2.

OPPURTUN
ITY
SCREENIN
A guide for first-time entrepreneurs

G
 2.2 OPPORTUNITY
SCREENING
After opportunity seeking comes the rigorous process of
Opportunity Screening. Because of the many
opportunities possible for the entrepreneur, it is important
to come up with a short list of a few very promising
opportunities, which could be scrutinized in detail.

Big Spark Solutions | 2020

THE PERSONAL SCREEN
In screening opportunities, the entrepreneur first has to consider his or her
preferences and capabilities by asking three basic questions:

1. Do I have the drive to pursue this business opportunity to the end?

2. Will I spend all my time, effort, and money to make the business opportunity
work?

3. Will I sacrifice my existing lifestyle, endure emotional hardship, and forego my

usual comforts to succeed in this business opportunity?

If “YES” is your answer to all of the above, then you can begin your earnest pursuit of
that opportunity. At the simplest level, the entrepreneur may want to make a risk-return
grid (Table 2.2.) shown as follows:
TABLE 2.2
RIS
K
LOW RISK MEDIUM RISK HIGH RISK
RETURN

RISK-RETURN HIGH RETURN Best Good Fair

GRID FOR
SCREENING MEDIUM
RETURN
Good Fair Bad

OPPORTUNITIES
LOW RETURN Fair Bad Worst
THE 12 RS OF OPPORTUNITY
SCREENING
1. Relevance to vision, mission, and objectives of the entrepreneur. The opportunity must be
aligned with what you have as your personal vision, mission, and objectives for the enterprise
you want to set up.

2. Resonance to values. Other than vision, mission, and objectives, the opportunity must match
the values and desired virtues that you have or wish to impart.

3. Reinforcement of Entrepreneurial Interests. How does the opportunity resonate with the
entrepreneur‘s personal interests, talents, and skills?

4. Revenues. In any entrepreneurial endeavor, it is important to determine the sales potential of the
products or services you want to offer. Is there a big enough market out there to grab and nurture for
growth?
THE 12 RS OF OPPORTUNITY
SCREENING
5. Responsiveness to customer needs and wants. If the opportunity that you want to pursue
addresses the unfulfilled or underserved needs and wants of customers, then you have a better
chance of succeeding.

6. Reach. Opportunities that have good chances of expanding through branches, distributorships,
dealerships, or franchise outlets in order to attain rapid growth are better opportunities.

7. Range. The opportunity can potentially lead to a wide range of possible product or service
offerings, thus, tapping many market segments of the industry.

8. Revolutionary Impact. If you think that the opportunity will most likely be the “next big thing” or
even a game-changer that will revolutionize the industry, then there is a big potential for the chosen
opportunity.
THE 12 RS OF OPPORTUNITY
SCREENING
9. Returns. It is a fact that product with low costs of production and operations but are sold at
higher prices will definitely yield the highest returns on investments. Returns can also be
intangible; meaning, they come in the form of high profile recognition or image projection.

10. Relative Ease of Implementation. Will the opportunity be relatively easy to implement for
the entrepreneur or will there be a lot of and competency gaps to overcome?

11. Resources Required. Opportunities requiring fewer resources from the entrepreneur may be more
favored than those requiring more resources.

12. Risks. In an entrepreneurial endeavor, there will always be risks. However, some opportunities
carry more risks than others, such as those with high technological, market, financial, and people risks.
TABLE 2.3
OPPORTUNITY SCREENING MATRIX
These 12 criteria can be better managed if quantified and formed into a matrix to help the
entrepreneur concretize the evidence that the chosen opportunity (or opportunities) is well worth
pursuing.
TABLE 2.3
OPPORTUNITY SCREENING MATRIX
 THE PRE-FEASIBILITY STUDY
The ultimate goal of doing the opportunity screening matrix is to narrow down the many opportunities
into one or two most attractive ones. The next step is to conduct a pre-feasibility study to ascertain the
viability of the opportunity. The idea is to focus on a few key items that could make or break the business
concept. This time, the entrepreneur must go down to the details and take time to consider the following
factors that are contained in pre-feasibility study:

• Market potential and prospects

• Availability and appropriateness of technology
• Project investment and detailed cost estimates
• Financial forecast and determination of financial feasibility
MARKET POTENTIAL AND
PROSPECTS
Market potential is based on the estimated number of possible customers who
might avail of the product or service. For a more realistic number, it would help
to narrow down your estimation to the relevant population or target customers in
the area where you want to operate your business (micromarket).

In addition, the entrepreneur must take note that the total market for these
products is usually not the issue. Basic needs tend to be commodities or
“commoditized”. Customers have the luxury of choosing among basic needs
suppliers. That is why these suppliers try very hard to differentiate themselves
from one another by dividing the huge market into many customer segments.
 01 their purchasing power or disposable income

The customers would,

oftentimes, make to final
choice on what to buy
according to several factors
02 their proximity or accessibility to the goods or services
03 their individual desires and preferences
04 their age or generational grouping

such as: 05 their social, cultural, or ethnic background

06 their peer group preferences

07 their gender

08 season of the year

 08 the season of the year

The customers would, 09 their personal identification with trend setters

oftentimes, make to final 10 their educational attainment

choice on what to buy

11 their technical proficiency and product expertise
according to several factors
such as: 12 their motivational impetus

13 their lifestyle preferences

their susceptibility to certain advertising and

14
promotional appeals, and many others
SEGMENTING THE MARKET
Using a set of demographics (e.g., gender, age, place of residence, income
class, etc.) will be the most basic approach in determining the target segment.
Keep in mind that some general statistics for these demographics can be found
online. If you want to go into more details, then you might have to look into other
specific classifications that are relevant to the market you are targeting such as
the psychological profiling and lifestyle preferences of the different customer
segments.

In this regard, the entrepreneur must be able to do actual field research like
surveys, focus group discussions, in-depth interviews, observation techniques,
etc.
ASSESSING COMPETITION
Market potential is also affected by the number of establishments supplying
and serving your target customers. This process would determine how saturated
the market is in the given area coverage. The more suppliers and competitors
there are within a confined area, the greater level of saturation.

On the one hand, it would be best for the entrepreneur to keep out of a market
where competition is fierce. On the other hand, some entrepreneurs prefer to
enter the biggest richest, and most competitive markets in order to achieve high
visibility and growth potential.
ESTIMATING MARKET SHARE
AND After SALES
estimating the number of potential target market or segment, the next
thing that the entrepreneur should assess is the potential market share he or she
can attract.

In a pre-feasibility study, the most important task is to quantify the market

potential in a systematic way. The first thing that the entrepreneur must do is to
define the market coverage or reach he or she wants to serve. Second, the
entrepreneur must determine the broad market segments within this area or total
targeted population. In a first level attempt at quantifying the market, the
entrepreneur could select such broad categories like, gender, age, and income
class.
In the assessment of market potential, the entrepreneur should evaluate
the relative strength of the various suppliers or competitors in the
marketplace by asking the following questions:

• Who has dominance?

• Who has greater bargaining power?

• Which segments of the total market are saturated and over served and
which ones are relatively underserved?

• Are there market segments which are more attractive than others for
the entrepreneur, either because of past expertise in the segment or
weaker competition in the segment?
ESTIMATING MARKET SHARE
AND SALES
The final task of the entrepreneur in this portion of the pre-feasibility study is to
determine what slice or share of the targeted market segment he or she wants to
carve out. Without a very definite product formulation or service proposition, this
requires some “educated guessing” or intuitive insightfulness.

Having determined the forecast or derived market share, the entrepreneur

should then estimate potential sales. The sales forecast can be computed using the
following formula: (Estimated Sales Volume x Estimated Price).
 TECHNOLOGY ASSESSMENT AND
OPERATIONS VIABILITY
In order to get the enterprise going, the entrepreneur must go through the intricacies of
detailing the operations that would be required by the business, which also includes technology
assessment. There are at least four target customer expectations affecting the scale and complexity
of an enterprise’s operations:

1. Quantities demanded. This would determine the needed capacity of operations.

2. Quality specifications demanded. This would dictate the following: (a) quality of input or raw
materials; (b) quality assurance process in transforming input to output; (c) quality output that
meet the operations, standards set; and (d) quality outcomes for the customers who will be
looking for specific results.
TECHNOLOGY ASSESSMENT AND
OPERATIONS VIABILITY

3. Delivery expectations. Knowing how much, how frequent, and when to deliver to
customers.

4. Price expectations. The selling price of the product or service would be evaluated by the
customers according to the value they would receive (in terms of quality, delivery, and
quantity) and this value added should be matched against competitors.
 INVESTMENT REQUIREMENTS AND
PRODUCTION/SERVICING COSTS
Now comes the challenging part, the entrepreneur needs to determine how much money is
needed to start the business opportunity with consideration to the technologies and operating
levels required. In this respect, there are three investments that need to be funded:

1. Pre-Operating Costs. These are the costs related to the preparation for the launch of the
business. These include the pre-feasibility study, in-depth feasibility study, market research,
product development, organizational development, and initial promotional costs.

2. Production/Services Facilities Investment. This refers to the long-term investment for the
actual business establishment, including investment in land, buildings, machinery, equipment,
computers, software, furniture, vehicles, etc.
3. Working Capital Investment. This includes the investment needed to operationalize the
business, composed of cash, accounts receivable, and inventories (raw materials, work-in-
process, and finished goods). The entrepreneur must see to it that he or she has enough cash to
cover the inventories to be purchased (or manufactured), the accounts receivable to
accommodate customers, and the operating expenses to be incurred. These operating expenses
would include the following:
a. Employee salaries, wages, and benefits
b. Rent and lease expenses
c. Utilities
d. Transportation
e. Fees and licenses
f. Commissions
g. Office supplies, etc.

In effect, this part of the pre-feasibility study asks two questions:

• Do I have enough resources to cover the necessary investments?

• Would my sales estimates be significantly higher than my monthly
production/service costs in order to produces profits?
FINANCIAL FORECASTS AND DETERMINATION OF
FINANCIAL FEASIBILITY
Upon completing the first three parts of the pre-feasibility study, the
entrepreneur should now be able to proceed in constructing his or her enterprise’s
financial forecasts for the business. The financial forecasts refer to the monetary
transactions that the business is expected to engage in. Ultimately, the end result
of the financial forecasts will indicate the feasibility of the enterprise.

Financial forecasting calls for the creation of the four critical financial
statements: namely, (1) income statement; (2) balance sheet; (3) cash flow
statement; and (4) funds flow statement. The marketing strategy and action
program should translate into revenue or sales forecasts. The operations strategy
and the production or service delivery program should translate into forecasts of
costs of goods produced.
 INCOME STATEMENT
The income statement is a financial statement that measures an enterprise’s performance in
terms of revenue and expenses over a certain period. Simply put, the formula is:

REVENUES - EXPENSES = INCOME OR PROFIT (LOSS)

From revenues forecasted (quantities sold times the prices they are sold for), the
entrepreneur must subtract the estimated cost of goods sold corresponding to the forecasted
sales. This should give the gross profit. From the gross profit, the operating expenses must be
deducted to arrive at the operating profit. Them, the taxes due are subtracted to derive the net
profit after taxes. If the enterprise has non-operating revenues and expenses, these should be
added or subtracted from the operating profit before the taxes are computed. An example of a
simple income statement is shown in Table 2.4.
 BALANCE SHEET
Creating the balance sheet is a bit more complicated because one has to look at three different
things: assets, liabilities, and equities.

Assets represent all the investments in the enterprise including the initial investments that you
considered in the pre-feasibility study (investment requirements). These include cash (on hand
and in bank), accounts receivable, inventory of goods, equipment and machinery, facilities,
vehicles, etc.

Financing the aasets or investments are the liabilities and equity. Liabilities represent the
enterprise’s debt to suppliers, to banks, to government, to employees, and other financiers.
Stockholders’ equity represents the investors’ investments in the stock (or shares) of the business.

The balance sheet equation is:

ASSETS = LIABILITIES + EQUITY
 The equation means that the resources invested into the enterprise in the form of liabilities and
stockholders’ equity bust be equal to the total value of the assets or the enterprise itself. An
example of a simple balance sheet is shown in Table 2.5.
 FINANCIAL RATIOS AND MEASUREMENTS

In any business endeavor, the investor or the entrepreneur himself or herself will always be
interested in knowing the payback period or how long will it take for him or her to get back what
he or she has invested in the enterprise.

However, payback period is just one of the many financial computations one can take a
look at in considering a particular business opportunity. But this will only be possible if the
entrepreneur can come up with financial statements. The income payback period can computed as
follows:

TOTAL INVESTMENT
PAYBACK PERIOD =
ANNUAL NET INCOME
 To compute for the income payback period based on ABC Companys’s financial
statements, which specify investments 1,500,00 and net income after taxes of 500,000 a year, we
can conclude that it would take around 3 years for the company to recover the investment.

1,500,000
INCOME PAYBACK = 3 YEARS
PERIOD = 500,000

In the Cash Payback Period, the entrepreneur should add back the non-cash deductions
from the income statemet, which is the depreciation expense. Thus, if the depreciation expense is
250,000 a year, the net income after taxes plus depreciation would amount to 750,000 a year. This
would then represent a cash payback period of two years only.
 In effect, the faster you are able to earn back the money invested, the better it is for the
entrepreneur and the more attractive the business opportunity becomes.

There is also the return on sales (ROS) ratio where the entrepreneur calculates how much
profit the enterprise is earning for each peso sold. The formula is as follows:
NET PROFIT AFTER TAXES
RETURN ON SALES =
SALES

Substituting the variables into ABC Company’s estimated figures:

500,000
RETURN ON SALES = = 10%
5,O00,000
 Furthermore, if the entrepreneur is interested to know the return on the investments made,
which come in the form of assets, then he or she can compute for the return on assets (ROA) or
return on investments (ROI) shown by the formula

NET PROFIT AFTER TAXES

RETURN ON ASSETS or RETURN ON
INVESTMENTS = TOTAL
ASSETS/INVESTMENTS
Again, substituting the variables using ABC Company’s estimated figures:

500,000
RETURN ON ASSETS = 33%
= 1,500,000

The above ratios are but a few of the frequently used financial measurements. Should the
resulting figures for all three ratios be favorable, this means that the business oppurtunity is quite
promising.
 THE FEASIBILITY STUDY

For bigger projects that entail millions of pesos worth of investment, a full-blown feasibility
study might be required more than the pre-feasibility study. As compared to a pre-feasibility, a
feasibility study is more comprehensive and detailed. It requires a more rigorous approach. A
feasibility study is prepared to convince bankers and investors to put money into the business
opportunity. In writing the feasibility study, the entrepreneur should take into consideration the
following:
1. a more in-depth study of market potential to ensure that the business proposal will reach the
forecasted sales figures;

2. proof that the product or service being offered has the right design, attributes, specifications,
and preferred features;
THAN
K
YOU!!