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CHAPTER 2 | RECOgnIzIng OppOrtunities AnD gEnERATIng IDEAS 1
the economy is strong, people have more money to spend and are willing to buy discretionary
products and services that enhance their lives. In contrast, when the economy is weak, not only
do people have less money to spend, they are typically more reluctant to spend the money they
have, fearing the economy may become even worse, and that in turn, they might lose their jobs
because of a weakening economy. Paradoxically, a weak economy provides business
opportunities for start-ups that help consumers and businesses save money. Examples include
GasBuddy and GasPriceWatch.com, two companies started to help consumers save money on
gasoline. A similar example is WaterSmart Software, a 2009 start-up. WaterSmart Software
sells software to water utilities that makes it easier for their customers to save water and money.
When studying how economic forces affect business opportunities, it is important to
evaluate who has money to spend and what they spend it on. For example, an increase in the
number of women in the workforce and their related increase in disposable income is largely
responsible for the number of online retailers and boutique clothing stores targeting
professional women that have opened the past several years. Similarly, the increased buying
power of minority populations has resulted in an upswing of ethnic restaurants and ethnic
supermarkets in the United States. Baby boomers are another potential group to examine. These
individuals, who were born between 1946 and 1964, are retiring in large numbers and will be
retiring in even larger numbers over the next five years or so. The expectation is that these
people will redirect a sizeable portion of their assets to products and services that facilitate their
retirement. This trend will invariably spawn new businesses in many areas, largely because
baby boomers have greater disposable income relative to previous generations. For example,
baby boomers tend to take pride in their homes and lawns. Recent data indicates that baby
boomers who own homes are 21 percent more likely than all American adults to have spent
$10,000 or more on home improvements.5 Other areas that baby boomers spend heavily on
include health care, travel, and consumer packaged goods. The high cost of energy, coupled
with a desire to be socially responsible, has also spawned a growing number of startups that are
developing products and services that help business and consumers become more energy
efficient. An example is Nest Labs (www.nest.com), a 2010 startup. Nest Labs—which was
acquired by Google in 2014—makes the world’s first learning thermostat. The thermostat,
which can be used in homes or businesses, learns from your temperature adjustments and
programs itself to optimize a building’s comfort and energy efficiency.6
An understanding of economic trends also helps identify areas to avoid. For example, a
decision to launch a company that sells products or services to public schools was not a wise
one during the recent economic downturn. In the United States—and other countries, as well—
public schools have been hit hard by budget cuts from governmental funding agencies. The cuts
have significantly reduced the ability of schools to purchase new products and services.
Social Forces An understanding of the impact of social forces on trends and how they affect
new product, service, and business ideas is a fundamental piece of the opportunity recognition
puzzle. Often, the reason that a product or service exists has more to do with satisfying a social
need than the more transparent need the product fills. The proliferation of fast-food restaurants,
for example, isn’t primarily because of people’s love of fast food, but rather because of the fact
that people are busy and often don’t have time to cook their own meals. Similarly, social
networking sites like Facebook, Twitter, and Instagram aren’t popular because they can be used
to post information and photos on a website. They’re popular because they allow people to
connect and communicate with each other, which is a natural human tendency.
Changes in social trends alter how people and businesses behave and how they set their
priorities. These changes affect how products and services are built and sold. Here is a sample of the
social trends that are currently affecting how individuals behave and set their priorities:
■ Aging of the population

■ The increasing diversity of the workforce
■ Increased participation in social networks
■ Growth in the use of mobile devices
■ An increasing focus on health and wellness
■ Emphasis on clean forms of energy, including wind, solar, biofuels, and others
■ Continual migration of people from small towns and rural areas to cities
■ Desire for personalization (which creates a need for products and services that people can tailor
to their own tastes and needs)
Each of these trends is providing the impetus for new business ideas. The continual
migration of people from small towns and rural areas to cities, for example, is creating more
congestion in cities. Businesses like Zipcar, a carsharing service, and Alta Bicycle Share, a
bicycle-sharing service, were started in part to address this problem. Similarly, the aging of the
population is creating business opportunities from vision care to home health care to senior
dating sites. An example is Glaukos, a company that’s developing a new approach for treating
glaucoma, which is an age-related eye disorder.
The proliferation of smartphones is a social trend that’s opening business opportunities for
entrepreneurs across the globe. More than 1.75 b illion people worldwide owned mobile phones
in 2014, and that number is expected grow to 2.5 billion by 2017. By 2017, nearly 50 percent of
mobile phones will be smartphones, like the Apple iPhone and Android-equipped devices. The
proliferation of smartphones will spawn new businesses both in the United States and
throughout the world. Sometimes social trends converge to create a particuarly compelling
business idea. For example, CareZone, a 2012 startup, was launched by Johathan Schwartz,
who was looking for ways to better manage the care of five aging parents and in-laws.
CareZone is an app for smartphones, tablets, or computers that allows those involved in a
person’s care to share and save information in a secure, online setting. CareZone’s potential is
bolstered by two societal trends: the aging of the population and the growth in the use of
smartphone apps and other connected devices.
The increasing interest in social networking sites such as Facebook, Twitter, and LinkedIn
is a highly visible social trend. A total of 69 percent of men and 78 percent of women use one
or more social networking sites.7 In addition to providing people new ways to communicate and
interact with each other, social networks also act as platforms for other businesses to build on.
Zynga, for example, the maker of popular online games like FarmVille and Scramble, became
popular by making browser-based games that worked as application widgets on Facebook.
Similarly, entrepreneurs have launched businesses for the purpose of starting social networks
that cater to specific niches. An example is PatientsLikeMe, the subject of Case 1.2, which is a
social networking site for people with serious diseases.
Technological Advances Advances in technology frequently dovetail with economic and

social changes to create opportunities. For example, there are many overlaps between an
increased focus on health and wellness and technology. Wearable devices, like the Fitbit Flex
and the Jawbone Up, help people maintain a healthy lifestyle by monitoring their movements
and sleep. In fact, ABI Research projects that 90 million wearable computing devices will be
shipped in 2014.8 There are a growing number of mobile apps and activity trackers that beam
the data they collect to their health care providers so they can keep tabs on their activities and
inform treatments. Insurance companies and corporations are increasingly partnering with
technology companies like RedBrick Health and Audax Health, which establish programs to
help encourage healthy lifestyles.
Technological advances also provide opportunities to help people perform everyday tasks
in better or more convenient ways. For example, OpenTable. com is a website that allows users
to make restaurant reservations online and now covers most of the United States. If you’re
planning a trip to Boston, for example, you can access OpenTable.com, select the area of the
city you’ll be visiting, and view descriptions, reviews, customer ratings, and in most cases the
menus of the restaurants in the area. You can then make a reservation at the restaurant and print
a map and the directions to it. The basic tasks that OpenTable.com helps people perform have
always been done: looking for a restaurant, comparing prices and menus, soliciting advice from
people who are familiar with competing restaurants, and getting directions. What OpenTable.
com does is help people perform these tasks in a more convenient and expedient manner.
Another aspect of technological advances is that once a technology is created, products
often emerge to advance it. For example, the creation of the Apple iPod, iPhone, iPad, and
similar devices has in turned spawned entire industries that produce compatible devices. For
example, Rokit is a high-end mobile accessories company that makes smartphone cases,
headphones, portable USB device chargers and Bluetooth speakers. Rokit wouldn’t exist if it
weren’t for the advent of the smartphone industry. Similarly, there are a growing number of
start-ups working on smartphone apps. An example is Ubersense, the subject of the You Be the
VC 5.2 feature. Ubersense has made a smartphone and tablet app that allows athletes, coaches,
and parents to shoot video of an athlete’s move or competition, and then analyze the video in a
variety of ways.
Political Action and regulatory Changes Political and regulatory changes also provide the
basis for business ideas. For example, new laws often spur start-ups that are launched to take
advantage of their specifications. This is currently happening as a result of the passage of the
Affordable Care Act (Obamacare). The combination of new regulations, incentitives for doctors
and hospitals to shift to electronic records, and the release of mountains of data held by the
Department of Health and Human Services (on topics such as hospital quality and nursing
home patient satisfaction), is motivating entrepreneurs to launch electronic medical records
start-ups, apps to help patients monitor their medications, and similar companies. 9
On some occassions, entire industries hinge on whether certain government regulations
evolve in a manner that is favorable to the industry. For example, there are several start-ups
poised to commercialize the use of drones, or Aerial UAV’s. Drones can be used for a number
of domestic purposes, such as helping farmers determine the optimal level of fertilizer to place
on crops or helping filmmakers shoot overhead scenes. Amazon.com created quite a bit of buzz
in late 2013 when it suggested it would like to use drones for package delivery. As of spring
2014, the FAA permitted drones to be used for personal use, and restricted their use to below
400 feet, within eyesight of the controller and away from airports and populated areas. Drone
start-ups, like 3D Robotics, are waiting for the FAA to develop more liberal rules and standards
that will allow drones to be used for expanded purposes.10
Political change also engenders new business and product opportunities. For example, global
political instability and the threat of terrorism have resulted in many firms becoming more security-
conscious. These companies need new products and services to protect their physical assets and
intellectual property, as well as to protect their customers and employees. The backup data storage
industry, for example, is expanding because of this new trend in the tendency to feel the need for
data to be more protected than in the past. An example of a start-up in this area is Box.net, which
was funded by Mark Cuban, the owner of the Dallas Mavericks. Box.net allows its customers to
store data “offsite” on Box.net servers, and access it via any Internet connection.
Table 2.1 offers additional examples of changes in environmental trends that provided
fertile soil for opportunities and subsequent concepts to take advantage of them.
One thing entrepreneurs invarably do when a changing environmental trend prompts them
to think about a business opportunity is to learn more about the trend in an effort to shape and
mold their idea. The “Savvy Entrepreneurial Firm” feature in this chapter focuses on how to
learn more about specific environmental trends through the effective use of social media.
TAble 2.1 examples of How Changes in environmental trends provide Openings for new business
and product Opportunities
resulting new Business, product, and

changing environmental trend service opportunities companies that resulted
economic trends
Search for alternatives to traditional fossil Ethanol, biodiesel, solar power, wind- noesis Energy, Effortless Energy,
fuels like gasoline generated power eMeter, nest Labs
Aging of the population In-home care, health and wellness apps, CareLinx, Mango Health, Elder
financial services for older people, Life Financial Services, Senior
travel-related services for older people Travel Services, Inc.
social trends
Increased interest in different, tastier, and Healthy-fare restaurants, ethnic
healthier food packaged foods, craft beer, functional naked Pizza, Brooklyn Brewery,
beverages Hint (bottled water), Popchips
Increased interest in fitness as the result Fitness centers, pilates and yogo Snap Fitness, Wello, Yogaview
of new medical information warning of the studios, exercise apps, weight-loss (Chicago), Fitbit, noom Weight
hazards of being overweight programs and apps Loss Coach
technological Advances
Smartphones Smartphone operating systems, Android, Instagram, Mango
smartphone apps, smartphone accessories Health, iSkin, OnTrion
Wearable technology Wearable fitness devices, wearable lifesytle Fitbit, Pebble Technologies,
devices (like google glasses), and wearable Oculus Rift, Recon Jet, Sensoria
tech gadgets.
political and regulatory changes

Increased EPA and OSHA standards Consulting companies, software to monitor PrimeTech, Compliance
compliance Consulting Services, SafeSoft
Affordable Care Act (Obamacare) Electronic medical records, doctor-patient CareCloud, One Touch EMR,
matching services, physician social zocDoc, PracticeFusion, Sermo
networks
Savvy EntrEprEnEurial Firm
How to Learn About Emerging Trends Through the Effective
Use of Social Media ■ LinkedIn groups. LinkedIn also has groups. To
find a group, simply go to LinkedIn’s homepage,
O
ften, as a result of a changing environmental trend, and to the left of the search bar, access the
individuals have the seeds of a business idea, but dropdown menu and select groups. You can then
need to know more about the trend before their search to see if groups exist that match your topic.
idea can fully take shape. For example, one environmental When writing this feature, there were several
trend, the continual migration of people from small towns LinkedIn groups on bike-sharing. There were also
and rural areas to cities, has resulted in cities becoming groups that dealt with urban congestion. By typing
more congested. To help relieve congestion, many large “urban congestion” into the search bar, LinkedIn
cities are implementing bike-sharing programs. The suggested the group “Creating Healthy, Liveable
programs typically allow a person to pick up a bike at Point Cities,” among others. Similar to Facebook, most
A and then drop it off at Point B. The idea is that if someone LinkedIn groups will want you to join to participate
has a short commute to work, or plans to make a short trip, in the discussions.
s/he might opt to ride a bike rather than drive their car. The ■ Twitter. You can search for topics on Twitter,
fewer cars there are on the street, the less congestion there along with people, businesses, and organizations.
will be. You simply place the hashtag (#) in front of the topic.
Say you had the idea to start a for-profit company to For example, for the business idea proposed above,
manage bike-sharing programs for mid-sized cities. This you might want to search for the following topics:
potentially could be a viable idea, given that to date, most of #bikesharing, #urbancongestion, #urbanqualityoflife,
the programs are in large cities. A mid-sized city would be a #healthycities, etc. Your searches will result in the
city like Tulsa, OK, or Little Rock, AR. You have the idea, most current tweets of people talking about those
but you now need to learn as much as you can about the topics. This is a good way to both consume content
migration of people from small towns and rural areas to on a topic in which you are interested and to identify
cities, as well as how bike-sharing programs work. You’re people or organizations that you might want to follow
just in the idea stage here, collecting information and on a consistent basis. Twitter does not support
looking for insights. Many people try to use social media to groups. Some third-party Twitter tools, like
learn about emerging trends, but go about it in a haphazard Tweetdeck, do allow you to form or join groups of
manner. Here are some suggestions for effectively using Twitter followers that are interested in a specific
social media to study environmental trends and business topic.
ideas associated with those trends. ■ Blogs. To check to see if there is a blog on a topic
■ Facebook groups. Look for Facebook groups that of interest, seach google Blogs at www.google.
pertain to the topics in which you have an interest. com/blogsearch. A quick search identified a blog
You can find Facebook groups by simply accessing named The Bike-Sharing Blog at www.bike-
Facebook’s main page and typing the appropriate sharing.blogspot.com. It also identified a website on
keywords in the search bar. Once you start typing for Healthy Cities at www.healthycities.org.
a term like “bike sharing,” you’ll see a list of ■ Tumblr. Tumblr is a popular microblogging plat-
suggestions pop up beneath the search bar. You can form and social networking website owned by
then look at the groups in which you have an interest. Yahoo. Simply go to Tumblr (www.tumblr.com) and
Simply “like” the groups that you want to follow, and type your query into the search bar. You’ll see what
you’ll start getting notifications of new posts. Most Tumblr has to offer. You can try many different
groups will ask you to join (by clicking the join button) combinations of terms, such as “bike sharing,”
if you want to post information or make comments on “healthy cities,” “migrations to cities,” etc. You can
others’ posts. then periodically view or follow the Tumblr
microblogs that interest you the most.
solving a problem
The second approach to identifying opportunities is to recognize problems and find ways to
solve them. 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.
There are many problems
One of the most
pressing problems
facing the United
States and other countries is finding alternatives to fossil fuels. A large number of entrepreneurial firms are being launched to
take on this challenge. Among potential solutions is windgenerated energy.
that have yet to be solved. Commenting on this issue and how noticing problems can lead to
recognizing business ideas. Philip Kotler, a marketing e xpert, said:
Look for problems. People complain about it being hard to sleep through the night, get rid of clutter
in their homes, find an affordable vacation, trace their family origins, get rid of garden weeds, and
so on. As the late John Gardner, founder of Common Cause, observed: “Every problem is a
brilliantly disguised opportunity.”11
Consistent with this observation, many companies have been started by people who have
experienced a problem in their own lives, and then realized that the solution to the problem
represented a business opportunity. For example, in 1991, Jay Sorensen dropped a cup of coffee
in his lap because the paper cup was too hot. This experience led Sorensen to invent an
insulating cup sleeve and to start a company to sell it. Since launching his venture, the
company, Java Jacket, has sold over four billion cup sleeves. Similarly, after watching countless
women walk home barefoot after a long night in heels, New York University finance students
Katie Shea and Susie Levitt started a company named CitySlips to make easily portable,
comfortable shoes. They created a pair of flats that fold up to fit into a pocket-size zip pouch,
which easily fits into most women’s purses. When a woman pops on the shoes, the pouch
unfurles into a tote bag to carry the high heels. The two began selling CitySlips in 2009; today,
their product is carried in over 500 stores.12
Advances in technology often result in problems for people who can’t use the technology
in the way it is sold to the masses. For example, some older people find traditional cell phones
hard to use: the buttons are small, the text is hard to read, and it’s often difficult to hear
someone on a cell phone in a noisy room. To solve these problems, GreatCall, Inc. is producing
a cell phone called the Jitterbug, which is designed specifically for older users. The Jitterbug
features a large keypad that makes dialing easy, powerful speakers that deliver clear sound,
easy-to-read text, and simple text-messaging capability. Another company, Firefly Mobile, has
created a cell phone designed specifically for kids and tweens. The phone weighs only 2
ounces, and is designed to fit in a kid’s hand. The phone includes a full-color screen, built-in
games, built-in parental controls that allow parents to restrict incoming and outgoing calls as
well as limit or restrict texting, and special speed dials for mom and dad.
If you’re having difficulty solving a particular problem, one technique that is useful is to
find an instance where a similar problem was solved and then apply that solution to your
problem. For example, Yogitoes, a company that makes nonslip rugs for yoga enthusiasts, was
started in this manner. Several yoga positions require participants to strike poses where they
balance their weight on their feet at an angle. In this position, it is easy to slip when using a
regular yoga mat. The company’s founder, Susan Nicols, looked for a yoga mat that would
prevent her from slipping, but found that no one knew how to make one. So she started looking
for an example of a product that was designed specifically to prevent it from slipping on a hard
floor, to study how it functioned. Eventually, she came across a dog bowl with rubber nubs on
the bottom to prevent it from sliding when a large dog ate or drank from it. Using the dog bowl
as a model, Nichols found a manufacturer who helped her develop a rug with small PVC nubs
that prevents yoga participants from slipping when they perform yoga moves. Nichols started
Yogitoes to sell the rugs, patented her solution, and has now been in business for more than 10
years.13
Some business ideas are gleaned by recognizing problems that are associated with
emerging trends. For example, SafetyWeb has created a Web-based service that helps parents
protect their children’s online reputation, privacy, and safety. The social trend toward more
online activity by children resulted in the need for this service. Similarly, the proliferation of
smartphones enables people to stay better connected, but results in problems when people
aren’t able to access electricity to recharge their phones for a period of time. A number of
companies have solved this problem in innovative ways. Examples include BioLite, which is a
stove for campers that uses wood to create energy to recharge smartphones, and BikeCharge,
which is a set of devices that are placed near the rear wheels of your bike and on your
handlebars that charges your smartphone while you ride.
Additional examples of people who launched businesses to solve problems are included in
Table 2.2. TAble 2.2 businesses Created to solve a problem
name of Business
entrepreneur(s) year problem solution that resulted
Alison Johnson Rue 2012 There is no easy way for a Create an online platform that InstaEdu
and Dan Johnson student to connect with an online makes it possible for any student to (www.instaedu.com)
tutor. connect with a tutor at any time.
greg goff and Hesky 2010 People traveling do not have Create an online platform that can be MotherKnows (www.
Kutscher ready access to their pulled up from any Web browser or motherknows.com)
children’s medical records, on a smartphone that provides
which may be needed if the access to a child’s full medical
child gets injured or sick. history.
Jason Kiesel 2009 There is no easy way for Create a mobile app that allows CitySourced (www.
residents of a city to report a resident to take a photo of the citysourced.com)
quality-of-life issues, such as problem, send it to a central
graffiti or an abandoned car. clearinghouse in city government,
who will alert the appropriate city
agency to fix the problem.
(Continued)
TAble 2.2 Continued
name of Business
entrepreneur(s) year problem solution that resulted
Roger Marsh 2009 Alter traditional methods of c oncrete Bolt-A-Blok

Concrete block construction block construction to enable the a Systems
takes time and requires ssembly of the block to be c
water; a building built with ompleted in a manner that requires
concrete blocks cannot be no water, has immediate occupancy,
occupied immediately and is faster than current
because the building’s mortar procedures.
needs time to cure.
Perry Chen, 2009 no easy-to-access p latform for Create a Web-based “crowdfunding” Kickstarter
Yancey Strickler, funding c reative projects, like platform that helps artists, musicians,
and Charles Adler indie films, record albums, or and people involved in other creative
food-related projects. projects raise money from the public.
Finding gaps in the Marketplace

Gaps in the marketplace are the third source of business opportunities. There are many
examples of products that consumers need or want that aren’t available in a particular location
or aren’t available at all. Part of the problem is created by large retailers, like Wal-Mart and
Costco, that compete primarily on price and offer the most popular items targeted toward
mainstream consumers. While this approach allows the large retailers to achieve economies of
scale, it leaves gaps in the marketplace. This is the reason that clothing boutiques, specialty
shops, and e-commerce websites exist. These businesses are willing to carry merchandise that
doesn’t sell in large enough quantities for Wal-Mart and Costco to carry.
Product gaps in the marketplace represent potentially viable business opportunities. For
example, Tish Cirovolo realized that there were no guitars on the market made specifically for
women. To fill this gap, she started Daisy Rock guitars, a company that makes guitars just for
women. Daisy Rock guitars are stylish, come in feminine colors, and incorporate design
features that accommodate a woman’s smaller hand and build. In a related manner, Southpaw
Guitars located in Houston, Texas, carries only guitars that are designed and produced for left-
handed players. Another company that is filling a gap in the marketplace is ModCloth, a firm
selling vintage and vintage-inspired clothing for 18- to 32-year-old women, which is a
surprisingly large market. A start-up in a completely different industry is GreenJob Spider.
GreenJob Spider fills a gap in the online recruiting industry by supporting a job site for
employers and prospective employees in “green” industries such as solar, wind, recycling,
green buildings, and LED lighting.
Additional examples of companies started to fill gaps in the marketplace are provided in Table
2.3.
A common way that gaps in the marketplace are recognized is when people become
frustrated because they can’t find a product or service that they need and recognize that other
people feel the same way. This scenario played out for Lorna Ketler and Barb Wilkins, who
became frustrated when they couldn’t find stylish “plus-sized” clothing that fit. In response to
their frustration, they started Bodacious, a store that sells fun and stylish “plus-size” clothing
that fits. Ketler and Wilkins’s experience illustrates how compelling a business idea can be
when it strikes just the right chord by filling a gap that deeply resonates with a specific
clientele. Reflecting on the success of Bodacious, Wilkins said:
It’s so rewarding when you take a risk and it pays off for you and people are telling you every
single day, “I am so glad you are here.” We’ve had people cry in our store. It happens a lot. They’re
crying because they’re so happy (that they’re
TAble 2.3 businesses Created to Fill a gap in the Marketplace
name of Businesses that

gap in the Marketplace resulting new Business opportunity resulted
no fitness centers that are open 24 24-hour fitness centers to accommodate people Anytime Fitness, 24 Hour Fitness
hours a day who work odd hours
Lack of toys and toy stores that Toy stores, toy manufacturers, websites that sell Launchpad Toys, Little Bits,
focus on a child’s intellectual educational toys, and toy and smartphone app Modular Robotics, Ubolly
development combinations
Too few women pursuing careers For-profit and non-profit organizations that teach girls Who Code, Engineering for
in engineering older girls to code, after-school programs that Kids, goldieBlox, Roominate
engage school-age girls in engineering-related
projects, interactive books and games that interest
young girls in engineering
Shortage of clothing stores that Boutiques and retail stores that sell fashionable Casual Male, Fashions to Figure,
sell fashionable clothing for clothing for hard-to-fit people, including plus-sized Motherhood Maternity
hard-to-fit people clothing, maternity clothes, or clothing for tall or
short people
learning ObjeCtive gap and filling it. An example is PopCap Games, a company that was started to create a new
3. Discuss the personal category in the electronic games industry called “casual games.” The games are casual and
characteristics of relaxing rather than flashy and action-packed, and are made for people who want to wind
entrepreneurs that down after a busy day.
contribute to their ability One thing that entrepreneurs must remain mindful of in pursuing business opportunities,
to recognize business regardless of whether the opportunity results from changing environmental trends, solving a
opportunities.
problem, or finding gaps in the marketplace, is that the opportunity must ultimately be
finding clothes
that fit). One
fashioned into a successful business. The nearby “What Went Wrong?” feature focuses on
woman put on a Everpix, a company that resulted from its founders’ frustration regarding the lack of a good
pair of jeans that service to store and organize photos. Regrettably, the founder spent too much time focused on
fit her, and she the opportunity at the expenses of the business, as you’ll see in the feature.
called me an hour
later and said,
“They still look
good, even at personal Characteristics of the
home!”
Sometimes entrepreneur
people have a How did Michael Dell come up with the idea of a “build it yourself” computer company?
body change that How did Dave Roberts, the founder of PopCap Games, figure out that there is a large and
happens, whether growing market for “casual” electronic games?
they have been ill
Researchers have identified several characteristics that tend to make some people better at
or had a baby,
recognizing opportunities than others. We’ve already defined an opportunity as a favorable set
and there’s lots of
of circumstances that create the need for a new product, service, or business, but the term
What WEnt Wrong?
Why a Company that Solved a Problem With a Great Product
emotion involved opportunity recognition
in it. If you can
go and buy
Went Out of Business
I
clothes that fit,
that helps people n 2009, Pierre-Olivier Latour spent some time traveling through Asia with a friend. He
feel good about became frustrated with how difficult it was to store and organize all the photos he was
themselves.14 taking. When he returned to the United States, he discussed his frustration with Kevin
Quennesson, a fellow French engineer. Quennesson had a different frustration with photos,
noting that the more photos he took, the less likely he was to go back and look at them.
A related Quennesson saw this likelihood as a paradox. The more he documented his life, the less likely
technique for he was to enjoy what he had created.
generating new Latour and Quennesson saw the combination of their frustrations as a problem. There
business wasn’t a good solution on the market to store and organize photos in a manner that would
opportunities is to encourage people to go back and look at them. The two decided to start a business and
build a prototype of a photo storing and organizing service that potentially solved the
take an existing
problem. In June 2011 they met Wayne Fan, who was working at a San Francisco firm
product or service
doing interaction and visual design, and brought him in as a co-founder. The three spent
and create a new the next several months building a prototype of their service, which they named Everpix.
category by targeting The service seamlessly found and uploaded photos from your desktop and from online
a completely different services, then organized them to highlight the best ones. The service was fast, the design
target market. This was clean, and it was simple to use.
approach essentially Everpix raised a total of $1.8 million from angel investors and continued to work on
involves creating a the product. The first version of Everpix 1.0 rolled out in March 2013. A free option let you
see all your photos In a nutshell, Everpix’s founders spent too much time and energy perfecting their
from the past year service at the expense of building a business. The service wasn’t viral, meaning it wasn’t
or longer if you easy for Everpix subscribers to share photos with friends and encourage them to become
connected to Everpix members. The Everpix team realized this was a problem and kicked around ways
Everpix’s app. For to make the service more viral. One idea was to require a subscriber’s friends to create
$4.99 a month or an account to download any photos that the subscriber shared with them, but the idea
$49 a year, the was killed as just the type of self-serving design choice that the team prided itself in
service would let avoiding. It also spent almost nothing on advertising or promotions. It had spent the $1.8
you store an million it raised building the service. So at the time when other photo apps were attracting
unlimited amount of millions of users, Everpix had fewer than 19,000 sign-ups.
photos. One cool In the weeks prior to closing, Everpix’s founders scrambled to raise additional funding.
feature, called Because they were well-connected in the angel investing and venture capital world, they got a
Flashbacks, sent number of meetings. They were consistently praised on the quality of their product and the
users daily email quality of the team they had assembled, but the business was the problem. Investors were
messages of their getting spooked, in part, by the sheer number of apps that were being created and the ease
photos from the with which consumers could switch between them. In addition, a number of Everpix’s
same day in prior competitors were giving their services away for free, while Everpix’s business model relied on
years. The overall paid subscriptions. One by one, the investors turned them down. Several overtures were made
service got rave to potential acquirers, but none panned out. Eventually, Everpix ran out of money and didn’t
reviews, and its have the capacity to continue.
users seemed to
love it. The Everpix
app had a 4.5-star
average rating (on a Questions for Critical Thinking
scale of 1- 5) out of 1. In the context of this chapter, make a list of three “takeaways” from this feature that you can learn
more than 1,000 from and try to avoid if you set out to solve a problem by launching a business.
reviews. It seemed 2. To what degree is there a difference between pursuing an opportunity to solve a problem and
as though the building a business? In what ways did Everpix fail to do both?
founders were 3. According to the feature, Everpix spent almost nothing on advertising and promotions. How large
solving the problem of a role do you think that decision played in Everpix’s failure?
they had set out to 4. venture capitalists are often accused of swinging for the fences—in other words, they don’t invest
solve, with an in firms that are hitting signals, doubles, or triples. They want home runs. In hindsight, do you
attractive and solid think Everpix was building a business that had the potential to hit singles, doubles, or triples, or a
product. Then, in business that had the potential to be a home run? Explain your answer.
the summer of
sources: C. newton, “Out of the Picture: Why the World’s Best Photo Startup is going Out of Business.” The
2013, Everpix
verge, orginally posted on november 5, 2013, Available at http://www. theverge.com/2013/11/5/5039216/everpix-
closed. What went life-and-death-insidethe-worlds-best-photo-startup, accessed March 19, 2014; The Sublog, “Everpix, Snapchat,
wrong? and The Startup Life,” november 7, 2013, Available at http://subimage.com/blog/2013/11/07/ever pix-snapchat-
and-the-startup-lie/#.Uym15qMo670, accessed March 19, 2014.
refers to the process of perceiving the possibility of a profitable new business or a new product or
service. That is, an opportunity cannot be pursued until it’s recognized. Now let’s look at some
specific characteristics shared by those who excel at recognizing an opportunity.
prior experience
Several studies show that prior experience in an industry helps entrepreneurs recognize business
opportunities. For example, evidence over time about the founders of firms appearing on the Inc.
500 list shows that well over 40 percent of those studied got the idea for their new businesses while
working as employees for companies in the same industries. 15 This finding is consistent with those
reported by scholars studying the relationship between industry experience and being able to
recognize opportunities.16 There are several explanations for these findings. By working in an
industry, an individual may spot a market niche that is underserved. It is also possible that while
working in a particular area, an individual builds a network of social contacts in that industry that
may provide insights that lead to opportunities.17
Although prior experience is important in an industry in most instances, there is anecdotal
evidence suggesting that people outside an industry can sometimes enter it with a new set of eyes,
and as a result innovate in ways that people with prior experience might find difficult. An example is
provided by Sam Calagione, the founder of Dogfish Head Craft Brewery, a very successful brewery
based in Milton, Delaware. As indicated in the following quote, Milton set aside current industry
best practices to craft some of his most popular products:
In the mid-‘90s, some beer enthusiasts and experts called us heretics for brewing beers with ingredients
outside of the “traditional” water, yeast, hops, and barley. So, I started researching ancient brewing
cultures and learned that long ago, brewers in every corner of the world made beer with whatever was
beautiful and natural and grew beneath the ground they lived on. We (Dogfish Brewery) now make a
whole series of Ancient Ales inspired by historic and molecular evidence found in tombs and dig sites.18
cognitive Factors
Opportunity recognition may be an innate skill or a cognitive process. 19 There are some who think
that entrepreneurs have a “sixth sense” that allows them to see opportunities that others miss. This
sixth sense is called entrepreneurial alertness, which is formally defined as the ability to notice
things without engaging in deliberate search.20 Most entrepreneurs see themselves in this light,
believing they are more “alert” than others. Alertness is largely a learned skill, and people who have
more knowledge of an area tend to be more alert to opportunities in that area than others. A
computer engineer, for example, would be more alert to needs and opportunities within the computer
industry than a lawyer would be.
The research findings on entrepreneurial alertness are mixed. Some researchers conclude that
alertness goes beyond noticing things and involves a more purposeful effort. For example, one
scholar believes that the crucial difference between opportunity finders (i.e., entrepreneurs) and
nonfinders is their relative assessments of the marketplace. 21 In other words, entrepreneurs may be
better than others at sizing up the marketplace and inferring the likely implications.
social networks
The extent and depth of an individual’s social network affects opportunity recognition. 22 People who
build a substantial network of social and professional contacts will be exposed to more opportunities
and ideas than people with sparse networks. This exposure can lead to new business starts. Research
results over time consistently suggest that somewhere between 40 percent and 50 percent of those
who start businesses got their ideas through social contacts. 23 In a related study, the differences
between solo entrepreneurs (those who identified their business ideas on their own) and network
entrepreneurs (those who identified their ideas through social contacts) were examined. The
researchers found that network entrepreneurs identified significantly more opportunities than solo
entrepreneurs, but were less likely to describe themselves as being particularly alert or creative. 24
An important concept that sheds light on the importance of social networks to opportunity
recognition is the differential impact of strong-tie versus weaktie relationships. Relationships with
other people are called “ties.” We all have ties. Strong-tie relationships are characterized by
frequent interaction, such as ties between coworkers, friends, and spouses. Weak-tie relationships
are characterized by infrequent interaction, like ties between casual acquaintances. According to
research in this area, it is more likely that an entrepreneur will get a new business idea through a
weak-tie than a strong-tie relationship, because strong-tie relationships —which typically form
between like-minded individuals —tend to reinforce insights and ideas the individuals already have. 25
Weak-tie relationships, on the other hand, which form between casual acquaintances, are not as apt to
be between like-minded individuals, so one person may say something to another that sparks a
completely new idea. An example might be an electrician explaining to a restaurant owner how he
solved a business problem. After hearing the solution, the restaurant owner might say, “I would never
have heard that solution from someone in my company or industry. That insight is completely new to
me and just might help me solve my problem.”
creativity
Creativity is the process of generating a novel or useful idea. Opportunity recognition may be, at
least in part, a creative process. On an anecdotal basis, it is easy to see the creativity involved in
forming many products, services, and businesses. Increasingly, teams of entrepreneurs working
within a company are sources of creativity for their firm.26
For an individual, the creative process can be broken into five stages, as shown in Figure 2.4. 27
Let’s examine how these stages relate to the opportunity recognition process. In the figure, the
horizontal arrows that point from box to box suggest that the creative process progresses through five
stages. The vertical arrows suggest that if at any stage an individual (such as an entrepreneur) gets
“stuck” or doesn’t have enough information or insight to continue, the
best choice is to return to the preparation stage—to obtain more knowledge or experience before
continuing to move forward.
Preparation. Preparation is the background, experience, and knowledge that an entrepreneur
brings to the opportunity recognition process. Just as an athlete must practice to excel, an
entrepreneur needs experience to spot opportunities. Over time, the results of research suggest
that as much as 50 to 90 percent of start-up ideas emerge from a person’s prior work experience.
Incubation. Incubation is the stage during which a person considers an idea or thinks about a
problem; it is the “mulling things over” phase. Sometimes incubation is a conscious activity, and
sometimes it is unconscious and occurs while a person is engaged in another activity. One writer
characterized this phenomenon by saying that “ideas churn around below the threshold of
consciousness.”
Insight. Insight is the flash of recognition when the solution to a problem is seen or an idea is
born. It is sometimes called the “eureka” experience. In a business context, this is the moment
an entrepreneur recognizes an opportunity. Sometimes this experience pushes the process
forward, and sometimes it prompts an individual to return to the preparation stage. For example,
an entrepreneur may recognize the potential for an opportunity, but may feel that more
knowledge and thought is required before pursuing it.
Evaluation. Evaluation is the stage of the creative process during which an idea is subjected to
scrutiny and analyzed for its viability. Many entrepreneurs mistakenly skip this step and try to
implement an idea before they’ve made sure it is viable. Evaluation is a particularly challenging
stage of the creative process because it requires an entrepreneur to take a candid look at the
viability of an idea. We discuss how to evaluate the feasibility of new business ideas in Chapter
3.
Elaboration. Elaboration is the stage during which the creative idea is put into a 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. In the case of a new business, this is the point at which a
business plan is written.
Figure 2.5 illustrates the opportunity recognition process. As shown in the figure, there is a
connection between an awareness of emerging trends and
Figure 2.5
The Opportunity
Recognition Process
the personal characteristics of the
entrepreneur because the two
facets of opportunity recognition
are interdependent. For example,
an entrepreneur with a well-
established social network may be
in a better position to recognize
emerging technological trends
than an entrepreneur with a
poorly established social network.
Or the awareness of an emerging
technology trend, such as
digitization, may prompt an
entrepreneur to attend
conferences or workshops to learn more about the topic, expanding the social network.
techniques for generating ideas

In general, entrepreneurs identify more ideas than opportunities because many ideas are typically
generated to find the best way to capitalize on an opportunity. 28 Several techniques can be used to
stimulate and facilitate the generation of new ideas for products, services, and businesses. Let’s take
a look at some of them.
Brainstorming
A common way to generate new business ideas is through brainstorming. In general, brainstorming
is simply the process of generating several ideas about a specific topic. The approaches range from a
person sitting down with a yellow legal pad and jotting down interesting business ideas to formal
“brainstorming sessions” led by moderators that involve a group of people.
In a formal brainstorming session, the leader of the group asks the participants to share their
ideas. One person shares an idea, another person reacts to it, another person reacts to the reaction,
and so on. A flip chart or an electronic whiteboard is typically used to record all the ideas. A
productive session is freewheeling and lively. The session is not used for analysis or decision learning ObjeCtive
making—the ideas generated during a brainstorming session need to be filtered and analyzed, but 4. Identify and describe
this is done later. We show the four strict rules for conducting a formal brainstorming session in techiques
entrepreneurs use to
Table 2.4. As you’ll see, the number one rule for a brainstorming session is that no criticism is
generate ideas.
allowed, including chuckles, raised eyebrows, or facial expressions that express skepticism or doubt.
Criticism stymies creativity and inhibits the free flow of ideas.
Some organizations use “brainstorming walls” for people to jot down ideas. By putting ideas on walls, otherwise would not have
people can stand back and view multiple ideas simultaneously, and make connections that they made.
TAble 2.4 rules for a Formal brainstorming session
rule explanation
1 no criticism is allowed, including chuckles, raised eyebrows, or facial expressions that express skepticism or doubt.
Criticism stymies creativity and inhibits the free flow of ideas.
2 Freewheeling, which is the carefree expression of ideas free from rules or restraints, is encouraged; the more ideas,
the better. Even crazy or outlandish ideas may lead to a good idea or a solution to a problem.
3 The session moves quickly, and nothing is permitted to slow down its pace. For example, it is more important to
capture the essence of an idea than to take the time to write it down neatly.
4 Leapfrogging is encouraged. This means using one idea as a means of jumping forward quickly to other ideas.
Brainstorming sessions dedicated to generating new business ideas are often less formal. For
example, while creating Proactiv, a popular acne treatment product, Dr. Katie Rodan, one of the
company’s founders, hosted dinner parties at her house and conducted brainstorming sessions with
guests. The guests included business executives, market researchers, marketing consultants, an FDA
regulatory attorney, and others. Rodan credits this group with helping her and her co-founder
brainstorm a number of ideas that helped shape Proactiv and move the process of starting the
company forward.29 Similarly, Sharelle Klaus—the founder of Dry Soda, a company that makes an
all-natural soda that’s paired with food the way wine is in upscale restaurants—tested her idea by
first talking to her husband’s colleagues, who were in the food industry, and then tapped into the
professional network of a friend who owned a bottled water company. Through the process, she met
a chemist, who was instrumental in helping her develop the initial recipes for her beverage. Klaus
also went directly to restaurant owners and chefs to ask them to sample early versions of her
product.30 While this approach only loosely fits the definition of brainstorming, the spirit is the same.
Klaus was bouncing ideas and early prototypes of her product off others to get their reactions and
generate additional ideas.
An individual’s imagination is the only limiting factor to brainstorming. Asking students to
complete a bug report is a popular technique that is used in classrooms to teach brainstorming. To
compile a bug report, students are instructed to list 50 to 75 conditions or “things” that “bug” them
in their everyday lives. Asking students to identify a number of conditions or things that bug them
reduces the likelihood that they will specify only obvious things that bug them (e.g., campus
parking, dorm food, and untidy roommates). Students can also be encouraged to hold focus groups
with friends to brainstorm conditions that can be included on their “bug” list.
Focus groups
A focus group is a gathering of 5 to 10 people who are selected because of their relationship to the
issue being discussed. Focus groups are used for a variety of purposes, including the generation of
new business ideas.
Focus groups typically involve a group of people who are familiar with a topic, are brought
together to respond to questions, and shed light on an issue through the give-and-take nature of a
group discussion. Focus groups usually work best as a follow-up to brainstorming, when the general
idea for a business has been formulated—such as casual electronic games for adults—but further
refinement of the idea is needed. Usually, focus groups are conducted by trained moderators. The
moderator’s primary goals are to keep the group “focused” and to generate lively discussion. Much
of the effectiveness of a focus group session depends on the moderator’s ability to ask questions and
keep the discussion on track. For example, a retail establishment in which coffee is sold, such as
Starbucks, might conduct a focus group consisting of 7 to 10 frequent customers and ask the group,
“What is it that you don’t like about our coffee shop?” A customer may say, “You sell 1-pound bags
of your specialty ground coffees for people to brew at home. That’s okay, but I often run out of the
coffee in just a few days. Sometimes it’s a week before I get back to the shop to buy another bag. If
you sold 3-pound or 5-pound bags, I’d actually use more coffee because I wouldn’t run out so often.
I guess I could buy two or three 1-pound bags at the same time, but that gets a little pricey. I’d buy a
3- or 5-pound bag, however, if you’d discount your price a little for larger quantities.” The
moderator may then ask the group, “How many people here would buy 3-pound or 5-pound bags of
our coffee if they were available?” If five hands shoot up, the coffee shop may have just uncovered
an idea for a new product line.
A relatively new service called Napkin Labs helps companies funnel followers from Facebook
and other sites into more intimate, more structured online communities intended to serve as focus
groups. For example, Modify, the subject of Case 3.1, is a company that creates custom watches. The
watches have interchangable faces, straps, and sliders and come in two sizes. Modify uses Napkin
Labs to get people to chime in on what new colors and designs they’d like to see, and where they’d
like to see the watches sold. Each lab poses a challenge, such as “where should our watches be sold?”
A dialogue is created among the participants. Each participant knows what the other ones are saying
and can react to their comments. According to Aaron Schwartz, Modify’s founder, one lab showed a
surprisingly big interest in seeing his company’s watches sold in surf shops. Other online companies,
such as UserVoice and Get Satisfaction, help firms connect with their users in a similar manner. 31
library and internet research
A third approach to generating new business ideas is to conduct library and Internet research. A
natural tendency is to think that an idea should be chosen, and the process of researching the idea
should then begin. This approach is too linear. Often, the best ideas emerge when the general notion
of an idea—like creating casual electronic games for adults—is merged with extensive library and
Internet research, which might provide insights into the best type of casual games to create.
Libraries are often an underutilized source of information for generating business ideas. The best
approach to utilizing a library is to discuss your general area of interest with a reference librarian,
who can point out useful resources, such as industry-specific magazines, trade journals, and industry
reports. Simply browsing through several issues of a trade journal on a topic can spark new ideas.
Very powerful search engines and databases are also available through university and large public
libraries, which would cost hundreds or thousands of dollars to access on your own. An example is
IBISWorld (www.ibisworld.com), a company that publishes market research on all major industries
and subcategories within industries.
Internet research is also important. If you are starting from scratch, simply typing “new business
ideas” into Google or Bing will produce links to newspaper and magazine articles about the “hottest”
and “latest” new business ideas. Although these types of articles are general in nature, they represent
a starting point if you’re trying to generate new business ideas from scratch. If you have a specific
idea in mind, a useful technique is to set up a Google “email alert” using keywords that pertain to
your topic of interest. Google email alerts are email updates of the latest Google results including
press releases, news
learning ObjeCtive articles and blog postings about specific topics. Another approach is to follow business leaders
5. Discuss actions to take and experts in the industries you’re interested in on Twitter. The best way to locate people on
to encourage Twitter you might be interested in following is by typing into the search bar relevant
continuous keywords preceded by the “#” sign. For example, if you’re interested in solar power, type
development of new “#solarpower” into the search bar. All the results will be people or companies who tweet about
ideas in entrepreneurial solar power topics.
firms.
Once an entrepreneur has an idea, it often needs to be shaped and finetuned. One way to
articles, and blog
do this—in conjunction with the suggestions made previously—is to enlist a mentor to help.
posts based on your
An explanation of how to use a mentor in this regard, and where mentors can be found, is
topic. This
described in the “Partnering for Success” feature.
technique, which is
available for free,
will feed you a daily
stream of news
| RECOgnIzIng OppOrtunities AnD gEnERATIng IDEAS
CHAPTER 2 16
other encouraging the development of new
techniques ideas
Firms use a variety In many firms, idea generation is a haphazard process. However, entrepreneurial ventures can
of other techniques
to generate ideas. take certain concrete steps to build an organization that encourages and protects new ideas.
Some companies set Let’s see what these steps are.
up customer
advisory boards
establishing a Focal point for ideas
that meet regularly Some firms meet the challenge of encouraging, collecting, and evaluating ideas by designating
to discuss needs, a specific person to screen and track them—for if it’s everybody’s job, it may be no one’s
wants, and problems responsibility.32 Another approach is to establish an idea bank (or vault), which is a physical
that may lead to new or digital repository for storing ideas. An example of an idea bank would be a password-
ideas. Other protected location on a firm’s intranet that is available only to qualified employees. It may
companies conduct have a file for ideas that are being actively contemplated and a file for inactive ideas. Other
varying forms of firms do not have idea banks, but instead encourage employees to keep journals of their ideas.
anthropological
research, such as
day-in-the-life
research. Intuit, the
encouraging creativity at the Firm level
There is an important distinction between creativity and innovation. As indicated in Chapter 1,
maker of Quicken,
innovation refers to the successful introduction of new outcomes by a firm. In contrast,
Quickbooks, and
creativity is the process of generating a novel or useful idea; however, creativity does not
TurboTax, practices
require implementation of an idea. In other words, creativity is the raw material that goes into
day-in-the life
innovation. A team of employees may come up with a hundred legitimate creative ideas for a
research. The
new product or service, but only one may eventually be implemented. Of course, it may take a
company routinely
hundred creative ideas to discover the one that ideally satisfies an opportunity.
ine-
FpartnEring For SuccESS
Want Help Fine-Tuning a Business Idea? Find a Mentor
sends teams of tuning a business idea isn’t easy. While fairly course-grained ideas are rather easy to develop,
testers to the homes like creating a smartphone that’s designed specifically
and businesses of its for elderly people, fleshing out the details is where experience helps. This reality puts first-time
users to see how its entrepreneurs at a disadvantage. While there are many books and websites about new
products are working business ideas, what many first-time entrepreneurs find most helpful in the idea generation and
perfecting stage is to find a mentor to guide them through the process.
and to seek insights
A mentor is someone who is more experienced than you and is willing to be your
for new product counselor, confidant, and go-to person for advice. There are two ways to find a mentor.
ideas. First, you can work with your network of acquaintances—professors, business owners,
coaches— to determine if there is someone available that you trust, has experience
helping first-time entrepreneurs, and is willing to become your mentor. Many first-time
entrepreneurs are surprised by the number of talented and experienced people who are
eager to share their expertise and enter into a mentoring relationship. The second way is
to utilize one of the growing numbers of websites and organizations that help match
business founders with people who are willing to become mentors. One website is
MicroMentor.org, which is a nonprofit that matches business founders with mentors. You
can go to the site and fill out a profile about yourself and your goals, and then search
profiles of potential mentors who match your needs. Once a match is made, the
mentoring can take place through email, via Web conferencing, over the phone, or in
person. There is a tab on MicroMentor’s website that provides access to “success stories”
of business founders who have had excellent results using its service. A number of
organizations provide a similar service. For example, the national Association for Women
Business Owners (nAWBO) has over 5,000 members in 60 chapters across the United
States. Some chapters sponsor mentorship programs.
Another useful and your university. For example, if what you’re looking for is a mentor that can help
suggestion is to navigate you through the process of raising money for your start-up and you’re a student
reach out to at Oklahoma State University, you might type into the search bar “CFO Oklahoma State
somone in your University.” The results will list everyone with a LinkedIn profile who identifies themself as
college or the CFO (Chief Financial Officer) of an organization and is a graduate of Oklahoma State
university’s alumni University. You can then connect with the person through the private email service within
network. Alumni are LinkedIn. Most people have fond memories of their college days. As a result, even
often looking for a experienced entrepreneurs and executives are often delighted to connect with a student
way to “give back” at their alma mater.
to the instutition The ideal situation is to find a mentor in your own community so you can meet face-to-face,
from which they whether it’s an alumni of your university of someone else. Still, the online options provide a
graduated and are wide range of mentors to choose from, which may result in a better match. Online mentoring
frequently willing to and counseling relationships are becoming increasingly common. For example, a sizeable
connect with others percent of all the counseling and mentoring done by SCORE counselors is now done online.
as a way of doing Similar to any relationship, a business founder should be careful and only share private
so. Alumni often information with a mentor once a trusting relationship has been established.
serve as judges for
college-sponsored
pitch or business Questions for Critical Thinking
plan competitions,
1. If you were working on fine-tuning a business idea, would you check out one of these online
so that’s one way
options or an association in your area that provides mentoring and advice for business founders?
to connect. A
Why or why not?
particularly useful
2. To what degree do you believe that having a mentor can make the difference between an
resource is to do an
entrepreneur succeeding or failing? In what areas of the entrepreneurial process do you believe
Advanced People
that mentors are called on the most?
Search on
3. Make a list of the organizations in your area that p rovide mentorship and advice for business
LinkedIn. You can
founders. Which organizations make the most sense to reach out to for someone who is still in
do this by
the opportunity r ecognition stage of the start-up process?
accessing the
Advanced People 4. How do you know what to do with a mentor’s advice? If you get advice from several mentors or
Search function in counselors at organizations like SCORE and local Small Business Development Centers, how
LinkedIn (www. can you best sort through the advice and know which advice to take and which advice to set
linkedin.com/searc aside?
h?trk=advsrch). source: P. Ryckman, “How to Choose and Work with a Mentor,” new York times,
You type in a title www.nytimes.com/2010/09/02/business/smallbusiness/ 02sbiz.html?_r=2&emc=eta1 (accessed April 2, 2011,
originally posted on September 1, 2010).
An employee may exhibit creativity in a number of ways, including solving a problem or taking
an opportunity and using it to develop a new product or service idea. Although creativity is typically
thought of as an individual attribute, it can be encouraged or discouraged at the firm level. The
extent to which an organization encourages and rewards creativity affects the creative output of its
employees.33 Table 2.5 provides a list of actions and behaviors that encourage and discourage
creativity at both the organizational level and the individual supervisor level.
TAble 2.5 actions and behaviors that encourage and discourage Creativity
organizational inhibitors ■ Failing to hire creative people

level of Creativity ■ Maintaining an organizational culture that stifles people
■ Retaining people in the same job for years, preventing them from broad and deep experiences
■ Promoting a mentality suggesting that the best solutions to all problems are known
Facilitators ■ Supporting and highlighting creativity’s importance in all parts of the firm of
Creativity ■ Overtly 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 ■ Being pessimistic, judgmental, and critical supervisory
of Creativity ■ Punishing people for failed ideas level ■ 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 ■ Listening attentively for the purpose of openly acknowledging and supporting ideas early of
Creativity 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
Chapter Summary
lO1. An idea is a thought, an impression, or a technological advances, and political action notion. An opportunity is an idea that
has and regulatory changes are the four envithe qualities of being attractive, durable, ronmental trends that are most
instrumenand timely and is anchored in a product tal in creating opportunities. Through the or service that creates value
for its buyers second approach, entrepreneurs identify or end-users. Not all ideas are opportuni- problems that they and
others encounter ties. Once an opportunity is recognized, in various parts of the lives and then go a window opens, and the
market to fill about developing a good or service that is the opportunity grows. At some point, the intended to solve the
identified problem. market matures and becomes saturated Carefully observing people and the actions with competitors,
and the window of op- they take is an excellent way to find prob-
portunity closes. lems that, when solved, would create value
lO2. Observing trends, solving a problem, for a customer. Finding gaps in the mar-ketplace is the third way to spot a business
and finding gaps in the marketplace are opportunity. Typically, the way this works the three general approaches entrepre-
is that an entrepreneur recognizes that neurs use to identify a business oppor- some people are interested in buying more
tunity. Economic forces, social forces,
specialized products, such as guitars that holdings and of Internet sites are a third are made for left-handed players or
scissors technique. Here, the entrepreneur uses an for people who are dominant left-handers. open mind to sort
through large amounts
lO3. Over time, research results and observa- of information and data to see if s/he can identify a problem that could be
solved by tions of entrepreneurs in action indicate creating an innovative product or service. that some people are
better at recognizing
opportunities than others. Prior experi- lO5. Entrepreneurs and their firms engage in ence, cognitive factors, social
networks, several actions to encourage the develand creativity are the main personal char- opment and retention of
business ideas. acteristics researchers have identified and Creativity is central to a firm’s efforts to that observation
indicates tend to make innovate; as such, firms take actions to some people better at recognizing busi- nurture
creativity. More specifically, enness opportunities than others. trepreneurs and their firms encourage
lO4. Entrepreneurs use several techniques for creativity at the firm level through both organizational and individual
supervisory the purpose of identifying ideas for new level facilitators of creativity. Examples of products and
services. Brainstorming is organizational level facilitators of creativone of these. More specifically, brainstormity
include supporting creativity’s imporing is a technique used to quickly generate tance and hiring people with
different skills a large number of ideas and solutions to and viewpoints than those of current emproblems. One
reason to conduct a brainployees. Examples of individual supervistorming session is to generate ideas that sory level
facilitators of creativity include might represent product, service, or busilistening attentively for the purpose of
acness opportunities. A focus group, a second knowledging and supporting ideas early in technique entrepreneurs
use, is a gathering their development and protecting people of 5 to 10 people who have been selected who make
honest mistakes and commit to on the basis of their common characterislearning from them. Ideas flowing from the
tics relative to the issue being discussed. exercise of creativity are stored in an idea
|
CHAPTER 2 RECOgnIzIng OppOrtunities AnD gEnERATIng IDEAS 20
One reason to conduct a focus group is to bank, which is a physical or digital resposigenerate ideas that might
represent prodtory for storing ideas generated throughout uct or business opportunities. Careful and an
entrepreneurial venture. extensive searches of a physical library’s
Key Terms
brainstorming, 59 bug
report, 60 creativity, 57 idea, 44 idea
customer advisory boards, 62 day-in-the- bank, 62
life research, 62 entrepreneurial alertness, intranet, 62 opportunity recognition, 54 solo
56 focus group, 60 mentor, 63 entrepreneurs, 57 strong-tie
network entrepreneurs, 57 relationships, 57 weak-tie
opportunity, 43 opportunity gap, relationships, 57 window of
43 opportunity, 43
Review Questions
2-1. What is a product opportunity gap? 2-6. How can “solving a problem” create a b usiness
2-2. How can an entrepreneur tell if a product opportunity for an entrepreneur to pursue?
opportunity gap exists? 2-7. How can finding a gap in the marketplace create a
2-3. What is an opportunity? business opportunity?
2-4. What are the qualities of an opportunity, and 2-8. What is the meaning of the term opportunity
why is each quality important? recognition?
2-5. What four environmental trends are most 2-9. In what ways does prior industry e xperience
instrumental in creating business provide an entrepreneur an advantage in
opportunities? Provide an example of each recognizing business opportunities?
environmental trend and the type of business 2-10. What is entrepreneurial alertness and why is it
opportunity it might help create. important to entrepreneurs?
CHAPTER 2 |
RECOgnIzIng OppOrtunities AnD gEnERATIng IDEAS 21
2-11. How does an extensive social network provide an 2-16. What are the differences between an
entrepreneur an advantage in recognizing business opportunity and an idea and why are
opportunities? those differences important for
2-12. What is the difference between a weak-tie and entrepreneurs?
a strong-tie relationship? Which type of tie is 2-17. Why is “no criticism” the number-one rule for
most likely to help an entrepreneur find an brainstorming?
idea and why? 2-18. How is a focus group used to generate new business
2-13. What is creativity? ideas?
2-14. How does creativity contribute to the opportunity 2-19. What is the purpose of day-in-the-life research?
recognition process? 2-20. What is the purpose of an idea bank?
2-15. What are the five stages of the creative process for 2-21. How do businesses encourage creativity at the
an individual? firm level?
start-ups are solving and how they are
Application Questions going about doing so.
2 -22. Justin Coban plans to write an e-mail m essage to his 2-24. Marshall Hanson, the founder of Santa Fe
dad asking for a loan. The purpose of the loan will be to Hitching Rail, a chain of nine steak
start a company to sell an environmentally friendly line restaurants in New Mexico, is considering
of cleaning supplies that are suitable for light expanding his menu, which is currently
manufacturing facilities. Justin has spent the past two restricted to steak, hamburger, potatoes,
years developing the products in his spare time and wants and fries. He has just read a book about
to convince his dad that the idea represents an attractive entrepreneurship and learned that
business opportunity. What information and insights entrepreneurs should study social trends to
about his potential company should Justin include in the help identify new product opportunities.
e-mail message? What are some current social trends that
2-23. Identify three start-ups, other than those might help Marshall choose items to add
discussed in this chapter or listed in Table to his menu? Given the trends you list,
2.2, that were started to solve a problem. what items do you suggest Marshall add
Briefly describe the problems the three to expand his restaurant’s menu?
2-25. Tiffany Jones owns a small chain of think these individuals would be uniquely
fastcasual restaurants in Denver that sell qualified to help you contemplate.
sandwiches, soups, wraps, and desserts. In 2 -28. Imagine that you’ve been hired by Fitbit, the
general, her restaurants are successful, but wearable activity tracker, to conduct focus groups on
she feels they are getting “stale” and could your campus to get a better sense of how Fitbit can
benefit from new ideas. What techniques be as relevant and useful to college students as
could Tiffany use to generate new ideas possible. How would you go about setting up the
for her restaurants? focus groups? What are the primary issues on which
you BE thE vc 2.1 COMPAny: natureBox

• Web: www.naturebox.com • Facebook: natureBox • twitter: @naturebox
2-26. As mentioned in this chapter, “prior you would concentrate with the focus groups? 2-29.
experience” in an industry helps How could AJ Forsythe and Anthony Martin, the co-
entrepreneurs recognize business founders of iCracked, the subject of the opening
opportunities. This concept of “help” feature for this chapter, have utilized library and
extends to prior experience in any aspect Internet research to flesh out their business idea?
of life—whether it is in sports, music, or a Business idea: Launch a monthly subscription service
volunteer activity. In what areas to you that delivers healthy snacks to subscribers at their
have a good amount of prior experience? doorsteps for a low monthly fee.
How could this prior experience position pitch: Snacking is a part of everyday life. As Americans
you to start a business? become more health conscious, they are continually
2-27. Make a list of your strong-tie and weak-tie looking for healthier snacks. natureBox provides a
realtionships. Include at least five names subscription service where it delivers a box of healthy
on each list. Select two names from your snacks to its subscribers on a monthly basis. The boxes
list of weak-tie relationships and speculate come in three sizes: individual, family, and office. The
on the types of new business ideas you individual box contains five snacks, the family box 10
snacks, and the office box 15 snacks. The boxes contain
packages of snack items such as dried fruit strips,
harvest nut mix, cranberry almond bits, and While natureBox views the subscription model as a
roasted kettle kernels. Each package is a powerful form of distribution, it realizes that not all
natureBox-branded product that is formulated in- consumers want to subscribe to a product or service. As
house by natureBox’s nutritional specialists. a result, the company’s goal is to build a brand of
nutritious snack foods that can be sold both within and
With a mission of “Discover a Healthier You,”
outside the subscription framework. The company’s
natureBox’s selling proposition is that it provides
intentions are to continue to sell online. Only 2 percent
consumers with a variety of healthy snacks without
of all food products are currently sold online. natureBox
having to go to the store, walk the aisles, and read
believes that as people become increasingly
the labels on snack selections to make sure they
comfortable conducting the majority of their purchases
are nutritious. Since snacks are consumed, they
online, that 2 percent number will increase and
need to be regularly replenished, which is
consumers will be drawn to brands that sell
facilitated by natureBox’s monthly deliveries. The
predominately online and are distinctive and unique,
company also sells full-sized versions of the
such as natureBox’s tasty, nutritious snacks.
snacks that it includes in its monthly subscription
boxes on its website. A customer can customize natureBox is spreading the word about its subscription
his or her monthly subscription box or let service and products primarily via social media. It
natureBox surprise them. For those that allow currently has more than 786,000 Facebook likes and
natureBox to surprise them, the service contains says that many of its sales come from pass-alongs and
an element of anticipation and fun as customers wordof-mouth referrals.
await their monthly box and then discovers what’s
inside. All of natureBox’s snacks are sourced from 2-30. Based on the material covered in this chapter, what
local growers and independent food suppliers questions would you ask the firm’s founders before
across the United States. Every natureBox snack making your funding decision? What answers would
is guaranteed nutritious and is free from high- satisfy you?
2 -31. If you had to make your decision on just the
fructose corn syrup, hydrogenated oils, trans fats,
information provided in the pitch and on the
and artificial sweeteners, flavors, and colors.
company’s website, would you fund this company?
Why or why not?
you BE thE vc 2.2 COMPAny: Parking Panda

• Web: www.parkingpanda.com • Facebook: parking panda • twitter: @parkingpanda
Business idea: Create a service that allows motorists or stadium. When you arrive at your destination, your
to find parking spots on a regular basis or for special spot will be available, even if the ramp or lot is sold out.
events, and allow parking space owners (both You gain admittance by showing the reservation on your
individuals and commercial lots) a way of connecting smartphone to the attendant. If the lot is gated and does
with drivers to rent underutilized parking spaces. not have an attendant, you gain admittance by using the
Parking Panda app to scan a code at the entrance,
pitch: Finding convenient parking in a city or for a
which opens the gate. You exit the lot in the same
major sporting event or concert is a frustration that
manner. Parking spots can be reserved on a one-time
almost every motorist has experienced. Trouble
basis or can be reserved for regular use. Parking Panda
finding parking is also a major cause of
collects the fee at the time the reservation is made and
congestion. Experts estimate that 30 percent of
then reimburses the owner of the spot.
urban traffic is caused by motorists trying to find
parking. At the same time, commercial lots and Parking Panda makes money by taking a commission on
garages often have underutilized parking spaces each spot that is rented. It negotiates directly with
because people can’t find them or mistakenly commercial lots and garages. Individuals and
assume they are full. In most cases, there are also businesses that have parking spaces available simply
homes and businesses within a short walking upload a picture of their spot and set a price. Parking
distance from where people are looking for parking Panda lets the owner know when a spot has been
with spaces that are vacant during large portions rented and handles the payment. Parking Panda also
of the day. has arrangements with sports leagues such as the
national Basketball Association (nBA) and the national
Parking Panda has created a solution for this problem. It
Hockey Association (nHL) to facilitate parking for their
is a website and app that connects drivers looking for
events.
parking with commercial lots and individuals who have
spaces to rent. Here’s how it works. In areas where 2-32. Based on the material covered in this chapter,
Parking Panda is available (70 cities and counting), what questions would you ask the firm’s
drivers that are already on the road can enter their founders before making your funding decision?
location, and Parking Panda will show them the nearest What answers would satisfy you?
available spaces. If you’re planning ahead, you can 2-33. If you had to make your decision on just the
browse a collection of parking spots based on price and information provided in the pitch and on the
location, and reserve one. You can search by company’s website, would you fund this
neighborhood, restaurant, hotel, nightclub, music venue, company? Why or why not?
caSE 2.1
dropbox: solving a Compelling problem in a
smooth Manner
• Web: www.dropbox.com • Facebook: Dropbox • Twitter: @Dropbox
Bruce R. Barringer, Oklahoma state university ability to share the digital content with whomever you
R. Duane Ireland, texas A&M university want.
Although Dropbox’s service is easy to use, it wasn’t
introduction easy to build or even easy to explain at the outset. It’s a
story of two determined entrepreneurs who set out to
In early 2007, Drew Houston was on a bus from Boston
solve a problem, build an elegant solution, and then did
to new York City. He was excited because he had four
a lot of things right in executing on their business idea.
hours to work on his laptop. All of a sudden, he had a
Drew houston
feeling in the pit of his stomach that something was
wrong. He searched through his pockets and discovered The Dropbox story starts when Houston was young.
that he had forgotten his USB memory stick. He was He started writing code in his early teens. At 14, he
now stuck on the bus with nothing to work on. signed up to beta test an online game, and began
Frustrated, he immediately starting building technology identifying security flaws. The company soon hired
to synch files over the Web. Fast forward to the present. him as their networking programmer, in exchange for
Houston’s eventual solution, Dropbox, has over 200 equity. Houston worked at start-ups through high
million users. Dropbox allows users to create a special school and college. By the time he got to MIT, most
folder on each of their devices. Once a piece of digital of his time was spent coding. He knew that to start
content is placed in a folder (Word file, Excel file, photo, businesses, he’d need to know more than just
video, etc.), Dropbox automatically syncs it across all coding, so he starting reading business books. He
the users’ devices, permitting the content to be retrieved read books on finance, management, negotiations,
and updated from any device. The content also appears etc.
in a file on Dropbox’s website. And if you make a After graduating from college, Houston took a
change to a file in one location, that file is updated job with a tech firm. The day on the bus from
across all devices. Dropbox completely solves the Boston to new York City took place about a year
problem of working on a file on one device, such as an into the new job. Four months later, he flew to San
office computer, and then not having it available on Francisco to pitch the idea for Dropbox to Paul
another device, like a laptop at home. You can even graham of business accelerator Y Combinator.
invite others to view these files, making the sharing of graham insisted that Houston have a cofounder,
files easy. It’s like having a magic pocket that contains even to pitch. Houston was soon introduced to
all your digital content and is always with you, with the Arash Ferdowsi, who was a junior engineering
student at MIT, and the two hit it off. They decided
to work on Dropbox together. They were soon work, targeted at a community of technology early
admitted and went through Y Combinator in 2007. adopters. Houston narrated the video. It was both
informative and playful. If you look closly, you’ll
Minimal viable product and solving a problem notice that the files that Houston is moving around
people Didn’t Know they had (on the video) are full of humorous references that
were appreciated by the audience to whom he was
After their Y Combinator experience finished, talking.
Houston and Ferdowsi raised $1.2 million in At the time of the videos, Dropbox was
funding. A challenge they faced from the beginning available only to a small group of beta-users.
is that they were solving a problem that most Houston and Ferdowsi were reluctant to release
people didn’t know they had. There were ways for the product to a wider audience because it wasn’t
people to transfer files from one device to another, completely ready. As noted by Eric Riese in a
such as USB memory sticks, e-mailing files to TechCrunch article titled “How DropBox Started As
yourself, and so forth. The idea of a service that a Minimal viable Product,” the videos were e
would sync your files across all your devices didn’t ssentially the minimal viable product—they
exist, so no one knew to ask for it. This reality provided sufficient detail to test whether there was
posed a problem. To gain traction, it wouldn’t do a market for the service. The videos did the trick,
any good to buy google AdWords, for example, with the second one driving hundreds of
because no one was searching for a file syncing thousands of people to Dropbox’s website. Its
service. waiting list for beta users went from 5,000 people
To test demand and get feedback on early to 75,000 people overnight. Dropbox was off and
versions of Dropbox, Houston and Ferdowsi opted running.
for a novel solution. They made two short product If you’d like to watch the videos, they are
videos. The first video, which was made just available on YouTube. For the first video, go to
before Y Combinator, appeared on Dropbox’s YouTube and type in the search box “Original
Homepage. It was a simple, 2-minute-and17- Dropbox video.” For the second video, type in the
second stick figure video showing what the service search box “Dropbox Digg video.” (It was originally
did—nothing complicated, just a guy who loses posted on the website Digg.)
stuff and goes on a trip to Africa. The second video
was a year later. It was a bland, simple three-m
inute demonstration of Dropbox as it was meant to
Building a company private company, so it doesn’t reveal its financial
results.
In Dropbox’s early days, Houston and Ferdowsi
were the only employees. They didn’t hire anyone
until they got their first round of funding. Two years compelling nature of service
later, long after the second video was released, More than anything else, Dropbox’s success can be
Dropbox had 200,000 customers, but only nine attributed to the compelling nature of its service. Early in
employees. In 2011, Dropbox grossed more than the company’s history, there was a sign in its corporate
three times per employee than google. All of the office that said “It simply works!” Here are some specific
early hires were engineers. Despite Dropbox’s facts and figures about Dropbox’s service that illustrate
seeming simplicity, it required significant technical the compelling nature of what it has to offer.
expertise to build.
Houston and Ferdowsi have always believed ■ Install the Dropbox application, and a Dropbox
in keeping Dropbox lean, which remains a central folder appears on your desktop. Anything you
element in the firm’s culture today. The company drag into the folder is uploaded automatically to
has raised substantial venture capital funding. the Dropbox service and is then instantly
Dropbox utilizes a freemium business model, replicated across all your computers,
where users are offered a free account with a set smartphones, and other devices. How cool is
storage size and paid subscriptions for accounts that?
with more capaticy. Along the way, Houston and ■ Dropbox folders are extremely convenient for
Ferdowsi have done several clever things to spur group projects.
Dropbox’s growth. The freemium model itself ■ The service is easy and simple to learn. Most
drives user adoption. The company also has a people upload and start using the service without
referal system to get new user sign-ups. A current ever referring to the instructions. The Dropbox
user could get additional memory for free by team knew that with millions of people using its
making a referral. Interestingly, almost 96 percent service, it had to be simple.
of Dropbox’s users pay nothing. They utilize the ■ It is supported on all platforms. Apple iCloud, for
free service. The 4 percent that do pay represent a example, is a comparable service, but it only
large enough critial mass of subscribers to fund works for Apple devices. Dropbox has vowed to
Dropbox’s operations and its growth. Dropbox is a remain neutral and support all platforms.
■ In April 2012, Dropbox announced a new feature potential of Dropbox will be determined by how they
allowing users to automatically upload (to their meet these challenges.
Dropbox account) photos and videos from There are two primary challenges that Dropbox is
cameras, tablets, SD cards, and smartphones. facing. First, it deals with enormous complexity. Its 200
■ In September 2012, Facebook and Dropbox million users save one billion files every 24 hours. In
integrated to allow group users to share files to addition, anytime a device manufacturer tweaks the
Facebook groups using Dropbox’s cloud-based software or hardware associated with their device, the
storage system. Dropbox team must remain on top of the change to
make sure that its service will still work for that device.
Second, Dropbox is facing an increasing number of
the Advent of the smartphone competitors. Apple iCloud is an example. Dropbox has
The advent of the smartphone, including the Apple an edge over iCloud because it’s available across
iPhone and Android-equipped devices, has created an platforms, but more challenging competition may be
interesting point of differentiation for Dropbox. Prior to coming. If google, Apple, or Samsung, for example,
the smartphone, Dropbox was a nice to have, but not decided to go head-to-head with Dropbox, those
necessarily a have-to-have product. People could still companies would have the technological chops to give
transfer information using USB memory sticks. Memory Dropbox a go. Many believe Dropbox is up to the
sticks can’t be attached to smartphones. Apple allows challenge. In January 2014, Fast Compay magazine
users to upload the data on their smartphones to iCloud, listed Dropbox as the most innovative company in
but iCloud is limited to Apple devices, as mentioned America in the category of Productivity.
above. If people want to have all the digital content they Discussion Questions
own, including what’s on their smartphone in one place, 2-34. What environmental trends are working in
the clear choice is Dropbox. Dropbox’s f avor as the firm seeks to operate
profitably? What environmental trends may
challenges Ahead work against Dropbox and why?
Despite its impressive success, Dropbox has vexing 2-35. What personal characteristics does Drew
challenges ahead. Some observers feel the long-term Houston possess that suggest he may have what
it takes to be a successful entrepreneur?
(continued) 2-36. What problem did Dropbox’s founders solve with the
service they developed?
sources: Dropbox Homepage, www.dropbox.com, accessed http://techcrunch.com/2011/10/19/dropbox-minimal-viable-
March 24, 2014; Forbes, “Dropbox: The Inside Story of Tech’s product; A. Walsh, “Dropbox: A Social Web Business Case
Hottest Startup,” november 7, 2011; E. Ries, “How Dropbox Study,”Social Web Q&A Homepage, available at
Started As a Minimal viable Product,” available at http:socialwebquanda.com, posted August 26, 2012,
accessed March 21, 2014.
Bruce R. Barringer, Oklahoma state university Jill loves Rex and has no plans to give him up, but
every time she travels, it’s a problem to decide what to
R. Duane Ireland, texas A&M university do with Rex.
introduction
Jill is a 26-year-old sales rep for a technology company. A Bad experience at a Kennel leads to
She lives in a two-bedroom townhouse with her golden a Business idea
Retriever Rex. Jill travels about twice a month, and Many people are just like Jill. They either have trouble
when she’s gone, she has three options regarding care finding suitable arrangements for their dog when they
rover.com: don’t Chuckle: this is One impressive business

idea
• Web: www.rover.com • Facebook: Rover.com • Twitter: @RoverDotCom
for Rex. Option #1—She can ask a neighbor to watch travel, or they feel bad when they’re packing for an
him, but that’s hit-and-miss, and she hasn’t found exciting trip with their dog’s big, sad eyes staring at
anyone she can depend on; Option # 2—She can take them. The idea for Rover.com—a service that connects
him to her parents’ house, but they live about an hour dog owners with dog sitters—occurred to greg
away; and Option #3—She can take Rex to one of the gottesman after his yellow Labrador Ruby Tuesday had
two kennels that are close to where Jill lives. There is a bad experience at a traditional kennel. To see if the
nothing wrong with them, but they are typical kennels. idea had legs, gottesman pitched it at a Startup
The dogs are cooped up most of the day, and a month Weekend event in Seattle in 2011. Startup Weekends
ago, Rex came home from the kennel with a cough he are events that are held across the country. Anyone can
picked up from another dog. pitch a business idea and get feedback from peers.
gottesman’s idea received top prize, and six months
later, he launched Rover.com.
While gottesman may have had a good pitch, a be watched. You can indicate whether you’d like
little research helps validate the business idea. The your dog to be watched at your home or the
dog boarding/sitting market is about $6 billion a sitter’s household. You’re then provided profiles of
year. More encouraging is that the market could be Rover.com-approved dog sitters in the area. The
much larger. Many people don’t travel because profile includes prices (per night), photos, reviews,
there is no one they can trust to watch their dog(s). certifications, and a full description of the sitter.
In addition, a survey of 1,000 dog owners by The reviews are particularly helpful. For example,
PetCare.com indicated that 80 percent worry about a Rover.com customer wrote the following about
the care their dogs are getting while they’re away, Jennifer, a Rover.com sitter in Central Florida: “I
and 66 percent are unhappy with their current boarded my 1-year old Beagle with Jennifer for
boarding situation. A total of 70 percent said they eight nights while on a cruise. She took great care
would travel more if they had a trusted dog sitter. of him and e-mailed us every night with an update.
To get a sense of just how deeply some people I highly recommend her and will definitely be using
care about their pets, a survey of dog owners her in the future.” Some sitters send text and
(commissioned by Rover. com) found that 76 photo updates along with e-mails. Rover sitters
percent of dog owners self-identify themselves as charge between $25 and $75 per night. In San
“pet parents,” as opposed to “dog owners.” A Francisco, Rover.com’s biggest market, there are
growing number of people see their dogs as “family over 500 sitters registered on the site.
members” rather than pets. The American The profiles also reveal the nature of the sitter.
veterinary Medical Association found that people Some are professionals who watch dogs on a full-
who consider their dogs to be family members time basis. Others are large families with their own
spend twice as much money on them annually dogs. Some have rural property with park-like
($438 vs. $190) as those who view pets as settings. Still, others are elderly people who enjoy
property. watching dogs in their homes.
If you’d like to become a Rover.com sitter, the
how rover.com Works website walks you through the application process.
You must create a profile and must be approved
Rover.com’s service is run through its website. If
by Rover.com. The company says that it approves
you’re a dog owner, you simply follow the prompts
only 10 percent of the sitters who apply. Rover
on the website, which asks you to identify your
also encourages a “meet-andgreet” session before
location and select the dates you need your dog to
a dog owner tries a sitter. This suggestion Making things Fun
recommends that the dog owners (with their dog in
Rover.com also makes things fun for both its dog
tow) meet the dog sitter at a mutually agreeable
owners and dog sitters. Its website features RoverCam,
time and place to talk before they try each other
which is a camera inside Rover.com’s Seattle
out. The meetand-greet can be arranged through
Rover.com’s website. Rover helps sitters get
started by providing them access to $20 coupons
to provide to new clients. A sitter can get up to 250
of the coupons, and Rover pays the bill.
Rover handles client billing. It takes a 15 percent
commission for its part. Many Rover.com sitters leave
successful careers to dog-sit full time. While critics
chuckle when they hear statements like this, Rover. com
can be a serious business. There are now over 25,000
dog sitters with profiles on Rover.com’s website. Top
Rover.com sitters earn several thousand dollars a
month. A Rover sitter can also work as much or as little
as they want. A sitter’s profile includes a calendar
indicating when the sitter is available. The average stay
for a dog at a sitter’s home is just over four days.
Rover tries to take care of both the dog owner and
dog sitter by offering additional layers of protection. For
example, every stay booked through Rover includes
premium insurance for emergency vet bills, property
damage, liability, and more. Rover offers additional
services for dog owners, an area of its business that is
destined to grow. Rover subscribers can currently
purchase an annual $49.99 protection package that
includes a 24/7 vet consultation and special Rover tags
for extra safety and security.
To (continued)
headquarters
aimed at the part
of the building
where
Rover.com’s
employees let
their dogs hang
out. The day this
case was written,
there were six
dogs in-house,
including Carmel,
georgie girl, gus,
Charlie, Oscar,
Martin novak/Shutterstock
and another gus.

Oscar, for
example, is a
three-year,
onemonth-old
Miniature
Schnauzer. He
reassure dog o wners and make things fun, Rover.com has was lounging on
an app that allows sitters to send photos of the dogs they a comfy chair the day the case was written. Rover’s
are watching during their stay. sitters are also equipped with some cool technology.
The company’s app allows sitters to send photos of the
dogs they are watching to their owners while they’re
away.
In late 2013, Rover.com introduced Rover Reel,
which offers Rover customers free videos of their dog’s
experience during their stay with a Rover.com sitter. Discussion Questions
Sitters simply submit sufficient photos of a dog they’re 2-37. In the United States, what environmental
watching, and they will receive a personalized video trends are supporting the development of
(Rover Reel) of the dog’s stay to share with the owner. Rover.com’s business?
2-38. How might Rover.com use focus groups to gain a
growth plans & venture capital better understanding of its current and potential
Rover.com’s potential has garnered plenty of attention. customers and their needs?
In 2013, the company increased its revenue by 800 2-39. In this chapter, we noted that a true business
percent and currently has about 200,000 dog owners opportunity is attractive, durable, timely, and
listed on its site. Incredibly, as of January 2014, the 43- anchored in a product or service that creates value
person company had raised $25 million in funding from for a buyer. To what extent does Rover.com’s
topshelf venture capital firms and pet retailer PetCo. service satisfy each of these criteria?
The numbers in the pet industry are staggering. sources: Rover.com Homepage, www.rover.com, accessed
Americans spent $53 billion on their pets in 2012. March 21, 2014; C. garnick, “Rover.com Lands $12 Million
Currently, there are roughly 78 million dogs in the United More in Financing,” The Seattle Times,” March 12, 2014;
States (this number is an all-time high). “Rover: A Dog’s Tale,” Strictly vC, available at
In light of these statistics and what it has learned in http://www.strictlyvc. com/2013/10/03/rover-dogs-tale,
its three years of existence, Rover.com has a posted October 3, 2013, accessed March 22, 2014;
Sources: Startupbeat.com, “Dog 2.0:
threeprong growth strategy, as follows:
This Time is Different (Really), available at http://startupbeat.
1. Spread geographically, including in international
com/2013/09/10/dog-2-0-this-time-is-different-really-id3433/.
markets. posted September 10, 2013, accessed March 21, 2013.
2. Provide new services, including dog grooming and dog
walking.
3. Add other animals, such as cats, horses, and reptiles.
Rover.com’s CEO Aaron Easterly, a passionate

dog lover, believes the company is only a fraction of
the size it can become.
Endnotes
1. H. Yang, Y. Zheng, and X. Zhao, “Exploration or exploitation? Small firms’ alliance strategies with large firms,”
Strategic Management Journal 35, no. 1 (2014): 146-157.
2. comScore, “comScore Releases 2013 U.S. Search Engine Results,” November 13, 2013, available at
http://www.comscore.com/Insights/ Press_Releases/2013/11/comScore_Releases_
October_2013_US_Search_Engine_Rankings, ( accessed March 18, 2014).
3. M. Yang, “Interview with Michael Yang, CEO of Become.com,” npost, originally posted on April 24, 2006, available at
http://www.npost.
com/?s=become.com, (accessed on March 18, 2014).
4. P.A. Coomes, J. Fernandez, and S. F.
Gohmann, “The Rate of Proprietorship among
Metropolitan Areas: The Impact of the Local
Economic Environment and Capital Resources,” Entrepreneurship Theory, and Practice, 37, no. 4 (2013): 745-770.
5. Immersion Active, “Resources 50+ Fact and Fiction,” available at http://www.immersionactive. com/ resources/50-
plus-facts-and-fiction/, (accessed March 18, 2014).
6. Nest Labs Homepage, www.nest.com, accessed on March 18, 2014.
7. Pew Research Internet Project, “Social Networking Fact Sheet,” available at http://www.pewinternet.
org/fact-sheets/social-networking-fact-sheet/, posted December 27, 2013, (accessed March 18, 2014).
8. ABIresearch, “Ninety Million Wearable Computing
Devices Will be Shipped in 2014 Driven by Sports, Health and Fitness,” ABIresearch Homepage,
www.aibresearch.com, Accessed March 18, 2014.
9. T. Freeman, “Obamacare’s Other Surprise,” The New York Times, May 25, 2013.
10. J. Nicas, “Drones Find Fans among Farmers, Filmmakers,” The Wall Street Journal, March 10, 2014.
11. P. Kotler, Marketing Insights from A to Z (New York: John Wiley & Sons, 2003), 128.
12. CitySlips Homepage, www.cityslips.com, (accessed March 18, 2014).
13. Yogitoes Homepage, http://yogitoes.com/, (accessed March 18, 2014).
1 4. Ladies Who Launch homepage, www. ladieswholaunch.com, (accessed March 18, 2014).
15. A. G. Lafley and R. Charan, “Innovation: Making
Inspiration Routine,” Inc., www.inc.com, June 1, 2008; J. Case, “The Origins of Entrepreneurship,” Inc., June,
1989.
16. M. V. Jones and L. Casulli, “International Entrepreneurship: Exploring the Logic and Utility of Individual
Experience through Comparative Reasoning Approaches,” Entrepreneurship Theory and Practice 38, no. 1
(2014): 45-69; M. R. Marvel, “Human Capital and Search-Based Discovery:
A Study of High-Tech Entrepreneurship,” Entrepreneurship Theory and Practice 37, no. 2 (2013): 403-419.
17. E. Mollick, “The Dynamics of Crowdfunding: An Exploratory Study,” Journal of Business
Venturing 29, no. 1 (2014): 1-16; S. L. Newbert,
E. T. Tornikoski, & N. R. Quigley, “Exploring the Evolution of Supporter Networks in the Creation of New
Organizations,” Journal of Business Venturing 28, no. 2 (2014): 281-298.
18. “How to Come Up With a Great Idea,” The Wall Street Journal, April 29, 2013, R1.
1 9. J. Y.-K. Lim, L. W. Busenitz, and L. Chidambaram, “New Venture Teams and the Quality of Business
Opportunities Identified: Faultlines b etween Subgroups of Founders and Inventors,” Entrepreneurship Theory
and Practice 37, no. 1 (2013): 47-467; I. P. Vaghely and P.-A. Julien, “Are Opportunities Recognized or
Constructed?
An Information Perspective on Entrepreneurial Opportunity Identification,” Journal of Business Venturing 25,
no. 1 (2010): 73–86.
20. M. McCaffrey, “On the Theory of Entrepreneurial Incentives and Alertness,” Entrepreneurship
Theory and Practice 2014: in press, D. Valliere,
“Towards a Schematic Theory of Entrepreneurial Alertness,” Journal of Business Venturing 28, no. 3 (2013):
430-442. I. M. Kirzner, Perception, Opportunity, and Profit: Studies in the Theory of Entrepreneurship
(Chicago: University of Chicago Press, 1979).
21. I. M. Kirzner, “The Primacy of Entrepreneurial Discovery,” in The Prime Mover of Progress, ed.
A. Seldon (London: Institute of Economic Affairs, 1980), 5–30.
2 2. A. J. Kacperczyk, “Social Influence and
Entrepreneurship: The Effect of University
Peers on Entrepreneurial Entry,” Organization Science 24, no. 3 (2013): 664-683; J. M.
Haynie, D. Shepherd, E. Mosakowski, and P. C.
Earley, “A Situated Metacognitive Model of the Entrepreneurial Mindset,” Journal of Business
Venturing 25, no. 2 (2010): 217–29; S. C. Parker, “The Economics of Formal Business Networks,” Journal of
Business Venturing 23, no. 6 (2008): 627–40.
23. L. Harris and A. Rae, “The Online Connection:
Transforming Marketing Strategy for Small Businesses,” Journal of Business Strategy 31, no. 2 (2010): 4–12.
24. G. E. Hills, C. M. Hultman, S. Kraus, and R. Schulte, “History, Theory and Evidence of
Entrepreneurial Marketing—An Overview,”
International Journal of Entrepreneurship and Innovation Management 11, no. 1 (2010): 3–18.
25. J.-L. Arregle, B. Batjargal, M. A. Hitt, J. W.
Webb, T. Miller, and A. S. Tsui, “Family Ties in
Entrepreneurs’ Social Networks and New Venture
Growth,” Entrepreneurship Theory and Practice, 2014: in press; Y. Zhang, “The Contingent Value of Social
Resources: Entrepreneurs’ Use of DebtFinancing Sources in Western China,” Journal of Business Venturing, 2014: in
press.
26. A. C. Klotz, K. M. Hmieleski, B. H. Bradley, and L.
W. Busenitz, “New Venture Teams: A Review of the Literature and Roadmap for Future Research,”
Journal of Management 40, no. 1 (2014): 226255;D. De Clercq, D. Dimov, and N. Thongpapanl, “Organizational
Social Capital, Formalization, and
Internal Knowledge Sharing in Entrepreneurial Orientation Formation,” Entrepreneurship Theory and Practice 37, no.
3 (2013): 505-537.
27. N. Anderson, K. Potocnik, and J. Zhou,
“Innovation and Creativity in Organizations: A State-of-the-Art Review, Prospective Commentary, and Guiding
Framework,” Journal of Management (2014): in press; P. Criscuolo, A. Salter, and An L. J. Ter Wal, “Going
Underground: Bootlegging and Individual Innovation Performance,” Organization Science (2014): in press; J. J. Kao,
Entrepreneurship, Creativity, and Organization (Upper Saddle River, NJ: Prentice Hall, 1989).
28. S. A. Alvarez, J. B. Barney, and P. Anderson,
“Forming and Exploiting Opportunities: The Implications of Discovery and Creation Processes for Entrepreneurial and
Organizational Research,” Organization Science 24, no. 1 (2013): 301-317.
29. K. Rodan, Entrepreneurial Thought Leaders Podcast, Stanford Technology Ventures Program, http://stvp.stanford.edu,
(accessed March 18, 2014).
30. G. Galant and S. Klaus, “VV Show #35,” Venture Voice Podcast, www.venturevoice.com, originally posted on June 14,
2006, (accessed March 18, 2014).
31. D. Freeman, “Turning Facebook Followers into Online Focus Groups,” The New York Times, January 5, 2012.
32. J. P. J. de Jong, “The Decision to Exploit
Opportunities for Innovation: A Study of HighTech Small-Business Owners,” Entrepreneurship Theory and Practice
37, no. 2 (2013): 281-301.
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Multilevel Model of Team Goal Orientation, Information Exchange, and Creativity,” Academy of Management Journal 56,
no. 3 (2013): 827-85

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CHAPTER 2 | RECOgnIzIng OppOrtunities AnD gEnERATIng IDEAS 1

■ Aging of the population

Technological Advances Advances in technology frequently dovetail with economic and

resulting new Business, product, and

political and regulatory changes

Table 2.2. TAble 2.2 businesses Created to solve a problem

Roger Marsh 2009 Alter traditional methods of c oncrete Bolt-A-Blok

Finding gaps in the Marketplace

name of Businesses that

techniques for generating ideas

TAble 2.4 rules for a Formal brainstorming session

organizational inhibitors ■ Failing to hire creative people

you BE thE vc 2.1 COMPAny: natureBox

you BE thE vc 2.2 COMPAny: Parking Panda

rover.com: don’t Chuckle: this is One impressive business

and another gus.

Rover.com’s CEO Aaron Easterly, a passionate

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