INVESTMENT TIPS

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Due to the current state of the economy it has become imperative for individuals and other entities to seek alternative sources of income.

Here are a few tips using a very popular tool for analysis:

A very important tip in business is: Do not invest in a business you know nothing about—There might be temptations to make a quick gain at many times, but without proper knowledge, the chances for success are remote.

In 1980, Michael Porter developed one of the most widely used frameworks for analyzing business environments. Using this framework, here are some important questions and comments:

Porter’s 5 Forces

THREAT OF NEW ENTRANTS:

If there are very little restrictions to others embarking on the business, then what makes you confident that they would not?

Once a big/profitable opportunity comes to the fore, there is a big chance that many others will swoop. As many others come into the market, for many products, the profitability of the product will generally dwindle.

If there are means by which regulation or skill limits the number of new comers, this has potential to make a business more sustainable cum profitable.

BARGAINING POWER OF SUPPLIERS:

Who are those that provide the tools and services that the business you are venturing into needs? Do they determine the price or do you have an influence on how much you would pay?

Is there a cartel (or some other organized group) that can decide on the cost you incur for these items?

BARGAINING POWER OF CUSTOMERS:

How much influences do those that you sell to have on the number of the product that you can sell & the price that you can charge?

 

COMPETITION:

Are there many others that make the product and how established are they?

How many others make the product compared to the number of customers available?

What do you know that is not common knowledge and can set you apart?

 

SUBSTITUTES:

This is one area that most prospective investors do not take adequate notice of. Are there other products that could potentially serve the same use as the product you are offering?

Another product might not have the same features as the one you are providing but if it can provide the same benefits, then you have to be cognizant of it.

Take an airline versus teleconferencing for instance: If I can have meetings on a screen with clear visual and audio quality, I might decide to substitute this for a flight to another city for a meeting.

Brian Okwuogu, is the CEO of QUESTintel Consult Ltd, a Finance and Accounting firm based in Abuja (08031550305)

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