Chapter 2. Recognizing Opportunities and Generating Ideas

The Differences Between Opportunities and Ideas

An opportunity is a favorable set of circumstances that creates a need for a new product, service, or business. Most entrepreneurial ventures are started in one of two ways. Some ventures are externally stimulated. In this instance, an entrepreneur decides to launch a firm, searches for and recognizes an opportunity, and then starts a business. Other firms are internally stimulated. An entrepreneur recognizes a problem or an opportunity gap and creates a business to address the problem or fill the identified gap.
Opportunities are tough to spot. Identifying a product, service, or business opportunity that isn't merely different version of something already available is difficult. A common mistake entrepreneurs make in the opportunity recognition process is picking a currently available product or service that they like or are passionate about and then trying to build a business around a slightly better version of it. The key to opportunity recognition is to identify a product or service that people need and are willing to buy, not that an entrepreneur wants to make and sell.
An opportunity has four essential qualities, (1) attractive, (2) timely, (3) durable, and (4) anchored in a product, service, or business that creates or adds value for its buyer or end-user.
An idea is a thought, an impression, or a notion. Many entrepreneurial ventures fail not because the entrepreneurs that launched them didn't work hard, but rather because there was no real opportunity to begin with. It's crucial to understand whether the idea fills a need and meets the criteria for an opportunity.

Three Ways to Identify Opportunities

There are three approaches entrepreneurs use to identify an opportunity their new venture can choose to pursue. Once they understand, they will be much more likely to look for opportunities and ideas that fit each profile. Here are the three approaches:

Observing Trends

The most important trends to follow are economic trends, social trends, technological advances, and political action and regulatory changes. As an entrepreneur or potential entrepreneur, t's important to remain aware of changes in these areas. This sentiment is affirmed by Michael Yang, the founder of Become.com, who believes that keen observation skills and a willingness to stay on top of changing environmental trends are key attributes of successful entrepreneurs. There are two caveats to keep in mind. First, it's important to distinguish between trends and fads. Second, even though we discuss each trend individually, they are connected and should be considered simultaneously when brainstorming new business ideas.

Economic Forces → States of the economy, Level of disposable income, Consumer spending pattern.
Social Forces → Social and cultural trends, Demographic Changes, What people think is "in".
Technological Advances → New technologies, Emerging technologies, New uses of old technologies.
Political and Regulatory Changes → New changes in political arena, New laws and regulations.

Solving a Problem

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 that have yet to be solved. Commenting on this issue and how noticing problems can lead to recognizing business idea.

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 at all. Product gaps in the marketplace represent potentially viable business opportunities.

One thing that entrepreneurs must remain mindful of in pursuing business opportunities, regardless of whether the opportunity results from changing environmental trends, solving a problem, or finding gaps in the marketplace, is that the opportunity must ultimately be fashioned into a successful business.

Personal Characteristics of the Entrepreneur

Prior Experience

Several studies show that prior experience in an industry helps entrepreneurs recognize business opportunities. 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 it difficult.

Cognitive Factors

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. 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.

Social  Networks

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 a new business starts. The researchers found that network entrepreneurs identified significantly more opportunities than solo entrepreneurs (those who identified their business ideas on their own), but were less likely to describe themselves as being particularly alert or creative. An important concepts that sheds light on the importance of social networks to opportunity recognition is the differential impact of Strong-tie relationships (characterized by frequent interaction, such as ties between coworkers, friends, and spouses) versus Weak-tie relationships (characterized by infrequent interaction, like ties between casual acquaintances).

Creativity

Creativity is the process of generating a novel or useful idea. The creative process can be broken into five stages, which are:
Preparation → Background, experience, and knowledge that an entrepreneur brings to the opportunity recognition process.
Incubation → The stage during which a person considers an idea or thinks about a problem; it is the "mulling things over" phase.
Insight → The flash of recognition when the solution to a problem is seen or an idea is born. It is sometimes called the "eureka" experience.
Evaluation → The stage of the creative process during which an idea is subjected to scrutiny and analyzed for its viability.
Elaboration → 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.

Techniques for Generating Ideas

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

In general, brainstorming is simply the process of generating several ideas about a specific topic. 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. The session is nor used for analysis or decision making⎯the ideas generated during a brainstorming session need to be filtered and analyzed, but this is done later. Brainstorming sessions dedicated to generating new business idea are often less formal.

Focus Groups

A Focus Groups 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 the topic, are brought together to respond to questions, and shed light on an issue through the give-and-take nature of a group discussion. Usually, focus groups are conducted by trained moderators 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.

Library and Internet Research

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.

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 article about the "hottest" and "latest" new business ideas.

Once an entrepreneur has an idea, it often needs to be shaped and fine-tuned. One way to do this⎯in conjunction with the suggestions made previously⎯is to enlist a mentor to help.

Encouraging the Development of New Ideas

In many firms, idea generation is a haphazard process. However, entrepreneurial ventures can take certain concrete steps to build an organization that encourages and protects new idea. Let's see what these steps are.

Establishing a Focal Point for Ideas

Some firms meet the challenge of encouraging, collecting, and evaluating ideas by designating a specific person to screen and track them⎯for if it's everybody's job, it may be no one's responsibility.

Another approach is to establish an idea bank (or vault), which is a physical or digital repository for storing ideas.

Encouraging Creativity at the Firm Level

There is an important distinction between creativity and innovation. Innovation refers to the successful introduction of new outcomes by a firm. In contrast, creativity is the process of generating a novel or useful idea; however, creativity does not require implementation of an idea. In other words, creativity is the raw material that goes into innovation. Of course, it may take a hundred creative ideas to discover the one that ideally satisfies an opportunity.