So, you think you have a business idea. What’s next? Before ideas become reality they must undergo validation as business opportunities. One can start by identifying the gap in the market typically fulfilled by innovation.
There are two general types of innovation – process and product. Process innovation focuses on how things are done: creating a better system of delivery, communication or data storage or usage.
Groupon, an online vendor of discounted products and services provides location-based discounts based upon collective buying power, is a great example, as it does not offer a new product but novel delivery. In 2011 the company was valued around $30 billion. Product innovations are new or improved products and services.
Sometimes identifying a business opportunity is as simple as selling the same thing with a different focus – no new product or process. Starbucks and McDonalds, both multi-national fast food chains, sell coffee – the difference is in the quality, price and experience they offer. One can identify business opportunities by looking for gaps in the market that can be filled through differentiation.
Sometimes a good opportunity is as simple as offering better customer service, or a no frills version for cheaper. Ryanair is a low cost airline that provides only the basic services within the fare, whereas British Airways includes additional services that are not considered essential and as such charge a higher fee.
If having a stationary, unassigned seat is suitable for the journey – one may choose to pay a lower fee and fly with Ryanair. This ‘no-frills’ approach has been very beneficial for Ryanair, and this success can be measured on an annual basis by increased traffic, opening of new bases, addition of new routes, and increased profits. When the same variables are examined for British Airways, it is clear to see that Ryanair has become a fierce competitor.
Gaps in the market often exist on the basis of location & convenience. Ebay and Amazon have capitalized on this by offering access to goods through online shopping and cheap shipping. The same principle applies to the traditional brick and mortar business.
Market gap identification is incomplete without a thorough review of industry regulation. This especially applies in the life sciences sector, where there are strict regulations that control the supply of products into the market. As the world has become one integrated market for conducting clinical research and expanding the market for pharmaceuticals, biologics, medical devices and combination products, universal regulations, standards, and international standards of practice must be adhered to. The past few years have seen an improvement in the sophistication of regulatory regimes governing the food and Life Science products industry.
This has included amending Good Manufacturing Practice (GMP), Good Laboratory Practice (GLP), Good Clinical Practice (GCP), Good Safety Practice (GSP) and other regulations to assist the growth in these markets for new and already licensed products.
Once the market gap is identified, one must determine if the market gap can be addressed by available passions, skills, and resources. Potential clientele detect and are deterred by lack of passion. Idea execution requires adequate skills and resources. Resources to be analyzed include funding, workforce, and raw materials, as well as organizational structure provisions.
Sometimes identifying a business opportunity is as simple as buying into someone else’s. This is particularly true in situations where the identified gap in the market is location based. Franchises and licenses are fantastic ways to leverage an opportunity, without incurring the risk of venture. Franchise models require an upfront fee for utilizing a pre-existent model in a novel venue. Franchises provide continued support (operational and legal) and marketing materials.
Another critical aspect of market gap identification is a critical evaluation of potential competitors, unlike the examples above. It is important to do a thorough search on what is happening in the area you are pursuing, how is it being offered, who are the clients, and what sort of profit can be made. The strategy employed needs to focus on customer value, cost and competitors. It is also important to understand and focus on latent customer value – which should be your aim to satisfy as your competitors do not or cannot. It is necessary to understand your positioning relative to your rivals in terms of customer value added and cost.
According to Raffi Amit, a professor of management at Wharton, the most frequent mistake that people tend to make is to think everybody in the market is likeminded. They believe that if they like the product, everybody else will. For example, entrepreneurs with an engineering background are often too focused on the engineering features or technology features of the particular product, rather than on the need that they are trying to fulfill. Unfortunately customers do not buy technology – they buy products that add value. Paying too little attention to what the customers wants is the most frequent issue at the early stage that entrepreneurs are faced with. Sufficient investment in market gap verification avoids these pitfalls.
By Joanne Hackett | OxBridgeBioTech
