SESSION 3

Opportunity and the environment

Session Outline 

Objective

In this session the concept is to match the opportunity with the environment that the business will be working in. Now that the entrepreneur has an industry that would match with his/her lifestyle, the next step is to position the start-up so that it will have a viable chance to be successful. The combination of a business opportunity that an entrepreneur would love to do and one that is driven by market demand makes for a highly probable business venture.

Learning points

• Finding an opportunity that is market driven
• Understanding how to do a quick and dirty feasibility study
• Positioning your opportunity
• Understanding community leakage
• Assessing community impact 

OPPORTUNITY AND THE ENVIRONMENT

Concept

We saw, in the last session, that it is most important to find an “igniter”, an opportunity that drives you emotionally to overcome all obstacles and persist until you succeed. We learned that the entrepreneur feels he/she has to succeed not merely wants or hopes to succeed. The entrepreneur is the prime mover, the champion that has the vision and needs to share that vision with investors, employees, customers and the community.

Entrepreneurship is not done in a vacuum. The focus now shifts to the business environment where the entrepreneur will be starting the business. There are many interested parties who the entrepreneur will have to consider. Some of these are:

• Investors, including the funding agencies (Tewatohni’saktha, AANDC, NACCA, Kahnawake, etc.).
• Kahnawake  core values in which you intend to do business
• Kahnawake  resources
• The competitors ( direct and indirect ) in Kahnawake
• Community impact ( positive and negative )

Investors

The best case scenario is for the entrepreneur to be self-financed completely. When this is the case then the entrepreneur has complete independence to do whatever he/she wants to do.

This changes dramatically whenever others get involved. As soon as external funding is needed then those who provide funds will need you to indicate how the business venture will serve their needs.

In the case of external private investors, they will want to see what returns they will be getting for the funds they are investing. They will compare this to the “ risk free rate “ which is the interest rate they can get from investing the money in a guaranteed program – e.g. around 6% in the bank without any risk.

When the investor is a funding agency you should realize that they will be investing in your business on behalf of the community. So, the agency (Tewatohni’saktha e.g.) has to make choices about which business opportunities to provide funding for. The choices are made of the basis of net benefit to the community economic development. This means jobs, cash inflows, reduction of leakage and other economic benefits. It also means that the new business must be differentiated adequately to fit in the community economic eco-system.

Another thing that external investors (agencies and private) will want to see is your commitment to the business, your willingness to take a risk for your vision. The measurement for this is the amount of money that you put in the business. Others will not be willing to take risk on your vision until you indicate your willingness to take significant risk in your own business.

Essentially, investors are not as concerned about how well you like the business opportunity. Investors are focused on the potential of the opportunity to make profits and/or provide economic benefits for the community as a whole. So, the emphasis in this session is to develop business opportunities that will not only be exciting for the entrepreneur (session 2) but also be feasible and acceptable for external investors.

Market driven opportunities

Where do you get market driven opportunities? Looking at growing trends is a possibility or, as a disgruntled customer you may see a need for an improved service or product. In many instances a disgruntled customer became an entrepreneur because they simply felt that they could offer a better product or service than what was available now.

We have an exercise on trends within Kahnawake and we will ask you to identify the trends that “fit” with your entrepreneurial profile. Again, the emphasis is on something that you want to do. Retail stores require a lot of  hours where you will need to be there. Some people don’t have the patience to put in the long hours serving customers. So, for them, a retail business opportunity would not be recommended.

Sharon Cross ( Digital Dreamcatchers ) could have opened a computer retail store but it would not have matched her passion of working with the computers and the programs.

COMMUNITY NEED

A business opportunity should also serve the needs of the community. There is a delicate balance in the eco-system of business supply and demand. As a market begins to grow because of customer demand there is a tendency for entrepreneurs to rush into the market to balance that demand with supply. Inevitably, the supply (business start-ups) continues, even when demand levels off. At this point, the consumer gets power because there is the possibility to shop for a better deal. Once this balance swings over to an oversupply then all businesses suffer and some go out of business.

So, it is critically important not to duplicate existing businesses that have saturated the market. As an example, let’s consider a tobacco store. Assuming the demand for tobacco increases, more and more stores will open to fill the demand. At some point there will be too many stores (oversupply) for the demand and that will put pressure for all to reduce prices, because the consumer can shop around.

As an alternative opportunity, entrepreneurs can set up businesses to service the tobacco stores that exist or they can set up other businesses that take advantage of the customer traffic flow to the tobacco stores. This is the concept of “spin-offs”.

Case “Eileen’s Bakery” 

Eileen’s Bakery is an example of a business that has spin-off potential. Eileen’s is a successful bakery that was market driven, provided positive economic benefits and has a motivated entrepreneur.

The success of the bakery now provides opportunity for other entrepreneurs to provide services to Eileen’s or to build on the traffic flow that the bakery generates. Eileen is now in expansion mode whereby she will relocate to a spot where she can be the anchor for a mini mall and have other business tenants next to her that would complement her business. These other businesses ( e.g. a decoration store, a wedding planner ) would not compete with her but instead be built on her traffic flow for special occasion cakes and catering. 

Similar opportunities exist with the traffic to the golf courses. You don’t need to open another golf course; you can supply goods and services to the existing golf courses or provide goods and services to meet the other needs of golfers who will be traveling to the courses.

The way to perceive “spin-off” opportunities is to see a new trend (Cultural village, Kanata 2000, Mohawk Internet Technology, 5 Nations village etc.) and determine what other goods and services will be needed to serve the original entrepreneurs or the customers that they are attracting.

A primary example is “Mohawk Internet Technologies” (MIT). This is a joint venture between Mohawk Council and two external entrepreneurs. The growth of MIT has created about 200 jobs to date and the needs that MIT and their employees have is endless. A background on MIT is presented in the following case:

VIRTUAL ECONOMIC DEVELOPMENT

MOHAWK INTERNET TECHNOLOGY (MIT)

Kahnawake, Quebec 

The Mohawk community in Kahnawake, Quebec is very closely aligned with the tradition and values of its heritage. Environment, culture, land, language, health, education and spirituality have high priorities in community life. Economic Development is tolerated only insofar as it is compliant with the traditional culture and values. There have been a number of economic initiatives that have been rejected by the community because there was a potential negative impact on the quality of life within the community. The community will not tolerate the capitalistic concept of Economic Development whereby bottom line profitability is predominant to protection of land, air, water, spirituality, traditions and way of life.

The community rejected an initiative by a large corporation to set up a facility on reserve because of the perceived negative impact of pollution. The community also rejected a casino project due to the potential impact of drugs, prostitution and organized crime.

The dilemma was to generate economic development initiatives in keeping with traditional community values.

Mike Tobin and Jay Stubina, chartered accountants from New York, approached the Band Council of Kahnawake with an opportunity to develop a joint venture initiative to create an Internet hosting facility on reserve. The start-up was in harmony with the values of the community ( clean industry, no intrusion on the way of life ). Mohawk Internet Technology (MIT) was started.

The market niche was to physically host customer servers on site, in the community. In doing so, it enabled companies to have an off-shore designation without the complications of doing business with an international government.

MIT quickly established itself as a reputable host. The professionalism by which Mike and Jay run the operation generated credibility, capability and ultimately growth for the business.

Now, as a supplier of services to companies with a presence on the Internet, MIT was being approached by the major players in that environment. On the Internet there are two main industries that are economically vibrant – pornography and gambling. Both these industries were interested in having MIT host their servers, Mike, Jay and Band Council could not accept pornography. The value system of the community and the individual value sets of the entrepreneurs would not tolerate this industry no matter what the potential economic gain.

Gaming was less offensive, however conditions were established by the entrepreneurs and Band Council to ensure that the hosting of gaming servers was going to be regulated by the Kahnawake Gaming Commission and not external influences. So, criteria were developed and are strictly adhered to in the managing of the gaming servers:

• Background checks are diligently made on all applicants who want to have a gaming server hosted by MIT.
• The company background is thoroughly checked to ensure that they are not scams. There has to be evidence that the companies pay the winners and that the games are not “rigged”.
• Applicants must abide by the regulations of the Kahnawake Gaming Commission.
• All companies hosted by MIT must put a “block” on registrations from the community. One of the negative impacts of gaming on a reserve is that community members become gamblers. In this case there is no physical presence of gambling and if a community member tries to register over the Internet, their application will be rejected.

So, MIT has generated an economy for Kahnawake that generates significant cash inflows while retaining the cultural values and traditions within the community. Moreover, it has created considerable

“spin off” opportunities that will power the economy of Kahnawake. Some of these include:

• MIT now has 200 employees and is constantly hiring. 70 of these employees are community members. MIT has a policy to “hire locally” when relevant skills are in place. This has provided opportunities for the community to provide training programs for youth to work toward a career path in the field of computer technology.
• The local employees will be spending money in the community which offers opportunities for local entrepreneurs to provide goods and services.
• MIT also has a “buy local” policy which enables local entrepreneurs to provide services and goods which are needed by MIT.
• Clients of MIT have expressed an interest in having an administrative office on reserve. There are tentative plans for the development of a techno park which will create more jobs, cash inflows and entrepreneurial opportunities without negatively impacting on the land or values of the community.

MIT is successful where others have failed. A primary reason for that is the social conscience of Mike Tobin and Jay Stubina. Where other potential joint venture partners have focused on the traditional capitalistic model of profit maximization at any expense, Mike and Jay have shown their commitment to the community and the values within. They respect the community and seek to develop the human resources within the community and provide opportunities for Kahnawake entrepreneurs.

Another success factor is the credibility that MIT has established. The professionalism of its operation has made it bullet-proof in the face of inevitable opposition. MIT does not compromise values for economic gain. The rejection of the pornography industry, and the due diligence in screening applications, was instrumental in branding MIT as a legitimate, professional organization. Both Federal and Provincial governments have had numerous discussions with MIT. MIT has responded quickly with requests for information and has been open and transparent in all its activities to date. Neither government can find just cause to suspend MIT operations.

MIT continues to thrive as a model of economic development, on reserve, with a joint venture initiative that is a win/win situation for both parties. The entrepreneurs benefit from the community and the community has significant benefits as money inflows into the community. The long-term net impact is a healthy economy with job or entrepreneurial opportunities for youth.

Market driven opportunity source

(1) Internet

One growing area of opportunity is the Internet. It is particularly well suited for First Nation entrepreneurs because it can be started from home, has the potential to sell to a large International market, has virtually no negative community impact while having considerable positive community impact.

Also it is still in its infancy and there is very little direct competition. The opportunity requires very little investment and is very scaleable many get started using e-bay as their proof of concept before even building their own web site.

(2) Aboriginal set aside programs

The Canadian government has contracts available for Aboriginal businesses only. The source of these contracts is:

http://www.merx.cebra.com

Search using “aboriginal” as key word

One Native entrepreneur secured a large contract to supply paper to government offices. She partnered with a paper manufacturer to supply the paper and she fulfilled the contract.

(3) Leakage Survey

The community leakage survey is another excellent starting point for market driven opportunities. Community leakage is the money that is being spent, by community members, outside the community. The leakage survey is a survey of households in the community to determine what they purchase, how much they spend on a particular category and whether they make these purchases inside or outside the community.

The survey is a large document (over 100 pages). Some highlights of it are presented here but the entire document is available on request.

An important aspect of the survey is the fact that it highlights community demand for a particular category of goods or services. The following are excerpts from the Kahnawake Leakage Survey of 2011, along with an explanation of the numbers. N.B. all numbers are rounded off for simplicity and all are annual expenditures:

Community size = 2,325 households (671 participated in the survey)

Total community expenditures within the community = $ 39.5 million

Total community expenditures outside (leakage)          = $ 72.5 million

Total community expenditures                                        = $ 112 million

This indicates that the community members spend about a third of their money inside the community while two thirds is “leaked” (spent outside the community). In general, there is entrepreneurial opportunity to provide products and services locally to reduce the leakage.

Home renovations

Total community expenditure  =  $ 9.1 million

Within the community              =  $ 5.8 million

Outside the community             =  $ 3.3 million

This indicates that the total community market for renovations is $9.1 million and 64% is spent with local, community contractors. External sales are probably Home Depot, Rona…. More data would be needed to determine which specific renovations are in demand.

Dental Care

Total community expenditure  =  $850,000

Within the community              =  $550,000

Outside the community             =  $300,000

Market size appears to be too small to support another dental operation. Plus you need accreditation.

Clothing expenditures

Total community expenditure   =  $ 5.9    million

Within the community               =  $     .05 million

Outside the community              =  $ 5.895million

Here’s an opportunity to recapture part of $5.895million spent annually outside the community. Some research is needed to determine the breakdown of men’s, women’s, children’s wear and the styles, but this is an opportunity worth exploring. Perhaps discount outlets (e.g. Levis)

There are many other categories in the survey but this sample gives you an understanding of the value of the survey and the way to analyze it for market driven opportunities.

Community Resources

In some instances the business opportunity needs to ensure that there are sufficient community resources available to make the business happen. Key resources include the availability of land, buildings, and labor (quantity and quality).

Competitors

An assessment of the competition is necessary to determine if there is enough market potential to support one more business in the community. It is important, for funding agencies, that there is enough market potential for you to co-exist with the present competition.

This analysis will also lead to a quick and dirty revenue projection. If we know, for example, that the market for daycare services in the community is $500,000 and there is one competitor presently who has a waiting list, we can conclude there is a market driven opportunity. If we also find the price the competition charges is $10 per day per child, we can now project a quick revenue potential. Based on 20 places that we would have, we can now project that we would be at full capacity @ $10 per day and have gross revenue of $ 200 per day. We would now need to look at our costs to determine potential profitability and see if we should move forward with the idea.

Community impact

There are both positive and negative aspects to the potential community impact of any business. Funding agencies are very concerned with community impact and you should be also, particularly if you are looking for funding from an agency.

Positive community impact

• Job creation
• Training opportunities ( particularly for youth )
• Export potential ( Cash inflows from external sales )
• Accepted by community culture
• Sustainable business opportunity
• Prevents economic leakage
• Potential for “spin-off” businesses
• Fits well with other existing businesses
• Fits well with the community strategic plan

Negative community impact

• Any pollution associated with the business ( air, water, noise, odor )
• Any social problems ( addictions ) associated with the business
• Large demand on community resources ( water, sewage )
• Disruption of community ( large trucks, traffic flow of tourists )
• Drain on natural resources ( trees, mining )

Positioning

Once a quick assessment has been done, then a decision can be made about how to position the business within the community and how to scale the opportunity to take the least risk and prove the concept.

This will become the focus of the next session (session 4) where we begin to piece the first sections of the business plan – research.

CASE 

DIGITAL DREAMCATCHERS 

Last session we looked at how the business opportunity of Digital Dreamcatchers was aligned with the lifestyle and motivation of Sharon Cross. Now we can look at the fit of Digital Dreamcatchers with its environment – the quick and dirty feasibility study:

MARKET DRIVEN NEED

Sharon started when the need was not great but she saw the future potential. The Native communities were slower to adopt Internet capabilities due to the lack of high speed Internet access. Sharon saw the demand in the external communities and realized it was only a matter of time before demand increased in the Native communities. As wireless access ( Satellite ) increases and with local community cable providing high speed Internet access, the demand will grow even stronger. For now, Native community agencies and associations are beginning to increase demand and this is providing her growth. She has the First Mover advantage by being the first web developer business in Kahnawake. She’s poised for the growth of the market.

COMMUNITY FIT

There is not a lot of internal community demand at present for web design and multi-media CD-ROM’s. Sharon is in place to prevent economic leakage in this area when demand increases and, at present, she is actually bringing cash inflows into the community because she has clients outside the community. The power of the Internet is such that you can sell externally without leaving your location. The Internet provides the greatest opportunity for economic inflows if the community entrepreneurs can provide unique products/services.

The business also fits with the culture of Kahnawake. It is a clean business that does not pollute. There is no intrusion into the community and nothing had to be displaced or removed because of this business. It provides training, job opportunities and potential for spin-offs.

DIFFERENTIATION

Sharon rises above a lot of the competition for web design and multi-media development. She provides a unique Native theme to all her work that puts her in a successfully differentiated niche. She also looks for strategic alliances with others who potentially compete in this area. ( e.g. Sharon’s strength is her creative production capacity. If she developed an alliance with a partner who had contacts and sales expertise with First Nation companies then there are real synergistic benefits ( 1 + 1 = 3 ) from this alliance.

POSITIONING

Sharon has a scaleable opportunity whereby she was able to start with fairly low investment. She was able to prove her concept through native government agencies ( Tewatohni’saktha, NACCA, etc. ) who are good customers. Now she is prepared for growth as the market expands with the advent of high speed Internet access in the community. This will expand her market base to more private business clients.

Summary 

The emphasis in this session is to understand that total independence only comes from self-financing. If you fund your business completely then you can do whatever you want (as long as it is legal). If it never had a chance to begin with that’s ok because it was all your risk and no one else.

As soon as you require external financing then others want to have a say in your business venture. The business has to be shown to be feasible to investors and funding agencies (usually through a business plan). They also want to see that the entrepreneur (and his/her team) is motivated and has the ability to run the business. Community funding agencies ( Tewatohni’saktha e.g. ) are concerned about the community impact of the new business, the use of community funding and the fit of the business in the community economic development plan.

• A business needs to be market driven not just a business the entrepreneur likes.
• A business opportunity needs to be assessed as to how it will fit in the community and benefit the community.
• A business opportunity should be scaleable so the concept can be tested cheaply
• You need to set short term goals for the business so you can prove the concept to others

EXERCISE # 1

Trends 

Now that we’ve established your needs and preferences for a business opportunity we now focus on the “market driven “side of the business opportunity. Ideally, the business opportunity that you like should also have a strong market demand.

The following are evolving trends. Please rank your interest in each of the following trends. Beside each trend mark a number from 1 – 10. ( 1 = not interested at all and 10 = very interested to be in this area ).

_____ Internet/computers (social media, Aps)

_____ Organic food

_____ Safe environment

_____ Holistic healing/therapy

_____ Auto care

_____ Golf/leisure sports

_____ Agriculture (flowers, produce)

_____ Adventure sports (MMA, dirt bike, etc.)

_____ Fashion (Sewing, design, etc.)

_____ Other (Please specify)______________________________________

EXERCISE # 2

Leakage Checklist 

The following information is from the 2001 Kahnawake Leakage Study. In looking at the results, identify two potential business opportunities. How would you go about determining if this business opportunity was worth pursuing to the next stage? Do a quick and dirty analysis of the community impact and the competition. Consider how to position the opportunity.

Restaurant expenditures (annual)

• Within Kahnawake      $  1 million
• Outside Kahnawake     $  2 million
• Total                               $  3 million

Personal care products expenditure

• Within Kahnawake    $  350,000
• Outside Kahnawake   $  650,000
• Total                             $      1 million

Personal care services

• Within Kahnawake     $  150,000
• Outside Kahnawake    $  500,000
• Total                              $  650,000

Household furnishings

• Within Kahnawake     $  1.3 million
• Outside Kahnawake    $  2.7 million
• Total                              $ 4     million

Household equipment

• Within Kahnawake     $   .1 million
• Outside Kahnawake    $ 3.1 million
• Total                              $ 3.2 million

Discussion Questions 

• Discuss the community impact of a greenhouse business in the community that would sell flowers and vegetables to Montreal.
• What are some causes of economic leakage? How can leakage be reduced?
• The golf courses in Kahnawake are very successful. Discuss some spin-off opportunities that could take advantage of that success.
• Would a mini-putt be a competitor to the existing golf courses? Why or why not?
• Do a quick and dirty feasibility study for a mini storage facility in the community.