analyzing business opportunities
In a dramatically changing business environment, certain markets disappear for some companies and new business opportunities appear for others. Both of these situations suggest that major contractors who issue RFPs (Requests for Proposal) or RFQs (Requests for Quotation) can expect highly competitive responses from organizations. What may separate the winner from the loser in this bidding process is the degree of prescience an organization has relating to changing trends in their industry and, of course, the impact upon the quality of the proposal they submit. Therefore, program managers involved in the bidding/proposal process are required to become sharper, more professional in analyzing business opportunities and how they relate to generation of the proposal.
Previously, deciding on which requests to respond to and then producing a proposal may have meant merely fulfilling tedious requirements to “get the job.” Today, choosing the correct business opportunities and generating a highly professional proposal may mean life or death for the firm. Without contracts, the firm will not survive—and contracts are getting more and more difficult to win.
This first of three articles suggests a model that can be used (1) by small organizations as well as large organizations, and (2) when proposing either to a large client in a competitive environment or to the steering committee within your firm. This model is generic in nature. It suggests questions that should be asked and ultimately answered. Readers will interpret these questions differently depending upon their industry, the prevailing economic trends impacting their industry, and their competitive position within their marketplace. Regardless of how strong you think your company/division is in the marketplace, misjudging business opportunities or submitting a less-than-quality proposal can lose business that is needed for the company to grow, and in some instances, to survive.
Although this article uses the terminology of a large consulting firm or a major defense contractor, the concepts are germane to anyone in project management who must “sell” projects to management, to a “user” or to a boss. Business opportunities may be internal or external. Typically, we think of this competitive bidding process relating to consulting firms, to government contractors, to architectural/construction firms. That is not necessarily so. Internally, the information systems division issues proposals to obtain funding for projects that will support their community of users' requirements, the marketing division is taking the pulse of their customers and making proposals for new or enhanced products, the engineering division may bid a job so that the functional divisions do not go to the competition to acquire engineering expertise. It is our job, as good program managers, to be looking for business opportunities either externally or internally and then to be able to write a proposal or cost/benefit analysis—a white paper to justify that project.
Below we discuss how to analyze business opportunities; in the February and March columns we will cover how to generate a winning proposal.
Analyzing Business Opportunities
How do we analyze business opportunities? In the most simplistic of terms, we determine if the prospective customer meets the following four criteria (B-A-N-C):
Budget. Does the customer have the budget (funding) to pay for the job? If no, when will the funding be available? If the overall position is negative, this still might be a good future business opportunity. Don't lose touch with the prospect, but don't put a lot of time and effort into writing a lengthy proposal.
Authority. Does your contact have the authority to approve the project? If not, has he or she been delegated the authority? If not, how far up the line does your prospect have to go to obtain approval? If your contact is not a decision maker, does not have formal or informal “power” to fund the project, or direct access to a decision-maker, then this business opportunity may not be worthy of a lot of effort now. Maybe later, but not now.
Need. Is there an identified need upon which everyone is in agreement? If not, can you help define the need? And will you or your customer contact be able to sell the need once it is substantiated? Furthermore, can your organization satisfy the need with your current expertise or products? If not, how much risk is involved in acquiring the skills/products to fulfill the contract without exceeding the time and dollar requirement. If the evaluation is negative, indicating an unfavorable risk/reward on this venture, it is preferable to pass up this situation. However, keep tracking the opportunity. Once the need is truly defined and once the risk is acceptable, you want to be there to offer your services.
Cycle. When will they act? Is there money left in the budget for your project? Is the money currently allocated for your type of project, or will it be next quarter or maybe next year until moneys are made available? The further away the cycle, the less time you want to spend now; however, when that cycle becomes imminent, be ready to [in surfer's language] “mount the wave and ride it.”
Specific Questions to Ask
Here is a model of specific questions to ask, questions that you need answered before you can make a decision as to whether this is a viable opportunity now or to wait until later.
Identify New Business. RFPs (requests for your services) do not automatically come to you; you must be positioned to be considered within the bidding process. Here are some ways to identify new business:
Sources of Information. Can be formal or informal. Formally, there are publications, firms, houses, such as the Government Clearing House, which publish contracts ranging from training to missile silos. Also, customers who are aware of your existence may send you RFPs. Informal sources (friends, newspaper articles, minutes from the steering committee meeting) can provide suggestions of places to develop new business.
Employing the RFI. “Request for Information” is the customer's fishing trip. Questions is, how much time and energy should you spend responding? The decision is based upon the qualifications of the customer, the size of the job, and your take on potential return on investment if you are considered and get the bid.
What is the Competition Doing? Not that the competition is always right, but it is always wise to keep your eye on the opponent. Hint: If you lose a bid to a competitor, don't be too proud to ask the customer: “What did the competitor do to get the job?” and “What could we learn so that we could be more competitive the next time?”
Who is Responsible. Analyzing business opportunities does not just happen. Someone in the organization must take that responsibility. By default, it is often the top executive of the group. This does not necessarily make sense. Other people may have interest and talent, and can make a contribution in “marketing” the organization's talents.
Evaluate Opportunities. Every opportunity may not be worth following. There are good opportunities and bad opportunities. Here are some guidelines to decide whether or not the opportunity is worthy of pursuing:
Bid/No-Bid Decision. As an opportunity presents itself, evaluate whether you want to “take the wave.” Some years ago I was aware of a firm that was in the data processing consulting and training business. They took the opportunity of starting a data entry business. It turned out to be a bad business decision. Even though the opportunity presented itself, they would have been wiser to pass it by. It was not consistent with their mission statement, they did not have the expertise, they diluted their energy and their financial resources, which adversely affected their growth.
Match to Corporate Goals. Once the organization's mission statement is established, consider very carefully before venturing beyond those parameters. As in the case of the consulting firm above, data entry, though tangentially related to data processing, was not their primary business function. With a more insightful analysis, it would not have been viewed as a viable opportunity. However, let us not suggest that an astute business person should be unwilling to take a calculated risk.
Assess Chance of Success. Don't be a gambler if you don't have the financial and physical reserves to absorb a loss.
What to Pursue; What to Leave Alone. Take the time to make a sound business decision. Follow the B-A-N-C criteria discussed above.
Posture to Win New Business. What does it take to be considered for new business opportunities and to win that new business? Here are certain decisions that need to be considered:
Marketing Issues vs. Technological Issues. Recognizing the ongoing struggle between the sales function of the business and the “creative” function of the business, don't try to market what you can't make. Conversely, don't try to make what you can't market.
Customer Contact Plan. Make a conscious decision on the steps that will be required to create visibility in your potential marketplace; for example, build a sales force; become very active in professional organizations, go on speaking tours; or by doing successful jobs develop high respect in your business arena.
To Team or Not to Team? If you do not have all the expertise required to respond to an opportunity, do you want to co-venture with another firm? The upside is that the other firm brings expertise that you do not have, and may help you get that contract and thus break into a new area of business. The downside, since it has many aspects of marriage, if it doesn't work, breaking up is hard to do.
Establish/Maintain Contacts. Awareness of your existence is paramount so that when new business opportunities arise, the potential customer thinks of you as a viable candidate:
Within Current Customers or Solid Prospects. Keep constant contact either through advertising, newsletters, periodic mailings (which we call “wave mailings”), phone calls, or by stopping in and saying, “Hello.”
Consultants in the Industry. Cultivate a network of people to whose advantage it is to recommend you and using your talents. Be gracious with tangible and intangible recognition for their help.
Even the Competition. Make them aware of what you're doing. They may want to team with you at some point in time. Perhaps they may not be able to handle a job, and as a show of good faith to the client, may recommend you. Contrary to popular belief, Macy's did send people to Gimbel's.
Develop Proposal Strategy. If the business is worth winning, then make a conscious decision as to how you are going to acquire the contract.
Identify Capture Plans. Consider optional capture plans such as pricing lower than other competitors, providing better quality, developing strong personal relationships. There are many other significant approaches, which will be discussed in the second part of this series, “Generating Winning Proposals.”
Where in the Procurement Cycle? In order to make the decision above, ascertain where the customer is in the procurement cycle; for example, are they conducting a needs analysis, defining requirements, or searching for bidders? Has the funding been allocated and is the client ready to sign a contract? The closer the customer is to the end of the procurement cycle, the more you want to offer.
Perform Business Risk Assessment. Even though the business opportunity may still seem enticing after evaluating the above questions, stop and take a realistic look at the potential risk involved:
What is the Risk of Making a Significant Investment in Developing the Proposal and Not Being Awarded the Contract? Don't kid yourself. Producing a winning proposal takes time and energy. It is not worth undertaking unless you are convinced that you have a good chance and you want to get involved in that type of business opportunity.
If Awarded the Contract, What is the Risk of Not Being Able to Produce the End-Product? Often the desire to win the contract clouds one's good sense. Don't pursue a business opportunity that you may not be able to respond to. Not only is it embarrassing to the client, but word gets around in the industry.
If Able to Produce the End-Product, What is the Risk of Not Making a Profit? If no profit is guaranteed, then pass this business opportunity by. Many companies undertake a job where there is a possibility of a loss, and instead of saying “no” or extracting themselves, they lose their objectivity, perhaps because of political reasons, and they end up paying the piper.
Obtain RFP/RFQ. If you have cultivated the prospects correctly, you will have received plenty of requests for your services.
Transition to Proposal Cycle. Considering the evaluation criteria stated above, you will choose only those opportunities that are worthy of bidding upon. Your next move is into the Proposal Cycle.
Be on the lookout next month for “Generating Winning Proposals,” which will describe how to build a proposal team, what the contents of the document should be, how to “red team” the proposal, and how to follow-up the process. ■
Joan Knutson is president and founder of Project Management Mentors, a San Francisco-based project management consulting and training firm.
PM NETWORK • January 1996