Topic 6a

Evaluating and Identifying

Business Opportunity

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 What is An Opportunity?
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• Opportunity Defined
– An opportunity is a favorable set of circumstances that
creates the need for a new product, service, or business
idea.
– Most entrepreneurial firms are started in one of two ways:
• Some firms are internally stimulated. An entrepreneur decides to
start a firm, searches for and recognizes an opportunity, then starts
a business.
• Other firms are externally stimulated. An entrepreneur recognizes
a problem or an opportunity gap and creates a business to fill it.

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 What is an Opportunity?
(2 of 2)

An opportunity has four essential qualities

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 Window of Opportunity

• Window of Opportunity
– The term “window of opportunity” is a metaphor
describing the time period in which a firm can realistically
enter a new market.
• Once the market for a new product is established, its window of
opportunity opens, and new entrants flow in.
• At some point, the market matures, and the window of opportunity
(for new entrants) closes.

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Three Ways to Identify An Opportunity

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 First Approach: Observing Trends
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• Observing Trends
– The first approach to identifying opportunities is to observe
trends and study how they create opportunities for
entrepreneurs to pursue.
– There are two ways that entrepreneurs can get a handle on
changing environmental trends:
• They can carefully study and observe them.
• They can purchase customized forecasts and market analyses from
independent research firms.

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 First Approach: Observing Trends
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Environmental Trends Suggesting Business or

Product Opportunity Gaps

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 Trend 1: Economic Forces

• Economic Forces
– Economic forces affect consumers’ level of disposable
income.
– When studying how economic forces affect opportunities,
it is important to evaluate who has money to spend and
who is trying to cut costs.
• An increase in the number of women in the workforce and their
related increase in disposable income is largely responsible for the
number of boutique clothing stores targeting professional women
that have opened in the past several years.
• Many large firms are trying to cut costs. Entrepreneurs have taken
advantage of this trend by starting firms that help other firms
control costs.

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 Trend 2: Social Forces
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• Social Forces
– Changes in social trends provide openings for new
businesses on an ongoing basis.
– The continual proliferation of fast-food restaurants, for
example, isn’t happening because people love fast food. It
is happening because people are busy, and have disposable
income.
– Similarly, the Sony Walkman was developed not because
consumers wanted smaller radios but because people
wanted to listen to music while on the go.

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 Trend 2: Social Forces
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Examples of Social Forces That Allow For New

Business Opportunities

• Family and work patterns.

• The aging of the population.
• The increasing diversity in the workplace.
• The globalization of industry.
• The increasing focus on health care and fitness.
• The proliferation of computers and the Internet.
• The increase in the number of cell phone users.
• New forms of entertainment.

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 Trend 3: Technological Advances

• Technological Advances
– Given the rapid pace of technological change, it is vital that
entrepreneurs keep on top of how new technologies affect
current and future business opportunities.
– Entire industries have emerged as the result of
technological advances.
• Examples include the computer industry, the Internet,
biotechnology, and digital photography.
– Once a new technology is created, new businesses form to
take the technology to a higher level.
• For example, RealNetworks was started to add audio capability to
the Internet.
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 Trend 4: Political and
Regulatory Changes
• Political and Regulatory Changes
– Political and regulatory changes provide the basis for new
business opportunities.
• For example, laws that protect the environment have created
opportunities for entrepreneurs to start firms that help other firms
comply with environmental laws and regulations.
• Similarly, many entrepreneurial firms have been started to help
companies comply with the Sarbanes-Oxley Act of 2002. The act
requires certain companies to keep all their records, including
e-mail messages and electronic documents, for at least five years.

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 Second Approach: Solving a Problem
(1 of 2)

Second Approach: Solving a Problem

Sometimes identifying These problems can be

opportunities simply pinpointed through observing
involves noticing a problem trends and through more simple
and finding a way to means, such as intuition,
solve it. serendipity, or chance.

For example, Symantec Corp.

Some business ideas are clearly created Norton antivirus
initiated to solve a problem. software to guard computers
against viruses.

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 Second Approach: Solving a Problem
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Businesses Created to Solve a Problem

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 Third Approach: Finding Gaps in the
Marketplace
• Gaps in the Marketplace
– A third approach to identifying opportunities is to find a
gap in the marketplace.
– A gap in the marketplace is often created when a product or
service is needed by a specific group of people but doesn’t
represent a large enough market to be of interest to
mainstream retailers or manufacturers.
• This is the reason that small clothing boutiques and specialty
shops exist.
• The small boutiques, which often sell designer clothes or clothing
for hard-to-fit people, are willing to carry merchandise that doesn’t
sell in large enough quantities for Wal-Mart, GAP, or JC Penney to
carry.

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Personal Characteristics of the Entrepreneur

Characteristics that tend to make some people better at

recognizing opportunities than others

Prior Experience Social Networks

Cognitive Factors Creativity

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 Prior Industry Experience

• Prior Industry Experience

– Several studies have shown that prior experience in an
industry helps an entrepreneur recognize business
opportunities. There are several explanations for this.
• By working in an industry, an individual may spot a market niche
that is underserved.
• It is also possible that by working in an industry, an individual
builds a network of social contacts who provide insights that lead to
recognizing new opportunities.

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 Cognitive Factors

• Cognitive Factors
– Studies have shown that opportunity recognition may be an
innate skill or cognitive process.
– Some people believe that entrepreneurs have a “sixth
sense” that allows them to see opportunities that others
miss.
– This “sixth sense” is called entrepreneurial alertness, which
is formally defined as the ability to notice things without
engaging in deliberate search.

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 Social Networks
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• Social Networks
– The extent and depth of an individual’s social network
affects opportunity recognition.
– People who build a substantial network of social and
professional contacts will be exposed to more opportunities
and ideas than people with sparse networks.
– In one survey of 65 start-ups, half the founders reported
that they got their business idea through social contacts.
• Strong-Tie Vs. Weak-Tie Relationships
– All of us have relationships with other people that are
called “ties.” (See next slide.)

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 Social Networks
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• Nature of Strong-Tie Vs. Weak-Tie Relationships

– Strong-tie relationship are characterized by frequent
interaction and form between coworkers, friends, and
spouses.
– Weak-tie relationships are characterized by infrequent
interaction and form between casual acquaintances.
• Result
– It is more likely that an entrepreneur will get new business
ideas through weak-tie rather than strong-tie relationships.
(See next slide.)

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 Social Networks
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Why weak-tie relationships lead to more new business ideas

than strong-tie relationships

Strong-Tie Relationships Weak-Tie Relationships

These relationships, which The relationships, which form

typically form between like-
minded individuals, tend to
reinforce insights and ideas that
people already have.
between casual acquaintances,
are not as apt to be between
like-minded individuals, so one
person may say something to
another that sparks a completely
new idea.

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 Full View of the Opportunity
Recognition Process
Depicts the connection between an awareness of emerging trends and
the personal characteristics of the entrepreneur

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 Techniques For Generating Ideas

Brainstorming Focus Groups

Surveys Other Techniques

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 Brainstorming
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• Brainstorming
– Is a technique used to generate a large number of ideas and
solutions to problems quickly.
– A brainstorming “session” typically involves a group of
people, and should be targeted to a specific topic.
– Rules for a brainstorming session:
• No criticism.
• Freewheeling is encouraged.
• The session should move quickly.
• Leap-frogging is encouraged.

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 Brainstorming
(2 of 2)

• Brainstorming (continued)
– There are two reasons brainstorming generates ideas that
might not arise otherwise:
• Because no criticism is allowed, people are more likely to offer
ideas than they would in a traditional setting.
• Brainstorming sessions can generate more ideas than a traditional
meeting because brainstorming focuses on creativity rather than
evaluation.
– In most meetings, one person suggests an idea, and immediately the
rest of the group begins evaluating it. This happens because most
people are better at criticizing ideas than they are at suggesting new
ones.

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 Focus Groups

• Focus Group
– A focus group is a gathering of five to ten people, who
have been selected based on their common characteristics
relative to the issues being discussed.
– These groups are led by a trained moderator, who uses the
internal dynamics of the group environment to gain insight
into why people feel they way they do about a particular
issue.
– Although focus groups are used for a variety of purposes,
they can be used to help generate new business ideas.

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 Surveys
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• Survey
– A survey is a method of gathering information from a
sample of individuals. The sample is usually just a fraction
of the population being surveyed.
• The most effective surveys sample a “random” portion of the
population, meaning that the sample is not selected haphazardly or
only from people who volunteer to participate.
• The quality of survey data is determined largely by the purpose of
the survey and how it is conducted.
– Surveys generate new product, service, and business ideas
because they ask specific questions and get specific
answers.
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 Surveys
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Example of a suspect survey technique
Self-Selected Opinion Poll
Most call-in television
surveys or magazine write-in
polls are highly suspect
because the participants
represent what’s called a
self-selected opinion poll.
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Result
Most people who take the time
to participate in a self-selected
opinion poll do so because
their have either strong
positive or strong negative
feels about the a particular
product or topic.
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 Other Techniques

• Customer Advisory Boards

– Some companies set up customer advisory boards that meet
regularly to discuss needs, wants, and problems that may
lead to new ideas.
• Day-In-The-Life Research
– A type of anthropological research, where the employees of
a company spend a day with a customer.

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