opportunity analysis

026: How to Tell if Your Idea is a True Opportunity [Podcast]

by | Sep 10, 2013 | 0 comments

Weekly I am approached with new ideas for businesses. Ideas are easy, but few find true opportunity. Determining the difference between an idea and an opportunity is a critical first step in the evaluation of a business’s potential. Let me show you how I perform an opportunity analysis.

Photo courtesy of Flickr/Creative Commons/Craig Sunter [/featured-image]


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Ideas vs Opportunities

An idea is a groundless supposition, while an opportunity has potential to allow you to meet a goal. <Click to Tweet>

The opportunity analysis is the process of determining if an idea is in fact an opportunity. The world of venture capital would call this doing your due diligence. I just call it doing your homework.

First – get clear on the basics 

  • What will you do? Be clear and concise!
  • Who is the customer? Think of a list. How big?
  • What is the pain that you are relieving? The pain helps you identify your value proposition.
  • What is the market size of YOUR segment?
  • What is the price?
Second, talk to potential customers
This step is so often missed that it is almost sad. Once you know what the idea is, you want to vet it to potential customers. The key thing you need to know is if your idea solves a true pain they have. And, would they be willing to buy it.
Third, ask a woman
This might sound sexist, but over and over I have found men seek counsel from their wives to make sure an idea is sound. Even if the woman knows nothing about the business, they seem to have some God given ability to read truth and character.
If you are a woman, seek the counsel of another woman you trust who has no knowledge of your business idea.
Fourth, do the math 
I mean put the numbers to paper and see if the idea makes sense. What you are looking to learn is if the revenue potential is there and interesting enough to go after. We would call this the size of the addressable market.

The Addressable Market

Consider the addressable market. The addressable market is the size of the market that cares enough about what you are selling to buy from you or your competitor.
Poor Logic Example – missing the true addressable market
Assume you have developed a smartphone app you will sell for $0.99 each. Since there are 1 billion smartphones in service, your revenue will be $990 million.
WRONG. Just because I have a smartphone does not mean I will buy your app.
Poor Math Example – Addressable market is not large enough

Wade Myers (New Venture Lab) tells about a company selling software to PBS  Stations in the US. Here is his data.

Annual Addressable Market 368 stations

x 5% switched software each year

x $50k/each software app install

= $920k

x 20% probability (5 total competitors)

= $184k


My Example – Lifestyle Product

Homeschool market 2 million families

High School Percent 50.00%

Dropout of HS Rate 50.00%

% of Market we expect 0.50%

Sales (units) 2500

Average sale per unit $200

Revenue = $500,000

Hope you get the idea. While all of this should be common sense, these basic steps are often overlooked. Doing a quick opportunity analysis can save you months of chasing a bad deal.


Episode Resources

In this episode I mentioned a few resources, including:

Egoscue Postural Therapy 


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[reminder] What do you think about the idea of asking a woman?   [/reminder]

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Dale Callahan

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