SESSION 3: IDENTIFYING AND RECOGNIZING OPPORTUNITIES

At the end of the session, learners should be able to:

1. Explain the importance of starting a new firm when the window of opportunity
is open.
2. Distinguish between an opportunity and an idea.
3. Describe the three general approaches entrepreneurs use to identify
opportunities.
4. Discuss the four environmental trends that are most instrumental in creating
business opportunities.
5. Evaluate personal characteristics that make some people better at recognizing
business opportunities than others.

An opportunity is a favorable set of circumstances that creates a need for a new product, service
or business. Entrepreneurs recognize an opportunity and turn it into a successful business. An
entrepreneur recognizes a problem or an opportunity gap and creates a business to fill it. The
key to opportunity recognition is to identify a product or service that people need and are
willing to buy.

An opportunity has four essential qualities: 1) attractive, 2) durable, 3) timely, 4) anchored in

a product or service, or a business that creates and adds value for its buyer or end user. For an
entrepreneur to capitalize on an opportunity, its window of opportunity must be open. This is
a time period in which a firm can realistically enter a new market. Once the market for new
product is established, its window of opportunity opens. As the market grows, firms enter and
try to establish a profitable position. At some point, the market matures, and the window of
opportunity closes.

An idea is a thought, or a notion or an impression. It may or may not meet the criteria of an
opportunity.

Three approaches entrepreneurs use to identify an opportunity

1. Observing trends:

This involves observing the business environment and study how it creates opportunities for
entrepreneurs to pursue. These are economic trends; social trends; technological advance; and
political actions and regulatory changes.
Economic forces are; the state of the economy’s level of disposable income and consumers’
spending patterns. Understanding economic trends is helpful in determining areas that are ripe
for new business ideas and areas to avoid. When the economy is strong people have more
money to spend and are willing to buy products and services that enhance their lives. When the
economy is weak, people are reluctant to spend the money they have due to fear of the economy
getting worse.

Social forces include; Changes in social trends alter how people and businesses act and how
they set their consumption priorities. These changes affect how products and service are
produced and sold. Social forces include, social and cultural trends, demographic changes and
what people think is the “in thing”. An understanding of the impact of social forces on trends
and how they affect new product, service and business ideas contributes to the opportunity
recognition. Below are social trends that are affecting how individuals behave and set their
priorities:

• The increasing diversity of the workforce

• Increasing interest is social networks such as facebook, twitter and whatsApp

• Proliferation of mobile phones and mobile phone apps
• An increasing focus on health and wellness
• Emphasis on clean form of energy such as wind, solar, biofuels and others
• Increasing number of people going back to school or retraining for new jobs
• Increasing interest in healthy foods and green products.
Each of these trends is providing the impetus for new business ideas.
Technological advances; this includes new technologies, emerging technologies and new uses
of old technologies. The key is to recognize how technologies can be used and harnessed to
help satisfy basic or changing needs. Technological advances help people to perform everyday
tasks in better or more convenient ways eg making online hotel and restaurant reservations, its
convenient and more expedient. Once a technology is created, products often emerge to
advance the technology.

Political action and regulatory changes: It involve new changes in political arena and new
laws and regulations. New laws create opportunities for entrepreneurs to start firms to help
companies, individuals and governmental agencies comply with these laws. Some industries
are also dependent on favorable government regulations that their survival is threatened if a
regulation changes. Political change also engenders new business and product opportunities,
eg global political instability and the threat of terrorism have resulted in many firms becoming
more security conscious. The companies need new products and services to protect their
physical assets and intellectual property as well as to protect their customers and employees.

2. Solving a problem;

The second approach is identifying opportunities is to recognize problems and find ways to
solve them. These problems can be recognized by observing the challenges that people
encounter in their daily lives and through more simple means such as intuition, serendipity or
chance. Every problem is a brilliantly disguised opportunity. Many companies have been
started by people who have experienced a problem in their own lives. For example, Jay
Sorensen invented an insulating cup sleeve, since the invention in 1991, hic company “java
Jacket has sold over 1 billion cup sleeves. Sometimes advances in technology result in
problems for people who can’t use the technology in the way it is sold to the masses, e.g.
phones, the old and the children have specific requirement for the phone to be user friendly.
Also, some business ideas are gleaned by recognizing problems that are associated with
emerging trends, for example rechargers for smartphones, Safety web – web-based service that
helps parents protect their children’s online reputation, privacy and safety.

Group Assignment: Write five businesses created to solve a problem by showing the
entrepreneur who created the business, the year, solution provided and the name of the
business.

3. Finding gaps in the marketplace.

There are many examples of products that consumers need or want that are not available in a
particular location or are not available at all. Product gaps in the market place represent
potentially viable business opportunities. For instance, Tish Cirovolo realized that there were
no guitars specifically made for women. She started Daisy Rock guitars which sells guitars for
women that are stylish and come in feminine colors. Gaps in the marketplace are also
recognized when people become frustrated because they cannot find a product or service that
they need and recognize that other people feel the same. New startup will try to bridge a gap in
the market place or fill a niche in a new trend.

Personal characteristics that make some people better at recognizing business

opportunities than others:
Opportunity recognition is the process of perceiving the possibility of a profitable new business
or a new product or service. Some characteristics shared by those who excel at recognizing an
opportunity are:

1. Prior experience in an industry helps people to recognize business opportunities,

especially when working as employees for companies in the same industry. Once an
entrepreneur starts a firm, new venture opportunities become apparent. This is the
corridor principle which states that once an entrepreneur starts a firm, he/she begins
a journey down the path where corridors leading to new venture opportunities become
apparent. Once someone stats a firm and becomes immersed in an industry, it’s much
easier for that person to see new opportunities in the industry than it is for someone
looking in from the outside.

2. Cognitive factors. Opportunity recognition may be an innate skill or a cognitive

process. Some people have entrepreneurial alertness – the ability to notice things
without engaging in deliberate search. They are more alert than others, this is a learned
skill and people who have more knowledge of an area tend to be more alert to
opportunities in that area than others.

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 contacts will be exposed to more opportunities and ideas than people with
sparse networks. Most entrepreneurs according to research have weak-tie relationships
as opposed to strong-tie relationships.

4. Creativity: This is the process of generating a novel or useful idea. Opportunity

recognition can also be a creative process. Teams of entrepreneurs working within a
company are sources of creativity for their firms. Creativity is the ability to develop
new ideas and to discover new ways of looking at problems and opportunities. It is
thinking new things. Innovation is the ability to apply creative solutions to problems
and opportunities to enhance or to enrich people’s lives. It is doing new things.
Entrepreneurs succeed by thinking and doing new things or old things in new ways.
This involves transforming the ideas into tangible product, service or business venture.
They develop new ideas, products and services that solve a problem or fill a need and
in doing so, create value for their customers and wealth for themselves.
 However, for an individual, creativity process can be broken into five stages:

a) Preparation: this is the background, experience and knowledge that an

entrepreneur brings to the opportunity recognition process. Entrepreneurs need
experience to recognize opportunities.
b) Incubation: this is the stage during which a person considers an idea or thinks about
a problem. Sometimes incubation is a conscious activity and other ties it is an
unconscious activity that occurs when a person is engaged in another activity.
c) Insight: This is when the solution to the problem is seen or an idea is born. The
experience may push the process forward or it may prompt an individual to return
to the preparation stage. The entrepreneur may feel that more knowledge and
thought is needed.
d) Evaluation: At this stage the idea is subjected to scrutiny and analyzed for its
viability. This stage requires an entrepreneur to take a keen look at the viability of
an idea. It involves a detailed feasibility of the new business idea.
e) Elaboration: At this stage the creative idea is put to final form. The details are
worked out and the idea is transformed into something of value, such as a new
product, service, or business concept. At this point a business plan is written.

Techniques for generating ideas

There are several techniques entrepreneurs can use to stimulate and facilitate the generation
of new ideas for products, services and businesses, these are:

1) Brainstorming: this is the process of generating several ideas about a specific topic. In
a brainstorming session, the team leader asks participants to share ideas. Participants
share ideas which are evaluated and finally narrowed down to the most viable
opportunity.

There are rules for brainstorming session:

a) No criticism is allowed, it inhibits the free flow of idea
b) Encourage freewheeling, the more ideas the better
c) The session moves quickly and nothing is allowed to slow down its pace.
d) Leapfrogging is encouraged: using one idea as a means of jumping forward quickly
to other ideas.

2. Focus group: participants selected because of their relationship to the issue being discussed.
The participants form a team of between 5 – 10 members. Some companies utilize hybrid focus
group methodologies to achieve specific insights and goals. They can be used to generate new
business ideas. The group is familiar with a topic, are brought together to respond to a question
or questions and shed light on an issue. They work better best as a follow up to brainstorming,
when the general idea for a business has been formulated. Focus group discussions are
conducted by trained moderators, whose goal is to keep the group focused and generate a lively
discussion. Some companies utilize hybrid focus group methodologies to achieve specific
insights and goals.

3. Library and internet research: The entrepreneur approaches a reference librarian and explains
the area of interest that can generate useful resources such as industry specific magazines, trade
journals and industry reports. Internet sources are also important, entrepreneur may use Google
or other links. When the entrepreneur obtains the idea it needs to be shaped and fine-tuned, this
can be done by enlisting a mentor to assist.

4. Other techniques include:

• Customer advisory boards that meet regularly to discuss needs, wants and problems
that may lead to new ideas.
• Some companies conduct varying forms of anthropological research such as day-in-
the-life research, which involves sending teams of testers to the homes and businesses
of users of products to get insights for new product ideas.

Encouraging creativity at the firm level

Creativity is the raw material that goes into innovation. A team of employees may come up
with many legitimate creative ideas for a new product or service, but only one may eventually
be implemented. It may take a hundred creative ideas to discover the one that ideally satisfies
an opportunity.

Creativity can be encouraged or discouraged at the firm level. The extent to which an
organization encourages and rewards creativity affects the creative output of employees.

Actions and behaviors that encourage and discourage creativity

Organizational Inhibitors of Failing to hire creative people

level creativity
 Maintaining an organization culture that stifles
people

Retaining people in the same job for years,

preventing broad and deep experience

Encouraging a mentality suggesting that the best

solutions to all problems are known

Facilitators of Supporting and highlighting creativity’s

creativity importance in all parts of the firm

Rewarding those demonstrating creativity in their

work

Investing in resources for the purpose of helping

employees become more creative

Hiring people with different skills and viewpoints

compared to current employees.

Individual Inhibitors of Being pessimistic, judgmental and critical

supervisory level creativity
Punishing people for failed ideas

Insisting on precision and certainty early in the

creative process

Being inattentive, acting distant and remaining

silent when employees want to discuss new ideas.

Facilitators of Listening attentively for the purpose of openly

creativity acknowledging and supporting ideas early in their
development

Treating employees as equals for the purpose of

demonstrating that status isn’t important
 Speculating, being open and building on others
ideas

Protecting people who make honest mistakes and

commit to learning from them.

Protecting ideas from being lost or stolen

Intellectual property is any product of human intellect that is intangible but has value in the
marketplace. It can be protected through tools such as patents, trademarks, copy rights and
trade secrets. A mere idea or concept does not qualify for intellectual property protection; it
comes later when the idea is translated into a more concrete form.

At the opportunity recognition stage there are three steps taken when a potentially valuable
idea is generated.

Step 1: the idea should be put into a tangible form – either into a physical idea logbook or saved
on a computer disk and dated. It should have the signature of the person who entered the idea
into the logbook and the witness should be notarized.

Step 2. The idea should be secured. It may involve having the idea stored on a computer
network and therefore access to the idea should be protected through a password.

Step 3. Avoid making a voluntary disclosure of an idea in a way that forfeits your claim to its
exclusive rights.

The entrepreneurial Decision Process involves:

• Deciding to become an entrepreneur
• Entrepreneurial decision process entails a movement from something to something.
• Movement from a present lifestyle to forming a new enterprise.
The decision to start a new company occurs when an individual perceives that forming a new
enterprise is both desirable and possible.

Desire to form a new venture results from an individuals’

1. Culture-values an individual who successfully creates a new business, e.g. an American
culture places value on being one’s own boss, having individual opportunities, being a
 success and making money-all aspects of entrepreneurship. No culture is totally for or
against entrepreneurship.
2. Subcultures-many subcultures that shape value systems operate within a cultural
framework. There are pockets of entrepreneurial subcultures in every economy. E.g. In
Kenya we have light industries and jua kali centres.These subcultures support and even
promote entrepreneurship. There are variations within these subcultures e.g. caused by
family traits studies show that a high percentage of the founders of companies had
fathers or mothers who loved independence.
3. Encouragement to form a company can further be stimulated by teachers, who can
influence individuals to regard entrepreneurship as a desirable and viable career path.
4. A strong university education base is an important factor for entrepreneurial activity
and company formation in an area.
5. Peers- an area with an entrepreneurial pool and a meeting place where entrepreneurs
and potential entrepreneurs can discuss ideas, problems and solutions spawns more new
companies than an area where these are no available.

Factors that make it possible to form new ventures.

1. Government-provides infrastructure to help and support new ventures.
2. Formal education and previous business experience give a potential entrepreneur the
skills needed to manage a new enterprise. Individuals tend to be more successful in
forming businesses in fields in which they have worked
3. Understanding of marketing in addition to the presence of a market of sufficient size.
4. Role Model- Powerful influence in making company formation possible, seeing
someone else succeed make it easier to picture oneself engaged in a similar activity.
5. Financial resources must be readily available. Startup capital may come from personal
savings, credits, friends, relatives etc... Additional risk capital is necessary. This plays
a key role in the development and growth of entrepreneurial activity.
Review questions
a) What is an opportunity? What are the qualities of an opportunity, and why is each
quality important.
b) Discuss four environmental trends that an entrepreneur considers in creating business
opportunities. Give an example of each environmental trend and the type of business
opportunity that it might help create.
c) Discuss the five stages of the creative process for an individual.
d) Define creativity. How does creativity contribute to the opportunity recognition
process?
e) What is a product opportunity gap? How can an entrepreneur tell if a product
opportunity gap exists?