Part 1 of the Business Outlook series outlined the challenges faced by businesses in the Ghanaian economy amidst COVID-19. Given that all is not lost even in the current period of the pandemic, we outlined some measures businesses can take immediately to manage some of the negative effects as well as opportunities that can be considered during this period and beyond. Part 2 of our Business Outlook Series focuses on providing further insight into key drivers to be considered when taking advantage of the opportunities outlined in PART 1.
First of all, it is important to clarify that, a business opportunity must be an attractive economic idea which can be implemented or operationalized to create a business, earn some returns and/or ensure further expansion and growth of an enterprise. In other words, whether the opportunity is related to product or service innovations, market diversification, leveraging on technology for improvement, partnership and collaboration or pricing mechanisms, it has to be capable of being implemented at a reasonable return to compensate for the investment outlay. Business owners, managers and all who have the mandate to steer the affairs of any enterprise in these difficult times must understand that unless a business is capable of identifying a need, creating a utility that adapts to the customer’s economic and social reality and delivering what represents true value to the customer, it may not be worth the attempt because a business opportunity does not yet exist. Flowing from this, key questions that businesses must respond to in establishing the existence of a well-thought through business opportunity include the following:
- Have we defined the need or the idea precisely enough or without any ambiguity?
- Have we established the requirements to fulfill this need or idea?
- Do we know the competences required to take advantage of this need or idea?
- How long will it take for us to convert the idea into a product or service or satisfy the need we have identified?
- Do we know the exact benefits that will accrue to us if we satisfy this need or implement the idea, and are these benefits attractive and acceptable to us?
- Within what timeframe are the benefits expected to flow to us?
Knowing a business opportunity exists and actually taking advantage of it are not quite the same. The latter requires further analysis of the conditions under which a business can take advantage of an identified opportunity. While some business owners and managers might have identified many business opportunities and probably started committing resources to them, others are still evaluating the available opportunities.
Presented below are key drivers which are basic but crucial considerations when making investment decisions with respect to business opportunities in the current business environment:
- Sustainable Market: One of the first things to consider when taking advantage of a business opportunity is the availability of market and how sustainable the market is. A market must be sustainable over a reasonable period of time to make it valuable. This is because, businesses may incur some investment expenditures when taking advantage of business opportunities and a certain minimum sales level may be required to break even on such expenses. It is imperative therefore, that businesses evaluate the probability of the opportunities remaining relevant especially after COVID-19 to guide the level of investment and resources to be committed to such opportunities. Where market opportunity is relatively short, an assessment should be made to ensure investments can be recouped over that period of time.
- Technical capacity – Technical capacity in this instance refers to the systems and the operational capabilities required to operationalize a business idea, produce goods or provide services to meet a market need. This may include specific technical know-how; ability to meet specific standards; particular equipment required among others. It is important to ensure the business has the required technical capacity, operational set-up and systems are adaptable, or the required technical capacity can be easily acquired to produce the required product or service.
- Technology – The role of technology in this period is so critical that it is worth considering as a separate factor from technical capacity. The pandemic has presented the opportunity for dormant and less-utilized technologies to be utilized by most businesses. Technology is leading product refinement and delivery and is mostly embedded in new opportunities. Business owners and managers alike must define the role of technology in the business opportunities that have been identified and the extent to which this is pronounced. Operational areas for delivering the business opportunity such as processing, procurement, sales and marketing, distribution or delivery etc. must be evaluated for the extent of technological requirements. The accessibility, affordability and flexibility required to easily integrate such technologies into current systems should be thoroughly assessed by the business to properly inform the decision of either taking advantage or not, of the supposed business opportunity.
- Human resource requirement – A related consideration to technical capacity is the human resource capacity of the business. The question of whether the business currently has the staff with the requisite training, knowledge and skills to take advantage of the opportunity must be answered by the business? Where absent, can the required competences be easily acquired within a short period of time or can these skills be acquired by recruiting contract staff for a period at an affordable cost to the business? Businesses must be careful not to impose the requirements that come along with implementing identified opportunities on staff who are not easily adaptable or who cannot easily learn new skills otherwise they could walk away due to frustrations.
- Access to key inputs/supplies – The pandemic has caused major disruptions to supply chains. There must be reasonable assurance that, the business will have access to sufficient quantities of key inputs from suppliers and that such suppliers will be reliable. Many businesses have gone ahead to sign off-taker agreements without securing any major supply sources. Businesses may want to avoid the embarrassment caused by no-show or sub-optimal performance when a business is unable to meet promised demand. This could be detrimental to future business opportunities as trust and reliability is increasingly becoming a major currency of trade.
- Standardization – Regulatory requirements for adherence to standards keep getting stringent especially in this era. Applicable standards could be both local and international depending on the type of business opportunity. The business may have the capacity to produce a product that will get approval from domestic regulatory bodies such as Ghana Standard Authority (GSA), Food and Drugs Authority (FDA), Environmental Protection Agency (EPA) among others. However, if the opportunity is for instance in the area of production for international markets, then standardization requirements would usually be more stringent. Without belittling our domestic regulations and standards, different regions may have specific standards that may differ from the domestic requirements and must be considered by businesses when taking advantage of business opportunities.
- Estimated cost of investment – It is important that the cost of the new investment is reliably estimated before committing any resources. All possible cost elements (cost of equipment, technological infrastructures, inventory, licensing/fees, additional labour cost and other additional overheads) must be identified and the best estimates possible arrived at using both internal data and external search as well as consultations with experts. Additionally, further investment and the timing of the investment outlays should be known if the opportunity is not one off-spending so that better cash outflow estimates will be determined. This is not the time for any business to commence spending on a project only to run out of funds in the middle of it due to poor estimated cost of the project.
- Financial capacity of the business – Ultimately, it has always come down to financial capacity of the business to finance opportunities that have been identified. Funding sources keep narrowing as internal resources dry up; financial institutions apply breaks on facilities; and external investors adopt a wait-and-see approach. Owners and managers must identify and assess the adequacy and reliability of various sources of funding for identified opportunities. If the business must borrow, then the costs of the fund must be reasonable, and indeed, evaluating the business ability to provide the necessary documentation that may be needed is imperative. Matching timing of the opportunity with tenure of funds is be critical. Businesses cannot afford to borrow short-term funds to finance long-term projects. Negotiating for favorable terms, asking for moratorium from funding institutions among others would be a prudent approach.
- Ability to endure initial cashflows challenges – Willingness and ability to endure initial cashflow difficulties may be a necessary requirement as it is common for new business undertakings to experience initial cashflow difficulties. So the question is whether business owners and managers are willing to endure those turbulent days that may come and whether the business has the capacity to endure same. There is the tendency for some business owners and managers to halt very profitable projects in the face of challenges. This can be addressed if proper investment appraisals are conducted to determine the cashflow cycle inherent in the opportunity and most importantly, how the shortfalls can be managed. It has to be clear from inception that, management will see the project through anticipated and unanticipated cashflow challenges.
Can all these be met before taking advantage of a business opportunity? Of course you cannot be 100% ready but there has to be some reasonable estimates of level of readiness. The objectives and benefits of ticking all the relevant boxes as outlined above are to:
- avoid further dissipating limited resources;
- avoid try and errors in crucial moments like this which could diminish business confidence;
- take risks but only measured and mitigated risks;
- minimize cashflow challenges due to absence or weak thought-through processes in business opportunity decision making;
- make the business competitive in the market place; and above all,
- have reasonable assurance that the business will survive the current circumstances.
In conclusion, remember that in this period, business continuity is a primary objective, therefore consolidating current position in the market, identifying business opportunities and going into new projects must be a priority. Business owners and managers must however, have clarity as to what constitutes an opportunity to invest in. Furthermore, analysis of key factors such as technical feasibility, financial feasibility, human capacity requirement and quality of the product or services must not be overlooked.
WATCH OUT FOR THE NEXT EDITION BUT UNTIL THEN…..
Remember to wash your hands with soap under running water, wear your nose mask when going out and never forget to comply with the social distancing protocols.
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