Recognizing Opportunities and Generating Ideas

Entrepreneurship: Successfully Launching

New Ventures
Updated 6th Edition, Global Edition

Chapter 2
Recognizing
Opportunities and
Generating Ideas
Recognizing Opportunities and Generating

Learning Objectives
2.1 Explain the difference between opportunities and ideas.
2.2 Describe the three general approaches entrepreneurs use to
identify opportunities.
Ideas

2.3 Discuss the personal characteristics of entrepreneurs that

contribute to their ability to recognize business opportunities.
2.4 Identify and describe techniques entrepreneurs use to
generate ideas.
Recognizing Opportunities and Generating

What is an Opportunity? (1 of 2)
Opportunity Defined
• An opportunity is a favorable set of circumstances that
creates a need for a new product, service, or business.
Ideas
Recognizing Opportunities and Generating

What is an Opportunity? (2 of 2)
Figure 2.1 Four Essential Qualities of an Opportunity
Ideas
 Figure 2.2 Three Ways to Identify
Recognizing Opportunities and Generating

an Opportunity
Ideas
Recognizing Opportunities and Generating

First Approach: Observing Trends (1 of 2)

• Observing Trends
- Trends create opportunities for entrepreneurs to pursue.
- The most important trends are:
Ideas

 Economic forces
 Social forces
 Technological advances
 Political and regulatory changes
- It’s important to be aware of changes in these areas.
Recognizing Opportunities and Generating

First Approach: Observing Trends (2 of 2)

Figure 2.3 Environmental Trends Suggesting Business, Product, or
Service Opportunity Gaps
Ideas
Recognizing Opportunities and Generating

Trend 1: Economic Forces

Economic trends help determine areas that are ripe for
new start-ups and areas that start-ups should avoid.
Example of Economic Trend Creating a Favorable
Ideas

Opportunity
• A weak economy favors start-ups that help consumers
save money.
• An example is [Link], a company started to
help consumers save money on gas.
Recognizing Opportunities and Generating

Trend 2: Social Forces

Social trends alter how people and businesses behave
and set their priorities. These trends provide opportunities
for new businesses to accommodate the changes.
Ideas

Examples of Social Trends

• Aging of the population.
• The increasing diversity of the population.
• Millennials entering the workforce.
• Growth in the use of mobile devices.
• An increasing focus on health and wellness.
Recognizing Opportunities and Generating

Trend 3: Technological Advances (1 of 2)

Advances in technology frequently create business
opportunities.
Examples of Entire Industries that Have Been
Ideas

Created as the Result of Technological Advances

• Computer industry
• Internet
• Biotechnology
• Digital photography
Recognizing Opportunities and Generating

Trend 3: Technological Advances (2 of 2)

Once a technology is created, products often emerge to
advance it.
Example: Rokit Boost
Ideas

An example is Rokit Boost, a high-end mobile accessories

company that makes smartphone cases, headphones,
portable USB device chargers, and Bluetooth speakers. Rokit
Boost wouldn’t exist if it weren’t for the advent of the
smartphone.
Recognizing Opportunities and Generating

Trend 4: Political Action and Regulatory

Changes (1 of 2)
Political and regulatory changes also provide the basis for
opportunities.
General Example
Ideas

This happened with the passage of the Affordable Care Act

in 2010. The provisions of the act yielded opportunities for
entrepreneurs to launch electronic records start-ups, apps to
help patients monitor their medication, and similar
companies.
 Trend 4: Political Action and Regulatory
Recognizing Opportunities and Generating

Changes (2 of 2)
Political change also engenders new business and product
opportunities. For example, global political instability and
the threat of terrorism have resulted in many firms
becoming more security-conscious.
Ideas

Specific Example
Evolv Technology is a start-up that has assembled a
multidisciplinary team of experts to identify, invent, and
apply new technologies to meet current terrorism-related
threats.
Recognizing Opportunities and Generating

Second Approach: Solving a Problem (1 of 2)

• Solving a Problem
- Sometimes identifying opportunities simply involves
noticing a problem and finding a way to solve it.
Ideas

- These problems can be pinpointed through observing trends

and through more simple means, such as intuition,
serendipity, or chance.
- Many companies have been started by people who have
experienced a problem in their own lives, and then realized
that the solution to the problem represented a business
opportunity.
Recognizing Opportunities and Generating

Second Approach: Solving a Problem (2 of 2)

Specific Example
Sometimes people aren’t able to access energy to recharge
their smartphones for a period of time. A number of companies
have solved this problem in innovative ways. An example is the
Ideas

$70 Eton BoostTurbin 2000, which is a device that weighs less

than four ounces. It combines a battery with a hand crank that
provides enough power to fully charge a typical smartphone.
Recognizing Opportunities and Generating

Third Approach: Finding Gaps in the

Marketplace (1 of 2)
• Gaps in the Marketplace
- A third approach to identifying opportunities is to find a gap
in the marketplace.
Ideas

- 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.
Recognizing Opportunities and Generating

Third Approach: Finding Gaps in the

Marketplace (2 of 2)
Product gaps in the marketplace represent potentially
viable business opportunities.
Specific Example
Ideas

Tish Cirovolo realized there were no guitars on the market

made specifically for females. To fill this gap, she started
Daisy Rock Guitars, a company that makes guitars just for
women and girls. Daisy Rock guitars are stylish, come in
feminine colors, and incorporate design features that
accommodate a woman’s smaller hand and build.
 Personal Characteristics of the
Recognizing Opportunities and Generating

Entrepreneur
Characteristics that tend to make some people better at
recognizing opportunities than others
• Prior Industry Experience
Ideas

• Cognitive Factors
• Social Networks
• Creativity
Recognizing Opportunities and Generating

Prior Industry Experience (1 of 2)

• Prior Industry Experience
• Studies have shown that prior experience in an industry
helps an entrepreneur recognize business opportunities.
Ideas

 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.
Recognizing Opportunities and Generating

Prior Industry Experience (2 of 2)

• Prior Industry Experience
- It is also important to note that anecdotal evidence
suggests that people outside an industry can sometimes
enter it with a new set of eyes, and as a result innovate in
Ideas

ways that people with prior experience might find

difficult.
 For example, Elon Musk, the founder of Tesla, had no
prior experience in the auto industry.
 Debbie Fields, the founder of Mrs. Fields Cookies, had
no prior experience in the food industry.
Recognizing Opportunities and Generating

Cognitive Factors

• Cognitive Factors
- Studies have shown that opportunity recognition may be an
innate skill or cognitive process.
Ideas

- 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.
Recognizing Opportunities and Generating

Social Networks (1 of 3)
• 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
Ideas

contacts will be exposed to more opportunities and ideas than people

with sparse networks.
- Research results suggest that between 40% and 50% of people who
start a business got their idea via a social contact.
• Strong-Tie Vs. Weak-Tie Relationships
- All of us have relationships with other people that are called “ties.”
(See next slide.)
Recognizing Opportunities and Generating

Social Networks (2 of 3)

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

- Strong-tie relationships are characterized by frequent
interaction and form between coworkers, friends, and spouses.
Ideas

- 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.)
Recognizing Opportunities and Generating

Social Networks (3 of 3)
Why weak-tie relationships lead to more new business
ideas than strong-tie relationships

Strong-Tie Relationships Weak-Tie Relationships

Ideas

These relationships, which These relationships, which

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

Creativity (1 of 2)
• Creativity
- Creativity is the process of generating a novel or useful
idea.
Ideas

- Opportunity recognition may be, at least in part, a creative

process.
- For an individual, the creative process can be broken down
into five stages, as shown on the next slide.
Recognizing Opportunities and Generating

Creativity (2 of 2)
Figure 2.4 Five Steps to Generating Creative Ideas
Ideas
 Full View of the Opportunity Recognition
Recognizing Opportunities and Generating

Process
• Depicts the connection between an awareness of emerging
trends and the personal characteristics of the entrepreneur
Figure 2.5 The Opportunity Recognition Process
Ideas
Recognizing Opportunities and Generating

Techniques for Generating Ideas

• Brainstorming
• Focus Groups
Ideas

• Library and Internet Research

Recognizing Opportunities and Generating

Brainstorming
• Brainstorming
- Is the process of generating several ideas about a specific
topic.
Ideas

- 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.
Recognizing Opportunities and Generating

Focus Groups
• Focus Group
- Focus groups involve a group of people who are familiar
with a topic, are brought together to respond to questions,
and who are able to shed light on an issue through the give-
Ideas

and-take nature of group discussions.

- They work best as a follow-up to brainstorming, when the
general idea for a business has been formulated but further
refinement of the idea is needed.
Recognizing Opportunities and Generating

Library and Internet Research (1 of 3)

• Library Research
- Libraries are an often underutilized source of information
for generating new business ideas.
Ideas

- The best approach is to talk to a reference librarian, who can

point out useful resources, such as industry-specific
magazines, trade journals, and industry reports.
- Simply browsing through several issues of a trade journal or
an industry report on a topic can spark new ideas.
Recognizing Opportunities and Generating

Library and Internet Research (2 of 3)

Large public and university libraries typically have access to
search engines and industry reports that would cost
thousands of dollars to access on your own.
Examples of Useful Search Engines and Industry Reports
Ideas

• BizMiner
• ProQuest
• IBISWorld
• Mintel
• LexisNexis Academic
Recognizing Opportunities and Generating

Library and Internet Research (3 of 3)

• Internet Research
- If you are starting from scratch, simply typing “new
business ideas” into a search engine will produce links to
newspaper and magazine articles about the “hottest” and
Ideas

“latest” new business ideas.

- If you have a specific topic in mind, setting up Google mail
alerts will provide you with links to a constant stream of
newspaper articles, blog posts, and news releases about the
topic.
- Targeted searches are also useful.
Recognizing Opportunities and Generating

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.
Ideas

• Day-In-The-Life Research
- A type of anthropological research, where the employees of a
company spend a day with a customer.