Essentials of Entrepreneurship: A Practical Approach
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General Entrepreneurship
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Analyzing New Ventures
An entrepreneur may have several ideas that he or she would like to pursue. In such a situation, the entrepreneur needs to decide which idea to pursue.
One technique for deciding which idea to pursue that can be used is the Business Evaluation Scoring Technique (BEST) that was developed by E. E. Williams.
The technique requires the entrepreneur to answer the
following questions:
1. Is the business really differentiated?
| a. | Is the profit adequate for the entrepreneur and capitalists? |
| b. | What are the obstacles? |
| c. | What is the product (service) niche? |
| d. | Can entry barriers be created? |
| e. | Who will control economic rents (suppliers, customers, the entrepreneur)? |
2. Does the opportunity offer growth options for the future?
| a. | Mom and Pop businesses |
| b. | High pay, stable businesses |
| c. | True growth businesses |
3. Will it require capital?
| a. | What resources does the entrepreneur have? |
| b. | Can it be "boot strapped"? |
| c. | Importance of outsourcing |
| d. | Role of "sweat equity" |
4. Can financing be secured?
| a. | Is borrowing possible? |
| b. | Is "Other People's Money" available |
| c. | Is the business explainable to investors |
| d. | How will the business be harvested |
5. Does it suit your entrepreneurial profile?
| a. | Optimal "first ventures" |
| Getting experience | |
| Getting credibility | |
| Getting capital | |
| b | Execution may be more important than the idea itself |
The entrepreneur needs to assign a value from 1 - 5 for each of the questions with 5 being the highest value and 1 being the lowest. Note that for question 3 the more capital required the lower the value used.
Then the scores for each item are summed to provide a total. The idea can be evaluated using the following rules.
| 20 – 25 | Excellent prospects | Must try |
| 15– 19 | Very good prospects | Should try |
| 11—14 | Reasonable prospects | Try if nothing else available |
| Under 10 | Poor prospects | Avoid this loser |
As an example, consider the company Hometown Favorites.
A niche market is a small segment within a larger market. Some pure-play e-retailers, such as Hometown Favorites, succeed by avoiding competition with larger e-businesses and, instead, target a niche market. Founded in 1996, Hometown Favorites specializes in hard-to-find, old-time favorite foods – My-T-Fine pudding, Maypo cereal, Walnettos candy, and so forth – popular in the 1950s, 1960s, and 1970s , and rarely found on grocery shelves today. With annual sales in excess of $1.5 million, Hometown Favorites remains profitable by offering more than1,000 nonperishable, and nonrefrigerated products to a niche market of individual and corporate customers around the world.The company's web site is located at www.hometownfavorites.com.
If the entrepreneur had used the BEST method to evaluate the idea, the following rating might have occurred:
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Is the business really differentiated? |
4 |
| Does it have growth potential? | 4 |
| Will it require capital? | 4 |
| Can financing be secured? | 4-5 |
| Does it suit your entrepreneurial profile? | 5 |
| Total | 21-22 |
With the resulting overall score, then this is a must try idea.
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