Opportunity recognition : processes and concepts

Unit 2
 Opportunity Recognition

Opportunity recognition is a process through

which entrepreneurs and businesses identify
potential methods of growing their ideas or
beginning new ventures. It gives entrepreneurs
the chance to brainstorm for new and better ideas
constantly. In addition, opportunity recognition
makes the available products and services better
through continuous process improvement.
Video to be watched:
https://youtu.be/HMybR2X2G3Y
 What is the meaning of opportunity?

• An opportunity refers to a favorable situation that provides one with a

chance to progress. It arises when a person finds it possible to do
something they have wanted to do. In the economy today, entrepreneurs
have managed to identify business opportunities and promote economic
growth. Opportunities have been identified through solving problems,
changing trends, and technological advances.
• For entrepreneurs to make profits and remain relevant, they must possess
the skills to recognize possible opportunities. Opportunity recognition is
an essential skill for an entrepreneur to have. It encourages people and
businesses to develop new products and skills and improve those that
already exist. Entrepreneurs with high opportunity recognition skills can
create new products that satisfy the existing market. It is an
essential entrepreneurial skill because it helps an individual identify a
niche and solve a problem while gaining profits. As a result,
entrepreneurs with high opportunity recognition skills become successful
and remain relevant in an economy.
 Opportunity Recognition Process

The opportunity recognition process is a step-by-step procedure of how an

entrepreneur identifies an opportunity and makes it a viable business idea.
Entrepreneurs must learn the industry's background, recognize opportunities
when they present themselves, and actively look for new opportunities. The
role of opportunity recognition in innovation is highly significant to an
innovative firm. There are five stages in the process of opportunity
recognition. The opportunity recognition process helps equip them with the
skills they need in each step. They include getting the idea, identifying the
opportunity, developing the opportunity, evaluating the opportunity, and
finally evaluating the team.
• Getting the idea: The first stage is for the entrepreneur to get the business
idea. An individual can generate a business idea from a niche in the
market. A niche is a gap left unfulfilled by those currently serving the
market. It provides a chance for other people to add value that was unmet.
It allows the new entrepreneurs to perform differently and compete with
already existing businesses.
 Opportunity Recognition Process
cont…
• Identifying the Opportunity: Opportunity identification is when an individual
realizes a business idea with good returns that has not been discovered. It requires
keen scanning of the business environment, being alert about the changing
information, and the ability to use the information effectively.
• Developing the Opportunity: Developing an opportunity requires the entrepreneur
to modify the idea to suit the current market needs. During this stage, research is
conducted to identify whether the business idea can be converted into an actual
business. The entrepreneur begins the process of acquiring resources for the
opportunity.
• Evaluating the Opportunity: Opportunity evaluation is the stage where the
potential risks are assessed. It is identified whether the risks will be worth the
investments made. Profitability is also scrutinized to find out how long the payback
period is after an investment.
• Evaluating the team: The final stage involves having a skilled team to bring the
business idea to realization. Employing capable people is crucial because they are the
people who will work to make the opportunity economically viable.
• An entrepreneur must follow these stages systematically for a successful business
idea.
 Opportunity vs. Idea
There is an important difference, however, between an idea
and an opportunity. An opportunity is based on what
consumers want – not necessarily what you want. You can
have a very interesting idea for a business but if what you
are selling doesn’t meet anyone else’s needs, the business
will fail.
Window of opportunity
You will also need to be able to get your business up and
running in your “window of opportunity.” This is the
amount of time you have before someone else beats you to
the customers. You might have a great idea but if
competitors have had the same idea and get it to the market
place first, your window of opportunity might be closed.
 When is it a good idea? A business
idea may be a good opportunity if.
It is attractive to customers.Who are your customers
here at FRC?It will work in your business
environment.Will it work in the hallway here at FRC?
It can be executed in the window of opportunity.Are
you the first or the last to offer that idea?You have
the resources and skills to create the business.If you
made it to this part, NOW ask yourself - are YOU
capable of doing this?
 Entrepreneurial Opportunity vs
Entrepreneurial Idea
ENTREPRENEURIAL OPPORTUNITY
A need, want, problem, or challenge that can be addressed, solved
and/or satisfied by an innovative venture. Example:You don’t want to
use a knife to spread butter because you’ve already done the dishes

ENTREPRENEURIAL IDEA
A specific, new way to satisfy a need or want, overcome a problem or
meet a challenge. Example: Explain why this picture represents an
idea to solve that problem.
Another example: Entrepreneurial Opportunity (Problem): How do
you get more privacy in a public space? For example; employees
working long hours or traveling to work on a bus or subway would
benefit from a 15 minute nap. Entrepreneurial Idea (Solution):
Brainstorm an idea that could be produced and sold.
Have an idea to meet that opportunity
1. What is the problem to solve?
2. See an opportunity
3. Sell your solution.
4. What is the solution?
5. Implement the plan
6. Have an idea to meet that opportunity
7. Develop a plan
8. Research the idea
9. What are the steps for the solution to work?
10.How will the solution work best?
11.Steps for the Future
 Types of Opportunity
An Entrepreneurial Opportunity may come in the form of something that:
You are interested in,
Customers are interested in,
Or both.
Which do you think is best? Explain.

Internal Opportunity
Starting a business is easier if an entrepreneur can work on something they are passionate about.
An internal opportunity is one that comes from inside you – from a hobby or passion that you
have.A passion or hobby doesn’t guarantee a successful business unless customers are found who
share that same passion or hobby.

External Opportunity
You notice that people in your neighbourhood are complaining about the lack of available day
care…This is an example of looking outside of yourself for business ideas and finding an external
opportunity. You decide to you start a day care centre. The business might succeed, but you could
burn out quickly if you aren’t the type of person who likes to be around screaming toddlers all day
long. That’s the problem with external opportunities – your business idea may fill a need for the
market, but you may not have the interest, skills, or passion to enjoy putting in the time and
energy needed to make it a success.
 Six prominent factors that influence
opportunity recognition.
1) Prior knowledge
Basically, we acquire prior knowledge through education and
accumulated experience. But our prior knowledge also affects how we
attend to, interpret, and organize new information.
Lack of certain knowledge and skills can hinder the ability to recognize
opportunity. Also, specific types of prior knowledge – coupled with the
cognitive capacity to value that knowledge – can make people more
likely to recognize certain types of opportunities. Additionally, specific
types of prior knowledge – applied to appropriate situations – enable
us to recognize and exploit opportunities.
Economics professor Scott Shane proposed three major dimensions of
prior knowledge that affect entrepreneurial discovery: prior knowledge
of markets, prior knowledge of ways to serve markets, and prior
knowledge of customer problems.
 Prior knowledge

• Knowledge has been defined as a high-value form of information that –

when combined with experience, context, interpretation, and reflection
– can be readily applied to decision-making and action. [5]
• How much did prior knowledge influence Jamie Siminoff’s recognition
of the market potential of a better doorbell? Likely quite a bit.
• A lifetime of tinkering, his entrepreneurship concentration at Babson
College (where he won the college’s business planning contest), and his
experience with previous ventures such as PhoneTag and
Unsubscribe.com all probably shaped and sharpened his opportunity
recognition ability.
• But we don’t all need similar types of prior knowledge to recognize
opportunity.
• If you sat down and did a comprehensive knowledge and skills
inventory of yourself, you’d probably be surprised at the range and
depth of prior knowledge you have acquired.
 2) Social capital

Social capital refers to our personal relationships and networks.

Social capital gives us access to information and resources that
might otherwise be scarce. Social capital makes it possible to for
us to use human capital and mobilize resources when needed to
respond to opportunity. Also, we all experience various life
course transitions, and these transitions frequently reveal
problems that must be solved. We often use our personal
network to address these problems, and solving these problems
reveals opportunities.[
One study examined three direct sources of opportunity-related
information: mentors, informal industry networks, and
participation in professional forums. Unsurprisingly, all three
had direct, positive effects on opportunity recognition.
 Social capital

We build our social capital both by

aligning ourselves with like-minded people, and
by establishing and maintaining a diverse
network of relationships that spans varied
domains of knowledge and experience.
Our social capital enables us to recognize
opportunities that we might not otherwise see,
but also presents opportunities to us that we
might not have otherwise encountered.
 3) Cognition and personality

A great deal of research pertaining to opportunity recognition has

focused on individual characteristics.
Some of the attributes that are most often discussed include creativity,
self-efficacy, risk tolerance, need for achievement, need for
independence, and locus of control.
Self-efficacy refers to our belief in our ability to take the necessary
action to deal with specific situations that we might encounter. Self-
efficacy is what motivates us to set and achieve higher goals
People who are willing to take risks are better prepared to see the big
picture of the opportunities around them. People who aren’t afraid of
failure – and are therefore not surprised by success – tend to embrace
new ventures. Optimistic people who try to see the positive aspects of
any new situation are better able to recognize opportunity. Other
qualities essential to opportunity recognition include curiosity,
imagination, and open-mindedness.
 Cognition and personality

Cognitive biases also prevent many people from

recognizing opportunity.
The influence of specific personality traits on
opportunity recognition has been controversial.
Some successful entrepreneurs are known for
their kindness and generosity, while others are
regarded as borderline psychopaths.
But we can all train ourselves to improve the
cognitive processes that affect opportunity
recognition.
 4) Environment

Broad economic, social, political, geographic, and cultural factors can have an
affect on opportunity identification. So can rapid technological changes. [But
environmental conditions have both positive and negative effects on opportunity
recognition.
Changes in environmental conditions are often the catalyst that spurs people to
action. But environments that suppress innovation can have a chilling effect on
opportunity recognition and entrepreneurship.
We all exist within – and react to – our given environment. We can take a macro
and micro view of the conditions under which we operate.
For example, we can’t control government policy, but we can control how we react
to it, and whether policy change presents opportunity for us.
And at the micro level, we have a high level of control
We can control who we choose to surround ourselves with, where we choose to
go, how we approach our work, and where we choose to work (well, sometimes).
In Jamie Siminoff’s case, he told his wife “I’m going into the garage. I’m going to
hire two people, two interns, and I’m just going to build (stuff).”
That micro-level environmental change led to something big.
 5) Alertness

Economist Israel Kirzner defined entrepreneurial alertness in two ways: the

ability to notice opportunities that have been previously overlooked, and as a
motivated tendency to visualize the future.
In the case of entrepreneurs, the act of noticing typically involves identifying
novel solutions to current customer or market needs, while the act of
visualizing usually involves imagining products and services that do not
currently exist.
Some people seem to possess specific cognitive or personality traits that
make them innately more alert to opportunity.
But entrepreneurs, wantrepreneurs – and really anyone – can increase their
alertness through training and practice.
People can learn to focus their attention on changes or trends in
demographics, markets, and technology. They can also learn to see how these
changes might be connected, and to discover emergent patterns.
Our vision, however, does not have to be entrepreneurial. And our domain
does not have to be an industry or market. Regardless of our vision and our
domain, we can learn to focus on relevant factors and to see valuable
 6) Systematic search

Systematic search refers to opportunity discovery as a result of actively

looking for it within a known information domain. This type of search
activity helps us gather valuable information that fits our prior knowledge.
It has been proposed that by engaging in a constrained, systematic search
of select information channels, entrepreneurs can maximize their
opportunity discovery effort.
There is some academic quibbling about whether opportunity is recognized
by being alert, or whether it is discovered by searching for it.
But for purposes of serendipity stimulation in our lives, we don’t need to
split hairs. Exactly how the opportunity is exposed after a serendipitous
encounter probably doesn’t matter that much to us, as long as we identify it
as a valid opportunity.
And some researchers do, in fact, take a multidimensional view that allows
for the coincidence of deliberate search and serendipitous discovery.
Jamie Siminoff is someone who never stops looking for new ideas. He also
remains alert by continually assessing new technologies.
 References
1) Nerine Mary George et al., “A Systematic
Literature Review of Entrepreneurial Opportunity
Recognition: Insights on Influencing
Factors,” International Entrepreneurship and
Management Journal 12, no. 2 (June 2016): 30
9. https://doi.org/10.1007/s11365-014-0347-y
2) Sancho Sortoviro , 6 Factors That Impact
Opportunity Recognition (November 2019)
3) Business Opportunity Identification,
https://youtu.be/HMybR2X2G3Y, Rai University.