1. SMALL BUSINESS MANAGEMENT
Chapter 3
Evaluation of a Business Opportunity

2. CHAPTER OBJECTIVES
1. To review the nonquantitative aspects of evaluating business opportunities.
2. To introduce the methods by which an entrepreneur can enter a market with a product or service.
3. To discuss the types of information available to assist in the quantitative analysis to select a small business and illustrate how that information can be used.
4. To discuss ways that the entrepreneur can develop a strategic competitive advantage.
5. To provide a systematic way to quantitatively assess an industry and evaluate the financial feasibility of a specific small business opportunity.

3. Non-Quantitative Assessment of Business Opportunities Wikes case
Goals
Financial and occupational status
Content of Work
Lifestyle
Capabilities
Good health, management fundamentals, financial base
Experience
IE Sunblush Technologies
Wikes Video Case – How are above factors illustrated in his case
Show Wikes Video

4. Breaking Into The Market
Three Ways
offer a totally new product
Muttluks
offer an existing product to a different market
Earthbuddy - Israel
offer a product or service similar to those existing in the same market
Oil change specialists
How did they break into the market ?
Java nook, Earthbuddy, Wikes, American Clothing

5. Developing a Strategic Competitive Advantage
the right industry
Owners attention to daily operations
Contact with employees
Demand is small or local
Require flexibility
More labor less capital
Govt. encouragement
the right business
Growth areas
the right aspect of the business
Flexibility, innovation, location , price etc

6. Collection of Information
Sources of Information
Secondary data
Primary data
observations
surveys
mail surveys, telephone surveys, personal interviews, focus groups
test marketing
Do question 6 in text
There are two general types of information available to aid a potential small business owner in selecting a small business. The first and most inexpensive method is collecting secondary research on a potential market. There are many government documents and other sources that can provide valuable secondary data. When there is a lot of money at stake or no current secondary data the prospective small business owner can collect primary data to help determine the feasibility of his business.
Primary data is information that is collected through one's own research. Although it is usually more costly, it can be more relevant and current to the analysis. There are three general methods of doing primary research: observation, survey, and experimentation. Surveying seems to be the most commonly used method for small businesses.

7. Design a simple mail questionnaire to assess demand for a carpet cleaning business in your city.
Question 6. Design a simple mail questionnaire to assess demand for a carpet cleaning business in your city.
Answer: Applications question - answer dependent on student choice but a sample questionnaire is provided here.
1. How often do you normally have your carpets professionally cleaned? If your answer is never, end of questionnaire. If answer is yes, fill out the rest of the questionnaire.
Never _____
Less than once a year _____
Once a year _____
Twice a year _____
Three times a year _____
More than three times a year _____
2. The last time you had your carpets cleaned, what was the approximate cost?
3. Are you going to have your carpets cleaned again in the near future?
Yes _____
No _____
Demographic Information:

8. Once the Qualitative analysis is done ------ do _________ analysis
Is it _________ feasible?????
Beermits case – how to determine _________

9. Quantitative Assessment of Business Opportunities
Preparing the Feasibility Analysis
Step One - Calculate the Market Potential
Step Two - Calculate the Market Share
Step Three - Calculate the Net Income and Cash Flow

10. Quantitative Assessment of Business Opportunities
Step One - Calculate the Market Potential
Determine the market area and its population
Obtain revenue , (sales) statistics for the product or service in the area
Adjust the market potential total as necessary

11. Quantitative Assessment of Business Opportunities
Step Two - Calculate the Market Share
Retail Firm
1. Estimate the total amount of selling space in the market devoted to the merchandise the new business will sell
2. Estimate the size of the proposed store
3. Calculate the market share based on selling space

12. Quantitative Assessment of Business Opportunities
Step Two - Calculate the Market Share
Retail Firm (cont)
4. Make adjustments to reflect any competitor strengths and weaknesses regarding the proposed store
5. Multiply the revised market share percentage by the market potential estimate obtained in step 1.

13. Quantitative Assessment of Business Opportunities
Step Two - Calculate the Market Share
Manufacturing Firm
1. Estimate the total productive capacity in the market for the product to be manufactured.
2. Estimate the total productive capacity of the proposed manufacturing plant.
3. Calculate the market share based on productive capacity.

14. Quantitative Assessment of Business Opportunities
Step Two - Calculate the Market Share
Manufacturing Firm (cont.)
4. Make adjustments to reflect competitive strengths and weaknesses the competitive plant may possess
5. Multiply the estimated market share percentage by the market share potential estimate obtained in Step One.

15. Quantitative Assessment of Business Opportunities
Step Two - Calculate the Market Share
Service Firm
1. Estimate the total capacity of the service available in the market area.
2. Estimate the service capacity of the proposed business.
3. Calculate the market share based on the capacity base.

16. Quantitative Assessment of Business Opportunities
Step Two - Calculate the Market Share
Service Firm (cont.)
4. Make adjustments similar to those made for a retail store.
5. Multiply the revised market share percentage by the market potential estimated in Step One.

17. Quantitative Assessment of Business Opportunities
Step Three - Calculate net income and cash flow
1. Using the market share from Step Two, calculate the expenses expected
cost of goods sold and gross profit percentages; cash operating expenses; interest and depreciation
2. Subtract expenses from revenue to determine projected net income in the first year and subsequent years.

18. Petite Shop A & B

19. Self Assessment for a Small Business Opportunity
Personality
Nature
Abilities
Experience
Financial base
Feasibility

20. Concept Checks
1. What non-quantitative factors should be considered in the selection of a small business?
2. What are three ways of entering the market?
3. What are two methods of collecting information? In what situations would they be most useful?

21. Concept Checks
4. What are the three methods of collecting primary data? Which is the most relevant to a small business?
5. What steps are involved in determining the financial feasibility of a retail store?

22. PETITE SHOP "A"
Using the information provided, prepare an estimate of the market potential for the target market Alice Wood is aiming at.
What portion of this market potential could Alice expect for Petite Shop's market share?
What non quantitative considerations should be brought into this analysis?

23. PETITE SHOP "B"
Question 1. Using the information presented in Petite Shop "A" and this case prepare an estimated income statement and return on investment calculation for Petite Shop's first year of operation.
Question 2. What areas has Alice overlooked in her investigation?
Question 3. Given your analysis, what would you recommend to Alice?