Transcript MGT 6500 Entrepreneurial Challenge

OPPORTUNITY RECOGNITION
Mark T. Schenkel, Ph.D.
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?
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).
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
Opportunity Recognition
Framework
Opportunity Recognition: The Central
Role of Information
Jobs That Offer Access to
“Cutting Edge” Info.
Varied Work and Life
Experiences
Possession of Large Social
Network
Active Search for Opps. (e.g.,
e-alertness schema)
Greater Access to
Opportunity Related Info.
Enhanced
Capacity to
Recognize
Potentially
Valuable
Opportunity
Richer and More Integrated
Stores of Knowledge
Greater Ability to Use
Opportunity Related Info.
Higher Practical Intelligence
Important Factors in
Opportunity Recognition
Active Search
Alertness
Prior Knowledge
Social Networks
Opportunity
Recognition
Market?
Sources of Opportunity: Environmental Forces
Broad
Environment
Competitive
Environment
Technological
Forces
(Internet)
Competitors
Supplier
Political & s
Legal Forces
(FTC/Soc. Resp.)
NV
Sociocultural
Forces
(Health/Fitness)
Customers
Distributors
Economic
Forces
(Growth/Recession)
Demographic
Forces
(U.S. – Aging)
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
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
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
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
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
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?
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)
Margin?
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)
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
Good Opportunities Have . . .
 Compelling need
 Well defined value proposition
 Sustainable competitive advantage
 Management team
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)?
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].”
Common Sources of
Competitive Advantage . . .
 Intellectual property
 First to market
 Customer/supplier
 World class management
agreements
 Long term contracts
 Speed of development
 Superior quality
 Expertise
 Control of costs
 Brand
 Control of prices
 Better service
 Control of channel
 Relationships
 Location
 Execution
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
Management Team . . .
 2-5 individuals with
 complementary skills and capabilities
 Industry experience
 Passion, vision and commitment
ME?
Measuring “Success”
 Income for entrepreneur
 Wealth for entrepreneur
 Goals derived from personal values of the
entrepreneur
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?
Performing a Self-Assessment
 Examine Personal Aspirations and Priorities
 Examine Core Values
 Examine Personal Entrepreneurial Readiness
 Develop a Entrepreneurship/Career Plan
Enhancing
Opportunity
Recognition . . . ?
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
How Business Opportunity Prototypes of
Novice and Serial Entrepreneurs Differ
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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
Keys to enhancing Opportunity Recognition
 Exposure to a Broad Range of Business
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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