New Venture Opportunity Recognition Case Study
New Venture Opportunity Recognition
New venture opportunities can always be risky because we cannot predict the future. However, we can always plan for new ventures as best we can in order to determine which ones are worthy of moving forward with and which ventures should not be pursued. Of the ten new ventures presented, two stand out as opportunities worth pursuing. Although neither may not appear to be one hundred percent ready to take off, with further development they are worth the recognition and investment.
The two ventures chosen are Plunar, Inc. And USuggest, LLC. Plunar will be discussed first. This venture was chosen because it is proprietary. Cloud computing is still a fairly new concept and now is the prime time for companies to claim their share of this new and growing technology. The company is focusing on this collaboration software to suit a project management environment, but states that it is adaptable to any industry.
The addressable market for this type of business venture, according to Plunar, is $1.5 billion. The company expects the market to grow to $470 million of this within five years. The initial startup investment is $500,000. Plunar’s five-year financials predict that the company will grow from $96 million during the first year, to almost $55 million by the fifth year of operations. Although their marketing plan states that they will seek another round of financing for beta-testing, this venture appears to be a good one financially. The business venture does not expect to show a profit until the third year of business and which is typical.
The potential market for Plunar is extremely large. Project management is the intended target that the software will be tailored to, but as mentioned before the software is adaptable. This adaptability could lead to even larger profits after the five-year mark if the company decides to begin to focus on different industries. Since the company appears to invest heavily in R&D, the chances of steady growth look promising. New and existing companies must remember that R&D is an integral part of doing business and they must keep their research focused on their target market (Rooij, 2008).
The recommendation for Plunar, Inc. would be to maybe target more than one industry at the onset. Since the software is industry adaptable, focusing on more than one specific industry could increase the chances of higher profitability in a decreased amount of time. Investors seek to recoup their initial capital in the shortest amount of time and targeting more than one industry may be a way to do this. Also, Plunar and other cloud computing companies should be aware that this type of technology does not always save the customer money and there may be customer concerns that this type of technology might put their sensitive data at risk (Wenzel, 2011). These are two areas that Plunar needs to take into consideration.
USuggest, LLC was chosen because of its social networking capabilities. Not only is it a site for people to connect, sales and profits can be made from these connections. Once eBay hit the online shopping market, it seems as though similar sites paled in comparison. USuggest, LLC is different because it will be similar to Facebook and eBay all rolled into one. Also, online shopping is something that will probably never grow old, but better.
USuggest is proprietary in that it is combining social network and shopping into one site. It should permit a long head start against competitors, because there actually are no known competitors. There are several popular social networking websites and an abundance of shopping websites, but there is nothing out there similar to what USuggest is developing. The assumption is that people will consider friend’s suggestions on what to buy because they trust their opinion. According to the company’s financial statement, profits are expected after only the second year of operations. This will help to set off the startup costs.
The initial production costs are realistic because of the suggestion that outsourcing will be used. The company is relying on an outsourcing expert who has written several books on the subject. The software development will also expand to an offshore location which potentially can cut cost even further. USuggest plans to use search engine linked online portals as a marketing tool and they are seeking a merger or acquisition with a large, established Internet company to further increase profits for their brand. Mergers can lead to the company becoming more efficient by utilizing economies of scale. Cost saving can also be recognized by combined marketing, advertising and by cutting down on the overlap of R&D (Shukla and Gekara, 2010).
Even though this venture is in the startup stages, it definitely has the potential to grow into something much larger. The target market is online shoppers and online shopping is a $130 billion dollar business. Looking three to five years into the future shows that online shopping, as well as social networking will only gain more popularity and neither shows any signs of phasing out. The idea of combining social networking and online shopping might need a little time to emerge. Since this is a combination of two popular technologies, the idea should catch on and spread quickly.
USuggest may be a part of a growing family. Once other companies see the profitability in this type of business venture, they may want to start something similar or invest in the business itself. The customer base is already existing (social networking and online shopping), so even though there will need to be some marketing efforts, a large portion of the business can be devoted to software development.
The recommendation for USuggest, LLC would be to consider a merger or acquisition sooner than the five-year mark. Their financial summary shows a significant profit by year three. If the company stays on target, this would be a good time to for them to begin exploring the option of a merger or acquisition by a much larger and much profitable Internet company. Instagram is a perfect example of a startup that gained popularity fast and was bought by a much larger, more profitable Internet company (Facebook). This proves that it is not necessary to wait a certain number of years for a company to show large profits. If USuggest provides a service which consumers want the realization of larger profits can be experienced soon.
Among the two choices, Plunar will be chosen as the winning new venture and USuggest will be the runner up. Both of these new ventures look extremely promising and don’t require millions in financial investment. However, because cloud computing already exists and is growing in popularity it appears to be a venture that does not require much explaining to investors. Although it is fairly new, it is not a totally new concept and the opportunity to get in on the ground floor is still good. USuggest is a new concept which combines two existing popular concepts. Everything about this venture on paper says it will work and even though on paper it says it will turn a profit by the second year there is nothing else out there like it. USuggest may be a bit more risky than Plunar, Inc. To invest in. For these reasons, Plunar is chosen as the top new venture opportunity.
Shukla, a., & Gekara, M. (2010). Effects of Multinational Mergers and Acquisitions on Shareholders’ Wealth and Corporate Performance. IUP Journal of Accounting Research & Audit Practices, 9(1/2), 44-62.
Van Rooij, a. (2008). How R&D helped transform DSM. Research Technology Management, 51(1), 43-48.
Wenzel, E. (2011). Moving to the Cloud Isn’t for Everyone: What to Consider First. PC World, 29(7), 32.
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