OPPORTUNITY RECOGNITION

1. OPPORTUNITY RECOGNITION Mark T. Schenkel, Ph.D.

2. Agenda . . . • What is “opportunity”? • Opportunity Recognition Framework • Where do we find opportunity? (Markets) • What makes an opportunity “good”? • Economic Logic (Margin) • Fit with individual needs, wants, and abilities (Me) • Enhancing the ability to identify opportunity and successfully exploit opportunity?

3. What is “Opportunity” . . . ? “a situation or condition favorable to the attainment of a goal,” or “a good position, chance, or prospect, as for success” (Costello, 1995) . . . . the foundations of entrepreneurial opportunity exist in situations where there is some un or underserved need or want. Key issue: Favorable characteristics to opportunity often “exist” in the objective sense, but rarely do opportunities exist in fully developed form (Casson, 2003).

4. Ideas Tend to be Overrated . . . Rare that idea is completely novel (i.e., most already thought of) Entrepreneurship is typically a process of refinement, or incremental innovation Many “better mousetraps” fail to reach commercialization

5. Opportunity Recognition Framework

6. Opportunity Recognition: The Central Role of Information Jobs That Offer Access to “Cutting Edge” Info. Greater Access to Opportunity Related Info. Varied Work and Life Experiences Enhanced Capacity to Recognize Potentially Valuable Opportunity Possession of Large Social Network Active Search for Opps. (e.g., e-alertness schema) Richer and More Integrated Stores of Knowledge Greater Ability to Use Opportunity Related Info. Higher Practical Intelligence

7. Important Factors inOpportunity Recognition Active Search Opportunity Recognition Alertness Prior Knowledge Social Networks

8. Market?

9. Sources of Opportunity: Environmental Forces Broad Environment Technological Forces (Internet) Competitive Environment Sociocultural Forces (Health/Fitness) Competitors NV Suppliers Customers Political & Legal Forces (FTC/Soc. Resp.) Demographic Forces (U.S. – Aging) Distributors Economic Forces (Growth/Recession)

10. Where do we find opportunity? Broad forces of industry change . . . . Technology Knowledge breakthroughs (e.g., music delivery mechanisms over the years) Technology diffusion (e.g., fiber optic band width availability) Political / Legal (local, state, federal, international) Global trade policies (e.g., tariffs, embargos, favored nation status, etc.) Interstate commerce and tax policies (e.g., FTC – sales tax for Internet purchases) Socio-cultural Attitudes and perceptions (e.g., Arizona, the new Florida w/o humidity!, healthy living is “in”) Social norms

11. Where do we find opportunity? Broad forces of industry change . . . . Economic Growth / Recession Demographic Changes . . . note: usually work indirectly through one of the above! Population Age (e.g., influence of the baby boom generation) Education (e.g., on the rise in formerly un or underdeveloped countries) Occupations Geographic location

12. Where do we find opportunity? Strong market demand . . . . Market growth Favorable change in customer attitudes Market share attainable . . . inefficiencies or gaps exist Favorable window of opportunity Market size is large enough to make the venture worth your effort

13. Where do we find opportunity? Industry structure (Porter, 1985) . . . . Low barriers to entry No dominant venture Competitive response to entrants is not predatory in nature Access to distribution channels Slow and old, or traditional

14. Other sources of opportunity? Unexpected successes or failures in the market place Finding an idea that worked in another market Finding an idea that worked for one product/service that can be applied to other products/services

15. Who is the customer? Do they need our product/service? Do they want our product/service? Do we know who actually decides to buy our product/service and who actually pays for it? How many potential customers do we think there are?

16. Quick and Dirty Market Research “Windshield research” Talk to several potential customers Talk to people already in the industry Talk to people who know the industry Talk to experts on business opportunities (e.g. SBDC)

17. Margin?

18. Is There Margin in your venture idea? Economic Logic of the Venture . . . Operating Leverage (high/medium/low) Contribution Margin (high/medium/low) Volumes (high/medium/low) Revenue Driver Flexibility (high/medium/low)

19. Is There Margin in your venture idea? Economic Rules of Thumb . . . >50% margin indicates probable opportunity 20% to 50% margin indicates possible opportunity <20% margin indicates questionable opportunity

20. Good Opportunities Have . . . Compelling need Well defined value proposition Sustainable competitive advantage Management team

21. Compelling Need . . . ? Do you solve a problem? Do customers care? Do customers understand there is a problem? Are customers dissatisfied with current products or services, and if so, how (e.g., performance, poor quality or service, cost, convenience)?

22. Well defined value proposition . . . ? Product/service description Target market Unique benefits A simple statement to help define the value proposition . . . . “X is a _________ [describe] company. Through its _________ [feature(s)], it provides _________ [unique benefit(s)] to [target market].”

23. Common Sources of Competitive Advantage . . . Intellectual property Customer/supplier agreements Long term contracts Control of costs Control of prices Control of channel Location • First to market • World class management • Speed of development • Superior quality • Expertise • Brand • Better service • Relationships • Execution

24. Sustainability of Competitive Advantage . . . Sources . . . Really understand the market Really understand the competition Establish resources and capabilities Challenges to sustainability Ease of copying Entrepreneur ignores competition; future Not realistic about resources and capabilities Must be intellectually honest

25. Management Team . . . 2-5 individuals with complementary skills and capabilities Industry experience Passion, vision and commitment

26. ME?

27. Measuring “Success” • Income for entrepreneur • Wealth for entrepreneur • Goals derived from personal values of the entrepreneur

28. Matching Idea to “ME” Desirability: “Makes me want to get up in the morning” needs: Do you have a passion for the idea? Will it be fun? Feasibility: Experience factor: Does the idea build off of my knowledge, experiences, skills and/or interests?

29. Performing a Self-Assessment • Examine Personal Aspirations and Priorities • Examine Core Values • Examine Personal Entrepreneurial Readiness • Develop a Entrepreneurship/Career Plan

30. Enhancing Opportunity Recognition . . . ?

31. Actively Work to Avoid Potential Sources of Error in Human Cognition • Representativeness heuristic • Availability heuristic • Confirmation bias • Optimistic bias • Planning fallacy • Escalation of commitment • Affect infusion

32. How Business Opportunity Prototypes of Novice and Serial Entrepreneurs Differ Novice • How novel the idea is • Extent to which the idea is based on new technology • Superiority of product or service • Potential to change the industry • Intuition or gut feel Serial • Solving a customer’s problem • Ability to generate positive cash flow • Speed of revenue generation • Manageable risk • Others in their network with whom to develop the venture

33. Keys to enhancing Opportunity Recognition • Exposure to a Broad Range of Business Experience • Learning to Search in the Best Places (e.g., focusing on changes in technology, demographics, markets, etc.) • Learning to Search in the Best Ways (e.g., seeking emergent patterns) • Exposure to a Broad Range of Business Opportunities • Keeping potential cognitive biases in check