Types of opportunity

Leading on from what I learned from Prof Casson, I can advise that I also found there to be two main categories of opportunity. The first is your basic transactional opportunity. In this case these is demand and you see the opportunity to meet the demand with your supply, either directly or indirectly, and you do so. Deal done. In some cases this could be a business where it is a repetitive transactional cycle such as a supermarket. It could also be someone who only sells fire damaged goods, so although repetitive there is no predictability of supply. The other is where there is a demand and supply, but there is a lack of a market mechanism for matching supply to demand. A good example is SME finance. There is no shortage of businesses wanting funding. There is no shortage of finance available for lending. But it does not happen at the level it should, simply because there is no market mechanism. Supply cannot properly evaluate demand at a great enough volume to make the market function efficiently. Once this structural hole is filled the problem will be erased. So when looking for opportunities try and find the structural holes. They generally are also the more complex opportunities discussed in an earlier blog article.

Stock of opportunities

I had the pleasure of engaging with Prof Casson from Reading University on the topic of opportunities. Prof Casson is an economist, and in one of his papers he discusses the stock of opportunities. The question is whether the number of opportunities is limited. The discussion is very interesting, but a key factor for me was the fact that Prof Casson suggests that there is an inverse relationship between the number of opportunities and the complexity of the opportunities. In other words, the less complex an opportunity is, the more of them exist, and the more complex it is the fewer exist. While on the face of it, this appears to be very simplistic. However, when considered in greater depth it is very interesting. Complex opportunities have less competitors. The greater the complexity, the greater the barrier to entry. Is this not what we are all seeking? Bigger barriers to entry means fewer entrants and therefore increased profitability. The question is, when we are looking for opportunities, do we factor these thoughts into our thinking, or do we too grab at the first thing that crosses our mind/desk? This is particularly applicable to SMEs, who too often take whatever comes first that looks easy. They immediately put themselves at a disadvantage. Do you?