ENTR 452 (Opportunity Recognition)

1. ENTR 452 (Opportunity Recognition)

2. THE PROCESS OF “CREATIVE DESTRUCTION” Schumpeter (1934) described the role of the entrepreneur as a radical market innovator who brings about creative destruction through innovation. He argued that industries within societies are replaced by other industries over time. The process of replacement of one industry (destruction) by another more modern industry (creation) is creative destruction. (e.g., typewriters/computers, horse & buggy/cars) Creative destruction is taking place constantly and moves society forward – entrepreneurship moves society.

3. ODDS OF SUCCESS 1 in 1000 chance of becoming a millionaire from starting a business (some studies show 1 in 200 chance) 3 in 10,000 high school basketball players will make the NBA or WNBA (odds far worse for all high school kids) 1 in 176 million chance of winning Mega Millions 1 in 1.1 million chance of getting struck by lightning 1 in 250,000 chance of getting struck by lightning in Montana

4. FINDING/DEVELOPING AN OPPORTUNITY IS CRITICAL Think about unmet market needs. Think about what you are passionate about. Be unique! Can you establish sustainable competitive advantage.

5. UNIQUE BUSINESSES http://most-expensive.com/bed http://www.businessnewsdaily.com/4753-unique-business-ideas.html http://www.dailymail.co.uk/news/article-2271953/Undead-Teds-Phillip-Blackmans-gory-zombie-Teddy-bears-sell-Valentines-Day-2013.html http://earth911.com/news/2010/12/09/agritourism-gets-interactive-with-rent-a-cow-programs/ http://www.usatoday.com/story/news/nation/2013/08/25/food-allergies-tattoos/2633663/

6. OPPORTUNITY RECOGNITION DEFINITION Perceiving a possibility for new profit potential through (a) the founding and formation of a new venture or (b) the significant improvement of an existing venture. (Christensen, Madsen, & Peterson, 1989)

7. OPPORTUNITY FACTORS • Opportunities emerge when there are changes in: • Technology • Consumer Economics • Social Values • Political Action and Regulatory Standards • Demographics • Natural Disasters • Resource Discoveries

8. WINDOW OF OPPORTUNITY (TIMMONS) Market Size $1 billion Market $500M $250M Window of Opportunity $100M Time (years) 5 10 20

9. OPPORTUNITY AS MARKET DISEQUILIBRIA (KIRZNER) Price S Pe P1 D Quantity Qe Q2 Q1

10. THE OPPORTUNITY RECOGNITION PROCESS (LONG & McMULLAN, 1984) i) uncontrolled factors ii) controlled factors B. Identifying the Field of Opportunity C. Elaborating the Opportunity D. The Decision to Proceed Venture Alertness Cultivation Cultural Forces Social Forces Study of Venture Subjects Strategic Idea Elaboration The Decision to Proceed: Prestructuring the Venture Economic Forces Job Selection Initial Vision Elaborated Vision Strategic Idea Elaboration the ‘aha’ experience Job Forces Moonlight Venturing Personality Factors Entrepreneurial Lifestyle

11. OPPORTUNITY RECOGNITION SEQUENCES (BHAVE, 1994) A. Externally Stimulated Opportunity Recognition Opportunity Filtration Opportunity Refinement Opportunities Recognized Decision to Start Opportunity Chosen Business Concept Identified B. Internally Stimulated Opportunity Recognition Commitment to Physical Creation Meta Opportunity Stage Opportunity Refinement Need Fulfilled Need Recognized Business Opportunity Recognized

12. NEW VENTURE IDEAS VS. ENTREPRENEURIAL OPS. • Ideas do not equate to opportunities • Other factors must exist • Controlled and uncontrolled factors (Long & McMullan, 1984) • An entrepreneur’s personal characteristics and environment will influence the opportunity recognition process.

13. MY MODEL OF THE BASIC OPPTY REC. PROCESS Entrepreneur - Background - Experience - Education Entrepreneurial Opportunity *** Business Idea *** Possible Firm Founding Environment - Industry - Economic Conditions - Social Context - Regulatory Issues

14. MEAN NUMBERS OF IDEAS AND OPPORTUNITIES ITEM MEAN Ideas last month 2.4 Ideas last year 6.6 Opportunities last month 1.2 Opportunities last year 3.3

15. IDEA SOURCES SOURCE % OF RESPONDENTS Prior Experience 73.0% Business Associates 32.8% Saw a Similar Business 25.8% Friends or Relatives 19.1% Hobby/Personal Interest 17.2% Market Research 11.3% It Just Came to Mind 10.9% Magazine/Newspaper 2.3% Radio/Television 0.4% Other 4.7%

16. OPPTY RECOGNITION ACTIVITIES ACTIVITY % OF RESPONDENTS Sought out information/feedback from business associates 52.0% Contacted potential customers/clients 50.0% Discussed idea with friends/family members 46.5% Gathered information on competitors 33.6% None, just knew idea was an opportunity 33.2% Prepared financial statements 25.0% Other 3.5%

17. TIME LAPSE BETWEEN IDEA AND OPPORTUNITY TIME % OF ENTREPRENEURS None 13.7% Hours 2.3% Days 14.5% Weeks 22.7% Months 35.9% Years 10.9%

18. TIME LAPSE BETWEEN OPPORTUNITY AND FOUNDING TIME % OF ENTREPRENEURS Hours 1.6% Days 11.3% Weeks 26.2% Months 50.8% Years 10.2%

19. MODIFICATION TO IDEA BEFORE BECOMING OPPTY CHANGE PERCENTAGE OF ENTREPRENEURS No Change 19.1% Slight Change 42.6% Moderate Change 28.5% Major Change 9.0% Complete Change 0.8%

20. OPPTY RECOGNITION THROUGH SOCIAL NETWORKS Social networks are the most important resource of the firm - they provide access to information and resources Social networks subsume both individual and environmental factors - the people one associates with tell us about the individual Support for the “Strength of Weak Ties” (Granovetter, 1973) - People you do not know well are more important to entrepreneurs than people you know well. An associated concept is the importance of Structural Holes (Burt, 1992) – if your immediate contacts do not know each other there are “holes” in the network. This is advantageous (see example).

21. STRUCTURAL HOLES EXAMPLE A’-2 A’-3 A-1 A-2 A’-1 A’-4 A-1 A-2 E-2 E-1 A-3 A-3 A’-5 A’-6 No holes (not as beneficial to the entrepreneur) Three holes (lookat immediate contacts)