, sole control of the source of supply of a critical component for a product or
of channels of distribution can give a new venture market dominance even if other areas
are weak.

Lack of control over such factors as product development and component prices can
make an opportunity unattractive. For example, in the case of Viatron, its suppliers were
unable to produce several of the semiconductors the company needed at low enough
prices to permit Viatron to make the inexpensive computer terminal that it had publicized
extensively.

19
 A market where a major competitor has a market share of 40 percent or more usually
implies a market where power and influence over suppliers, customers, and pricing create
a serious barrier and risk for a new firm. Such a firm will have few degrees of freedom.

However, if a dominant competitor is at full capacity, is slow to innovate or to add

capacity in a large and growing market, or routinely ignores or abuses the customer
(remember “Ma Bell”), there may be an entry opportunity. This way in is rare, however,
when competing against dynamic, emerging industries dense with opportunity.

3. Entry Barriers
Having a favourable window of opportunity is important. Having or being able to gain
proprietary protection, regulatory advantage, or other legal or contractual advantage, such
as exclusive rights to a market or with a distributor, is attractive. Having or being able to
gain an advantage in response/lead times is important because these can create barriers to
entry or expansion by others. For example, advantages in response/lead times in
technology, product innovation, market innovation, people, location, resources, or
capacity make an opportunity attractive.

Possession of well-developed, high-quality, accessible contacts that are the product of

years of building a top-notch reputation and that cannot be acquired quickly is also
advantageous. Sometimes this competitive advantage may be so strong as to provide
dominance in the marketplace, even though many of the other factors are weak or
average.

If a firm cannot keep others out or if it faces already existing entry barriers, it is
unattractive. An easily overlooked issue is a firm’s capacity to gain distribution of its
product. As simple as it may sound, even venture-capital-backed companies fall victim to
this market issue. Air Florida apparently assembled all the right ingredients, including
substantial financing, yet was unable to secure sufficient gate space for its airplanes. Even
though it sold passenger seats, it had no place to pick the passengers up or drop them off.

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8. MANAGEMENT TEAM ISSUES

Entrepreneurial Team Attractive opportunities have existing teams that are strong and
contain industry superstars. The team has proven profit and loss experience in the same
technology, market, and service area, and members have complementary and compatible
skills.

1. Entrepreneurial Team
Attractive opportunities have existing teams that are strong and contain industry
superstars. The team has proven profit and loss experience in the same technology,
market, and service area, and members have complementary and compatible skills.
An unattractive opportunity does not have such a team in place or has no team.

2. Industry and Technical Experience

A management track record of significant accomplishment in the industry, with the
technology, and in the market area, with a proven profit and lots of achievements
where the venture will compete is highly desirable. A top-notch management team
can become the most important strategic competitive advantage in an industry.
Imagine relocating the Chicago Bulls or the Phoenix Suns to Halifax, Nova Scotia.

3. Integrity
Trust and integrity are the oil and glue that make economic interdependence possible.
Having an unquestioned reputation in this regard is a major long-term advantage for
entrepreneurs and should be sought in all personnel and backers. A shady past or
record of questionable integrity is for B team players only.

4. Intellectual Honesty
There is a fundamental issue of whether the founders know what they do and do not
know, as well as whether they know what to do about shortcomings or gaps in the
team and the enterprise.

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9. PERSONAL CRITERIA

1. Opportunity cost
In the pursuit of any business opportunity costs should be evaluated as a potentially
successful entrepreneur talent is appreciated by mature companies as well. Any new
activity results should be considered with the exception of economic opportunity to
really understand the cost. To move forward, every entrepreneur should always have
the foresight and insight in yourself. Entrepreneurs like this will always see their
surroundings whether in the area of threat or opportunity for businesses as well as
wise in overcoming whatever obstacles and always take the wisdom behind the
allegation that there is a challenge in life. They have wisely decided to give up
something good for the sake of getting better.

2. Goals and fit

Goals and fit should be a good match between business needs and what the founders
want from it. The result-oriented entrepreneur who always emphasizes the quality of
the work done that can give a competitive advantage from competitors and can bring
more lucrative results. Through results-oriented entrepreneur characteristics, they will
try to come to a quality product that can meet the needs and requirements of
customers as well as viable. This entrepreneur is also able to customize their own
goals and objectives of the company. Additionally, they will adjust to what the
business can afford.

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3. Upside/Downside Issues
An attractive opportunities has significant upside and limited downside risk. An
entrepreneur needs to be able to absorb the financial downside in such way that he or
she can rebound without becoming indentured to debt obligations. If an entrepreneurs
financial exposure in launching the venture is greater than his or her net worth the
resources he or she can reasonably draw upon, that his or her disposable earnings
stream alternative if it does not work out the deal may be too big. An existing
business needs to consider if a failure will be too demeaning to the firm's reputations
and future credibility, aside from the obvious financial consequences. Entrepreneurs
who will be proactive foresight and strives to innovate its business. Proactive means
that drawing up a positive attitude and the control measures taken earlier than
expected that will happen. As a successful entrepreneur, this attitude is very important
and should be practiced in the business. As entrepreneurs, they need to quickly and
intelligently in making business strategy so that any errors can be corrected in its
business operations as quickly as possible.

4. Risk/Reward Tolerance
Successful entrepreneurs take only calculated risks and avoid risks they do not need to
take. The real issues is fit, recognizing that risk is part of a start-up and the right
balance needs to be struck. Entrepreneurship is an individual's normal, but that set
entrepreneurs is their own internal attitude. They are the kind of people who are
willing to risk in any case for a success in life. Thus, an entrepreneur should possess
good risk takers for the sake of success in life. The attitude of risk aversion should be
imbibed with knowledge and understanding of how to assess and manage the risks
involved. In recent years, risk management is increasingly emphasized in the
management of the business. Through certain methods, management can determine

23
 whether a risk is high, medium or low level, and it may be the company's
management to take action commensurate with the risk involved.

10. STRATEGIC DIFFERENTATION

Approach under which a firm aims to develop and market unique products for different
customer segments. Usually employed where a firm has clear competitive advantages, and
can sustain an expensive advertising campaign. It is one three generic marketing strategies
(see focus strategy and low cost strategy for the other two) that can be adopted by any firm.
See also segmentation strategies.

1. Degree of fit
To what extent is there a good fit among the driving forces (founders and team,
opportunity, and resources requirements) and the timing given the external
environment.

2. Team
There is no substitutes for an absolutely top-quality team. The execution of and the
ability to adapt and to devise constantly new strategies are vital to survival and
success.

3. Timing
From business to historic military battles to political campaigns, timing is often the one
elements that can make a significant difference. Time can be enemy or a friend: being
too clear or too late can be fatal. The key is to row with the tide, not against it.

4. Technology
A breakthrough, proprietary product is no guarantee of business success, but it can
create a competitive advantage.

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5. Flexibility
Maintaining the capacity to commit a un-commit quickly, to adapt, and to abandon if
necessary is a major strategic weapon, particularly when competing with larger
organizations.

6. Pricing
One common mistake of new companies with high value added products or services in
a growing market is to under-price. In 30 percent gross margin business, a 10 percent
price increase results in a 20 percent to 36 percent increase in gross margin and will
lower the breakeven sales level for a company with $900,000 in fixed costs to 2.5
million from $3 million. At the $3 million sales level, the company would realize an
extra $180,000 in pre-tax profits.

7. Distributions channel
Access to distributions channels is sometimes overlooked or taken for granted. New
channels of distribution can leapfrog traditional channels, but at the same time take
long periods of time to set up and develop.

8. Room for error

How forgiving is the business and the financial strategy? How wrong can the team be
in estimates of revenue costs, cash flow, timing and capital requirements? How bad
can things get with the firm still able to survive?

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11. CONCLUSION

As a conclusion, screening opportunities are important before starting a business because we

can recognize opportunities that can be taken. Starting a business without screening an
opportunities leave high risk to failure. It is important to come up with a short list of a few
very promising opportunities, which could scrutinized in detail.

So screening opportunities make us easier to plan on how on what to create a business.

Screening opportunities help entrepreneurs know what product or service that they must
create to take the opportunity.

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12. REFERENCES

 Kelley, H. H., & Thibaut, J. W. (1978). Interpersonal relations: A theory of

interdependence. New York

 Kogan, N., & Wallach, M. A. (1964). Risk taking: A study of cognition and
personality.
New York: Holt, Rinehart, & Winston.

 Latane, B., & Darley, J. M., Jr. (1970). The unresponsive bystander: Why doesn't he
help? New York: Appleton-Century-Crofts

 McClelland, D. C. (1961). The achieving society. Princeton: Van Nostrand.


 McClelland, D. C. (1987). Characteristics of successful entrepreneurs. Journal of
Creative Behavior 21 219-233.

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