“Chance favors the connected minds” – Steve Johnson
“The important thing is not to stop questioning.” – Albert Einstein
Entrepreneurship plays an important role in fostering economic growth, job creation and innovation to a nation. For entrepreneurship to happen, opportunity recognition must first happen. Opportunity recognition means proactively brainstorming a new business venture or expanding an idea. Entrepreneurial opportunity is difficult to define as it can mean different things to different people. In essence, it is a discovery of an idea to create new businesses and the search for information regarding market and technological possibilities. Opportunity is a deviation between current expectations and a potentially better situation; a favourable or advantageous circumstance or combination of circumstances. The six roots of opportunity are
- Problems that your business could solve;
- Changes in laws, situations and trends;
- Inventions of totally new products or services;
- Competition;
- Technological advances, as Scientists may invent new technology or improve the existing ones, entrepreneurs figure out how to sell the technology;
- Unique Knowledge of one’s neighbourhood, friends and community.
Good or investment-worthy an idea is, the “ah-ha” moment of inspiration is the on-ramp to entrepreneurship. There are three things in the real heart of entrepreneurship: the ability to identify or recognise an opportunity, the ability to review or assess opportunity, and last but not least, the ability to successfully execute and realise an opportunity. While these tasks seem straightforward on paper, the skills you need for each one are very different, and it is difficult to be good at all of them. To be a successful entrepreneur, you need to excel at all three, all at the same time. The starting point of any business organisation is a powerful idea. An idea worth thinking about, an idea worth enhancing and developing, an idea worth converting into a business.
For long-term viability and success, a company needs the ability to recognise opportunities. Industries usually evolve based on societal changes, changes in customer preference or technological improvements… The most innovative company leaders who seize opportunities stay ahead of the competition in delivering progressive solutions to customers. Steve Jobs recognised the tremendous opportunity to make Apple a cutting-edge innovator in mobile technology. Amazon.com founder, Jeff Bezos, similarly recognized the power of online book sales long before traditional booksellers. He continued to seize opportunities for product diversification after making a big splash with books.
Ultimately, it is a question of if the individual is able to recognise particular opportunities amidst the contextual changes. In a given same set of circumstances and situations, not all people can recognise a given entrepreneurial opportunity. Some would be able to identify it while others have overlooked it. Why do some people see it while others don’t? Possession and wider exposure to prior and new information and superior cognitive capabilities help formulate a conjecture towards opportunities.
An entrepreneur must first be equipped with a level of education and experience. Combined with other critical factors, such as the entrepreneurial alertness and the entrepreneurial network, the combination will enable the entrepreneur who has the ability to recognise meaningful business opportunity and who is able to strategically position the business to be able to successfully complete the development process and launch the new venture. As suggested, opportunity recognition is a process with a number of steps and not simply rather a coming flash of sudden insights.
- Entrepreneurial Alertness – Entrepreneurs are successful because of their alertness to information on the market condition and opportunity movements. Alertness is defined as a process and perspective that helps some individuals to be more aware of changes, shifts, opportunities and overlooked possibilities.
- Prior Knowledge – Prior knowledge refers to an individual’s distinctive information about a particular subject matter which may be a result of work experience, education or other means. With the stock of information and knowledge gained through life experiences, certain people are able to make the connection to recognise the opportunity as it is related to their available information.
- Social networks – Entrepreneurship is embedded in social networks which facilitate the entrepreneurial process by linkages among entrepreneurs, resources and opportunities. A social network is a resource and a potential capital, while social capital is a network which is used to engage in productive economic activities.
- Business performance – The field of entrepreneurship is about the importance of recognizing and acting upon opportunities and hence is a key step in the entrepreneurial process. At the end of the entrepreneurial process lies the end result of superior business performance.
Figure 1: Recognising opportunity
Supporting evidence and practices
One of the various definitions of opportunity recognition given by Lumpkin and Lichtenstein (2005:457) is “the ability to identify a good idea and transform it into business concepts that add value and generate revenue.” This definition makes an emphasis that opportunity recognition is an inseparable part of entrepreneurship. A small-business owner typically engages in opportunity recognition at the point where he realizes he has an idea, strength or capability that matches well with a particular target market. Entrepreneurial business owners constantly seek new revenue streams. Those that seize ripe opportunities tend to perform best financially.
There are two opposing views regarding opportunities. One view argues that opportunities are discovered while the other view argues that they are created (A. Sharon, A., and Jay. B. Barney (2004)). These two main perspectives differ on how opportunities are discovered or created. The first perspective is the positivist who assumes that reality has an objective existence independent of an individual’s perception. It is proposed that opportunities are formed by exogenous shocks to existing markets and it is there ready to be discovered by an entrepreneur. The second perspective comes from the constructionists who argued that reality is a social product that is a result of the social interaction of individuals. Its existence is dependent on the individual’s perception. In this perspective, it is suggested that opportunities are formed endogenously by the entrepreneurs themselves.
Another researcher argues that entrepreneurial opportunity recognition is a cognitive process as it relies on the individual. Shane and Venkataraman (2012) found that entrepreneurs use cognitive insights and spend more time compared to non-entrepreneurs in searching for information which will lead to new business opportunities. Following the study, researchers have further suggested that prior knowledge adds significant insights into the recognition of an opportunity. Shane (2012) proposes that prior knowledge in a particular industry provides to the entrepreneur the capacity to recognise opportunities in a better way.
Books
Kirzner, I. M. “Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach.”Journal of Economic Literature 35.March (1997):
Shane, Scott. “Prior Knowledge and the Discovery of Entrepreneurial Opportunities.” Organization Science 11.4 (2000): 448–469.
Kaish, S, and Benjamin Gilad. “Characteristics of Opportunities Search of Entrepreneurs versus Executives: Sources, Interests, General Alertness.” Journal of Business Venturing 6.1 (1991): 45–61.
Alvarez, Sharon. A., and Jay. B. Barney. “Organizing Rent Generation and Appropriation: Toward a Theory of the Entrepreneurial Firm.” Journal of Business Venturing 19.5 (2004): 621–635.
Audretsch, David B., and Zoltan J. Acs. Handbook of Entrepreneurship Research: Interdisciplinary Survey and Introduction. 2nd edition. Springer, 2010.
Alvarez, Sharon A., and Jay B. Barney. “Discovery and creation: Alternative theories of entrepreneurial action.” Strategic entrepreneurship journal 1.1‐2 (2007): 11-26.
Shane, Scott. “Reflections on the 2010 AMR decade award: delivering on the promise of entrepreneurship as a field of research.” Academy of Management Review 37.1 (2012): 10-20.
Ardichvili, Alexander, Richard Cardozo, and Sourav Ray. “A Theory of Entrepreneurial Opportunity Identification and Development.” Journal of Business Venturing 18.1 (2003): 105–123.
Gimeno, Javier et al. “Survival of the Fittest? Human Entrepreneurial Capital and the Persistence of Firms Underperforming.” Administrative Science Quarterly 42.4 (1997): 750–783.