This is just an example to illustrate how a business can be evaluated. You can evaluate your business idea similarly.
The Idea
"The idea is to bring people closer and enhance their network"
The Idea
"The idea is to bring people closer and enhance their network"
In today's age of information and pace, networking is of paramount importance. Although the technological spurt has ensured wider connections, most of the ties are weak in nature as they hardly meet in person. "Meet-Ups" is an attempt to fill this gap by bringing people on a single platform and network based on the common interest expressed.
Set of considerations :
- Tier 1 cities would be the most active in this kind of structure
- Age-group of 16-40 would be more interested in expanding their network
- The realistic conversion rate would be 1% of the potential targets as understood from the above two assumptions
- The target market is India
Yearly demand: About 10% of 50 million population in the target age group residing in Tier1 cities can be addressed i.e. a population of 5 Million.
Addressable market (A)= 0.5 Million
Willingness to pay: The business model is to charge the creator of the meet-up group an annual fee of Rs.500 and the members an amount of Rs. 100. About 5% of the people would be creating groups and rest of them would join a group member. Total revenue collection per year hence would be 500*0.05*0.5M+100*0.95*0.5M = 12.5M+47.5M= Rs. 60Million. The charges are normal and comfortably below the "willingness-to-pay" bar.
Surplus (B)= Rs. 6 Crores
Cost to manufacture or provide service: There is almost zero fixed cost involved. The costs would mainly be variable in terms of human capital responsible for managing the meet-ups and related operational issues. One person every 20 groups is what is fairly manageable. About 2000 groups is targeted and expected and hence the annual operational cost would be equal to approx. 4L*100= Rs. 4 Crores.
Total Cost (C) = Rs. 4 Crores
Value of the opportunity every year (O)= Rs. 2 Crores
Expected monopoly life of the idea (D)= 5 years
Total (monopoly) value of the opportunity (X=O X D = 10 Crores)
Rivalry and competition: Currently none. And given the unique nature of the idea not many competitors would pitch in. Expected competitive life of the idea (E) is about 3-4 years. Average market share (F) would be around 50% of the data presented above. Total (competitive) value of the opportunity (Y = F X O X E = Rs. 3.5 Crores
Total value of the opportunity = X + Y = 13.5 Crores
The porters five forces would help in determining the market forces as presented below:
As clearly visible from the porters framework, the entry barrier is not strong. However the early entry advantage is immense. Networkers would prefer not to leave their groups once formed as the networking worth is expected to be quite high.
Given the assumptions how the business model would be implemented, the following reasons support the decision to enter the market
- Gap in networking opportunities for people sharing common interest not yet addressed
- A trend in developed countries for the last few decades do tell stories about the validity of the idea
- Competitors are minimum and hence the risk of failure is also low on that front
- The upfront/fixed costs are very low and hence a chance can always be taken. Operational leverage
- The yearly revenue generation is around 10 Crores even when the estimates have been conservatively taken. As compared to the opportunity cost, this is quite a lucrative business
- The strength would be to build a common brand
- Difficult to break in early. It is important to make the ball roll at the very early stage
- Unexpected consumer behavior may deter the plan
- Legal hurdles of forming groups under the Indian law
- The social platforms may deter people to step out
- Frequency of meetings and participation can be a major issue in many of the groups
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