Where to find Growth Opportunities
Many would-be entrepreneurs never get started because they do not find their perfect business opportunity. And many others get into a business and reach a dead-end. So where should you find your opportunity for growth?
How do early-stage venture capitalists (VCs), who invest for a profession, find hot new opportunities? VCs try to develop home-runs (spectacular successes and potential Fortune 500 companies like Google and eBay) by financing ventures with a better technology or a better business model in a high-growth, emerging industry. This means they seek opportunities with a proven (if they can get it) advantage. They seek emerging, high-growth, high-potential industries. Emerging industries usually do not have large, well-established competitors who can destroy the new venture. With high-growth, they get the wind at their back – it is easier to grow rapidly in a fast-growing industry. And high-potential means that the new industry could become large and so could their investment. Even with all these advantages and strict criteria, they succeed in getting home-runs only about 2% of the time and have a reasonable return (for the high risk they are taking) about 20% of the time.
If you are a new entrepreneur, or a potential entrepreneur, how should you find your opportunity? I would suggest that you find your opportunity in your passion or in the trends. Most of the entrepreneurs I interviewed for my book, Bootstrap to Billions: Proven Rules from Entrepreneurs who Built Great Companies from Scratch, did not seem to have an advantage at the start. Where is the competitive advantage in selling stereos (Best Buy), or wedding invitations (Taylor Corporation), or nuts and bolts (Fastenal)? Of the entrepreneurs I interviewed, 96% went with their passion and/or with the trends. Only one entrepreneur succeeded by grabbing an opportunity that came along in a company that offered him a job and in an industry without a strong growth trend. So find passion or find trends. As Gary Holmes of CSM Corporation put it, “don’t do it just for the money.” Passion helps perseverance. Perseverance helps success.
But trends can be of immense value. When Steve Shank was seeking a new opportunity, he noted that adults in America were seeking continuing educational opportunities for personal development, and that long-distance learning was becoming more popular, especially due to the prevalence of the PC. He capitalized on these trends and started Capella University. Later the Internet came along and made this business sweeter. It helps to be fortunate, but you have to be in the arena to be lucky.
What are the trends that you can capitalize on today? While there are no emerging industries today (“green” is an emerging need, but without federal or state government subsidies it is highly likely that most of the companies in the industry would never take off), there are a few trends that you can latch on to, such as the needs of aging baby boomers, the increasingly wealthy Asian markets, and social networking. There are also a lot of needs, such as energy, climate change, clean water, etc. Find solutions and you may have a winner.
You can also acquire a company if you know how to buy and to manage. Tom Auth, one of the entrepreneurs in the book who built ITI and Vomela, found his opportunity by buying the right company. Tom Auth is a CPA with strong analytical and business building skills. Since he was not a technologist, he was constantly seeking to find companies that he could grow. When he found such companies, he analyzed their strengths and weaknesses, and used his financial skills to design the best strategy to buy the business that was also fair to the seller. Once he decided on the value of the company and the price, he was not easily swayed. For one of his deals, he flew down to North Carolina to complete an agreement that he had been negotiating, only to be told by the seller that he wanted to keep the business after all. Tom’s response was that the dinner was nice, but the seller could have told him this over the phone. About a year later, the seller called him back after checking out the market and offered to sell to Auth. This time Auth confirmed that the seller was really ready to close the transaction because the deal was still attractive for Auth, and he bought the company.
So find your passion and/or trends. Or buy a business you can grow with your matching expertise and passion.