ENTR 452ENTR 452(Opportunity Recognition)(Opportunity Recognition)

Schumpeter (1934) described the role of the entrepreneur as a radical market innovator who brings about creative destruction through innovation.

He argued that industries within societies are replaced by other industries over time. The process of replacement of one industry (destruction) by another more modern industry (creation) is creative destruction. (e.g., typewriters/computers, horse & buggy/cars)

Creative destruction is taking place constantly and moves society forward – entrepreneurship moves society.

THE PROCESS OF THE PROCESS OF “CREATIVE DESTRUCTION”“CREATIVE DESTRUCTION”

1 in 1000 chance of becoming a millionaire from starting a business (some studies show 1 in 200 chance)

3 in 10,000 high school basketball players will make the NBA or WNBA (odds far worse for all high school kids)

1 in 176 million chance of winning Mega Millions

1 in 1.1 million chance of getting struck by lightning

1 in 250,000 chance of getting struck by lightning in Montana

ODDS OF SUCCESSODDS OF SUCCESS

Think about unmet market needs.

Think about what you are passionate about.

Be unique!

Can you establish sustainable competitive advantage.

FINDING/DEVELOPING AN FINDING/DEVELOPING AN OPPORTUNITY IS CRITICALOPPORTUNITY IS CRITICAL

http://most-expensive.com/bed

http://www.businessnewsdaily.com/4753-unique-business-ideas.html

http://www.dailymail.co.uk/news/article-2271953/Undead-Teds-Phillip-Blackmans-gory-zombie-Teddy-bears-sell-Valentines-Day-2013.html

http://earth911.com/news/2010/12/09/agritourism-gets-interactive-with-rent-a-cow-programs/

http://www.usatoday.com/story/news/nation/2013/08/25/food-allergies-tattoos/2633663/

UNIQUE BUSINESSESUNIQUE BUSINESSES

Perceiving a possibility for new profit potential through (a) the founding and formation of a new venture or (b) the significant improvement of an existing venture.

(Christensen, Madsen, & Peterson, 1989)

OPPORTUNITY OPPORTUNITY RECOGNITION DEFINITIONRECOGNITION DEFINITION

OPPORTUNITY FACTORSOPPORTUNITY FACTORS

Opportunities emerge when there are changes in:

1. Technology

2. Consumer Economics

3. Social Values

4. Political Action and Regulatory Standards

5. Demographics

6. Natural Disasters

7. Resource Discoveries

WINDOW OF OPPORTUNITY WINDOW OF OPPORTUNITY (TIMMONS)(TIMMONS)

Time (years)

Market Size

5 10 20

$100M

$250M

$500M

$1 billion

Window ofOpportunity

Market

OPPORTUNITY AS MARKET OPPORTUNITY AS MARKET DISEQUILIBRIA (KIRZNER)DISEQUILIBRIA (KIRZNER)

Quantity

Price

S

D

Q1 Qe Q2

Pe

P1

CulturalForces

SocialForces

EconomicForces

JobForces

PersonalityFactors

i) uncontrolled factors

InitialVision

the ‘aha’experience

Strategic Idea Elaboration

Strategic Idea Elaboration

ElaboratedVision

The Decisionto Proceed:Prestructuringthe Venture

B. Identifying theField of

Opportunity

C. Elaborating the Opportunity

D. The Decisionto Proceed

VentureAlertness

Cultivation

Study ofVenture Subjects

JobSelection

MoonlightVenturing

EntrepreneurialLifestyle

ii) controlled factors

THE OPPORTUNITY THE OPPORTUNITY RECOGNITION PROCESS RECOGNITION PROCESS

(LONG & McMULLAN, 1984)(LONG & McMULLAN, 1984)

Decision toStart

OpportunitiesRecognized

OpportunityChosen

NeedRecognized

NeedFulfilled

Business OpportunityRecognized

A. Externally Stimulated Opportunity Recognition

B. Internally Stimulated Opportunity RecognitionCommitment to PhysicalCreation

Business ConceptIdentified

OpportunityRefinement

OpportunityRefinement

OpportunityFiltration

Meta OpportunityStage

OPPORTUNITY RECOGNITION OPPORTUNITY RECOGNITION SEQUENCES (BHAVE, 1994)SEQUENCES (BHAVE, 1994)

Ideas do not equate to opportunities Other factors must exist

Controlled and uncontrolled factors (Long & McMullan, 1984)

An entrepreneur’s personal characteristics and environment will influence the opportunity recognition process.

NEW VENTURE IDEAS VS. NEW VENTURE IDEAS VS. ENTREPRENEURIAL OPS.ENTREPRENEURIAL OPS.

*** Business Idea ***

Entrepreneur - Background - Experience - Education

Environment - Industry - Economic Conditions - Social Context - Regulatory Issues

EntrepreneurialOpportunity

PossibleFirm

Founding

MY MODEL OF THE BASIC MY MODEL OF THE BASIC OPPTY REC. PROCESSOPPTY REC. PROCESS

ITEM MEAN

Ideas last month 2.4

Ideas last year 6.6

Opportunities last month 1.2

Opportunities last year 3.3

MEAN NUMBERS OF IDEAS MEAN NUMBERS OF IDEAS AND OPPORTUNITIESAND OPPORTUNITIES

SOURCE % OF RESPONDENTS

Prior Experience 73.0%

Business Associates 32.8%

Saw a Similar Business 25.8%

Friends or Relatives 19.1%

Hobby/Personal Interest 17.2%

Market Research 11.3%

It Just Came to Mind 10.9%

Magazine/Newspaper 2.3%

Radio/Television 0.4%

Other 4.7%

IDEA SOURCESIDEA SOURCES

ACTIVITY % OF RESPONDENTS

Sought out information/feedback from business associates

52.0%

Contacted potential customers/clients 50.0%

Discussed idea with friends/family members 46.5%

Gathered information on competitors 33.6%

None, just knew idea was an opportunity 33.2%

Prepared financial statements 25.0%

Other 3.5%

OPPTY RECOGNITION OPPTY RECOGNITION ACTIVITIESACTIVITIES

 

TIME % OF ENTREPRENEURS

None 13.7%

Hours 2.3%

Days 14.5%

Weeks 22.7%

Months 35.9%

Years 10.9%

TIME LAPSE BETWEEN TIME LAPSE BETWEEN IDEA AND OPPORTUNITYIDEA AND OPPORTUNITY

TIME % OF ENTREPRENEURS

Hours 1.6%

Days 11.3%

Weeks 26.2%

Months 50.8%

Years 10.2%

TIME LAPSE BETWEEN TIME LAPSE BETWEEN OPPORTUNITY AND FOUNDINGOPPORTUNITY AND FOUNDING

CHANGE PERCENTAGE OF ENTREPRENEURS

No Change 19.1%

Slight Change 42.6%

Moderate Change 28.5%

Major Change 9.0%

Complete Change 0.8%

MODIFICATION TO IDEA MODIFICATION TO IDEA BEFORE BECOMING OPPTYBEFORE BECOMING OPPTY

Social networks are the most important resource of the firm - they provide access to information and resources

Social networks subsume both individual and environmental factors - the people one associates with tell us about the individual

Support for the “Strength of Weak Ties” (Granovetter, 1973) - People you do not know well are more important to entrepreneurs than people you know well.

An associated concept is the importance of Structural Holes(Burt, 1992) – if your immediate contacts do not know each other there are “holes” in the network. This is advantageous (see example).

OPPTY RECOGNITION OPPTY RECOGNITION THROUGH SOCIAL NETWORKSTHROUGH SOCIAL NETWORKS

E-1

A-1A’-1

A’-2

A-2

A’-3

A’-4

A-3

A’-5A’-6

E-2

A-1 A-2

A-3

STRUCTURAL HOLES STRUCTURAL HOLES EXAMPLEEXAMPLE

Three holes (lookat immediate contacts)

No holes (not as beneficialto the entrepreneur)