Where do entrepreneurial opportunities come from?

An opportunity is a gap in the market where there is the potential to do something different and create value (Wickham 2004). This represents a potential to serve customers better than they are already being served through a product or service that offers consumers more utility in terms of satisfying human needs than existing products or services. An opportunity must solve a problem, fulfil a need or want, create a fad or trend for any exploitation of it to have a chance of succeeding. New opportunities continually emerge but don’t necessarily present themselves openly. They must be seen, discovered and identified, which is the task of entrepreneurs and managers of firms. Not every idea is worthy enough to take action upon. The potential return on the investment of time and effort must be large enough to offset the opportunity cost of exploiting another idea or doing something else (Kirzner 1973).

All opportunities have a basis or rationale of being. If the opportunity is to be considered entrepreneurial, it must originate from a source of innovation, as entrepreneurial market activity is novel by definition (Kuratko & Hodgetts 2004). An innovation can be seen as the source that enables the successful exploitation of ideas into new products, services, processes or business models. Innovation is critical to enable a firm to grow and remain profitable. Innovation combines knowledge and the needs and wants of consumers that are the base of opportunities. Innovation is not just about the improvement of technology but covers all aspects of a business and the way it organizes itself and operates. Innovation is an ingredient needed to construct most opportunities that seek to exploit changes within the environment. Innovation combines knowledge, resources, capabilities and competencies with social networks to create new means of creating value.

Innovation can create new sources of competitive advantage for a firm when it enables incremental changes in the market. Revolutionary innovation can create new industries with new breakthroughs in technology and methods of organization. However there must be a reason for innovation, not just something done for the sake of doing it like what occurred with the launch of New Coke, replacing the well accepted Classic Coke during the 1980s. Likewise technology alone does not automatically yield innovation, imagination, development and marketing skills are needed.  Innovation must provide the basis or source of opportunity that is intended to exploit a gap within the marketplace.

However not all sources of opportunity need be innovative and most ventures usually start with non-innovative ideas. In fact very few enterprises have neither, the time, resources, technology or expertise to research and develop new business ideas and innovations (Johnson & Tilley 1999).

A business begins with an idea that has been deemed an opportunity through some form of analysis and a person is motivated enough to act upon it. The majority of ideas are derived from the following categories;

  1. An old type of business that can be given a new twist or professionalism, i.e., McDonalds or herbal products,
  2. A standard product or service that can be customised, i.e., recording birthdays on customer records so that congratulatory messages can be individually sent to customers by a company,
  3. New technology that can be adapted to manufacture old products, i.e., desktop publishing, compact disks, faxes and email, etc.
  4. Imported products that can be replaced with domestic products, i.e., the basis of many domestic automobile industries,
  5. The changing of business models, i.e., sourcing products from a third party rather than manufacturing them,
  6. Developing the same business identity in another geographical location, i.e., The opening up of Coca Cola, KFC and Pizza Hut franchises in other states and countries, and
  7. Replicating another business and competing against the original business, i.e., the opening up of a bakery, milk bar, convenience store near another one. 

Although entrepreneurship has been associated with opportunity, there has been very little written about the sources of opportunity. Attention has been focused upon the sources of innovation, rather than the sources of opportunity, which can be innovative or non-innovative.

Business development is concerned about the art of seeing and exploiting opportunity for the creation of value, which may contribute to the firm’s profitability, growth and/or survival. This process goes through four basic phases;

  1. The discovery, identification or construction of ideas about opportunities through the creative process,
  2. The screening of these ideas to determine whether an opportunity exists that has potential to be exploited,
  3. The crafting of a useful strategy that is able to exploit the identified opportunity, and
  4. The implementation of the strategy in a way that adds value to the firm.

There is an abundance of management theory about the identification and exploitation of opportunities from various points of view. Andrews (1965), Ansoff (1965) and Porter (1980, 1985, 1990) take the point of view that opportunity identification and strategy development is rational and analytical through convergent thinking process. Ohmae (1982), Mintzberg (1994) and Stacy (1993) see opportunity identification and strategy development as more intuitive and a creative process through divergent thinking. Others like Wilson (1994, 1998), Raimond (1996), Liedtka (1998a, 1998b) and Heracleous (1998) see opportunity identification and strategy development as a mixture of art and science. What seems to be important is a firm’s ability to recognise what information is important in opportunity recognition and subsequent innovative processes, its prior and related knowledge and experience (Cohen & Levinthal 1990), and its alertness, self efficacy, creativity, social networks and the type of opportunity itself (Ardichvili et. al. 2003). Previous entrepreneurial experience may assist in developing an â€˜opportunity intellect’ that aids the identification of opportunities and provides a framework that allows informed and experienced based decisions about how to exploit an identified opportunity (Kaish & Gilad 1991).

The process of opportunity identification would appear to be an emergent rather than a deductive process, requiring divergent rather than convergent thinking. Innovation is generated through social interaction where data cannot be analyzed in logical ways. For example quantitative market research may be very limited in the information it can provide a person who foresees the possibility of opening a sandwich bar next to a commuter train station or a courthouse. Understanding consumer behaviour, their wants and needs will be more important in making any decision to exploit the perceived opportunity. Therefore seeing opportunity is more related to the ability to imagine and associated emotions. New ideas are constructed, not analyzed. The future cannot be forecast, it can only be explored (Schumacher 1974, P. 200).

In order to see the potential sources of opportunity one must be able to take a strategic view of the firm and the environment. A strategic view is one that can pick up subtle changes in the environment through a degree of sensitivity and alertness and be able to extrapolate any linkages and connections discovered into idea scenarios that can be evaluated. An individual will tend to be more sensitive and alert in domains that he or she already has knowledge and experience.

To see opportunity there must be motivation or intent. Hamel and Prahalad (1989) conceptualized the concept of strategic intent where there is an intuitive vision of the future direction of the firm. This helps to provide focus on the domain and selective parts of the environment that are considered important to the firm’s future. Therefore as well as being a motivator, strategic intent concerns itself with the immediate domain and the firm’s perceived capabilities and prior learning linked through prior knowledge. Strategic intent also gives a sense of destiny and direction (Hamel & Prahalad 1994, pp. 129-130).

The discovery of useful sources of opportunity in the construct of opportunities is tied to observation of environment changes over time. Changes in the environment usually occur in an evolutionary manner which the average person will not be aware and think about. Connectiveness of the past and present to the future must be incubated by the individuals who make up the firm over reflection and time.

Alternatively sources of opportunity may be driven by new technologies, either as an incremental step or breakthrough. New technologies incorporated into products, services or improve production processes can potentially add value to a firm. With novel breakthrough technologies a firm may be able to create a new market segment, i.e., P&Gs development of Pert/Rejoice 2 in 1 shampoo, or even a new industry, i.e., the advent of cellular phones created a new industry separate to existing landline phone networks.

The firm will operate according to a â€˜self hypothesis’ which is influenced by learning and prior knowledge. A â€˜self hypothesis’ is a shared mental model of the environment and the firm’s place within it. The firm’s â€˜self hypothesis’ is where the firm perceives its own strengths and weaknesses, those of its competitors, the potential reactions of competitors to an aggressive stance taken by the firm, weak spots and barriers within the field and areas where the firm should not enter or is safe to enter. The â€˜self hypothesis’ is the firm’s view of the world, generating a perception of its own self efficacy. The â€˜self hypothesis’ can be a barrier to seeing opportunities if one is not aware of the assumptions behind it.

Most influence of prior knowledge is manifested through the firm’s â€˜self hypothesis’. Prior knowledge contains learning about what can and cannot be done within the market by the firm. One important role prior knowledge plays is in technical and tacit knowledge about products, business models, technology, consumers, and competitors, etc. Through incubation prior knowledge assists the cognitive system make linkages and connections which identify new sources of opportunity for the firm. The huge majority of ideas already exist in one form or another within the existing or another domain, another geographical location or in another time. We remember different ideas from past experience or observation of the environment. Past knowledge may assist in creating unique insights into the consequences of change occurring within the environment.

Alertness and sensitivity are qualities needed to see and pick up subtle changes in the environment. Our focus also plays a role in assisting to narrow down our attention to what is relevant to potential new opportunities. Finally it is important to know what to look for in finding new opportunities. Our opportunity intellect is a specialised knowledge which guides us through the discovery, evaluation and scenario building process of a potential opportunity. It is a strong entrepreneurial intuitive ability. The components influencing the strategic view are shown in Figure 1.

Figure 1. The components of the strategic view.

Therefore new sources of opportunity can be pushed out by a firm as a new product or service into the marketplace or be pulled by unsatisfied customer needs. Some innovations go on to be successful as the product or service is what customers are looking for, while others miss fulfilling any latent customer need and fail. In the case of failure mistakes can be felt very quickly with a product, service, or even business failure, which may prove very expensive.

The sources of opportunity

Peter Drucker (1985, P. 34) remarked that we cannot develop a full and complete theory of the sources of opportunity, yet we can understand where opportunities may come from. The overwhelming majority of successful innovations exploit social, economic and regulatory change or new and improved technologies. New to the world breakthrough inventions may provoke change as did the aeroplane to commercial aviation, the telephone to communication and the television to entertainment, etc. New technologies often make great changes to the way we live our lives as we are beginning to see through new advances in biotechnology and genomics.

Innovation requires a systematic and disciplined way of work based upon what the innovator sees and learns from the environment, particularly in his or her own domain. All sources of opportunity must be based on purchasing power which is the ultimate driver of innovation. For example, very few people in Malaysia could afford to purchase a new Proton Saga car when it was launched in Malaysia during 1984, if it was not for the innovative leasing packages attached to purchases of the vehicles. Finance packages made the Proton Saga car available to many new potential car buyers through its easy access to lower middle income groups. This was the innovative part of the proton business model that enabled the company to gain over a 70% market share in Malaysia during the late 1980s and throughout the 1990s. Finance changed the Malaysian car market from a supply driven to a demand driven market. These forms of social innovation often have much more impact than technical innovation.

The author has divided the sources of opportunity into six main categories, market void, technology infusion, structural changes, resource monopoly, regulation and non-innovative. Each main category has a number of sub-categories (see Figure 2). Further, each source of opportunity will have a different impact upon the environment. It may;

  • Increase efficiency with small intensely focused productivity improvements by improving what already exists through minimal investment. These types of sources of opportunity can be seen in many quality programs that manufacturing and service industries engage upon.
  • Make evolutionary changes incremental to the market place focused on improving existing products and services like bank ATMs, Dell Computer’s mass customization of home computers as per customer preferences and Toyota’s development of specialized distribution channels for the Scion brand targeted at Gen Y, etc., and
  • Make revolutionary changes through radical new additions to the market place that change the way people think about and do things, which may lead to changes in existing structure of the industry and/or marketplace, like the invention of the motor vehicle at the beginning of the 20th century and Henry Ford’s development of the mass production line around 1914 which brought the product from something only the elite could afford to something affordable to the middle classes of the United States (Dent 1994).

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