Self-Understanding for Opportunity Creation

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Chapter 5: Recognizing New Opportunities

5.1 Explain how the entrepreneurial mindset relates to opportunity recognition.

5.2 Employ strategies for generating new ideas from which opportunities are born.

Neck, Entrepreneurship. © SAGE Publications, 2018.

Learning Objectives

5.3 Apply the two primary pathways to opportunity identification.

5.4

Demonstrate how entrepreneurs find opportunities through active search and alertness.

Neck, Entrepreneurship. © SAGE Publications, 2018.

Learning Objectives

5.5 Connect idea generation to opportunity recognition

Neck, Entrepreneurship. © SAGE Publications, 2018.

Learning Objectives

Notable Quote

“Entrepreneurs have a knack for looking at the usual and seeing the unusual, at the ordinary and seeing the extraordinary. Consequently, they can spot opportunities that turn the commonplace into the unique and unexpected.”

D. G. Mitton, author, “The Complete Entrepreneur”

Neck, Entrepreneurship. © SAGE Publications, 2018.

5.1 The Entrepreneurial Mindset and Opportunity Recognition

Neck, Entrepreneurship. © SAGE Publications, 2018.

What Is an Opportunity?

Must have the capacity to generate value

Economic value

Social value

Environmental value

Must be new or unique

The Entrepreneurial Mindset and Opportunity Recognition

Neck, Entrepreneurship. © SAGE Publications, 2018.

Dimensions of Ideas

Innovation

Invention

Improvement

Irrelevant

The Entrepreneurial Mindset and Opportunity Recognition

Of course, all ideas are not created equal. Part of recognizing an opportunity is the ability to evaluate ideas and identify those with the highest likelihood of success. One framework for doing this is to rate an idea on four different dimensions: the idea may be an innovation, an invention, an improvement, or irrelevant. Of these, innovations and inventions are high in novelty, while improvements and irrelevant ideas are low in novelty (see Figure 5.1).

A successful idea scores highly as an innovation if the product or service is novel, useful, and valuable. Today’s smartphone, and the basic cellular phone of the 1980s, are both good examples of a product that meets all the requirements of a successful innovation.

Figure 5.1: Idea Classification Matrix

Neck, Entrepreneurship. © SAGE Publications, 2018.

Source: H. M. Neck, “Idea generation,” In B. Bygrave & A. Zacharakis eds. Portable MBA in Entrepreneurship (Hoboken, NJ: John Wiley & Sons, 2010, pp. 27–52).

5.2 Opportunities Start With Thousands of Ideas

Neck, Entrepreneurship. © SAGE Publications, 2018.

The Myth of the Isolated Inventor

Ideas rarely come out of thin air.

Innovation includes making existing inventions more useful or valuable.

Opportunities Start With Thousands of Ideas

Neck, Entrepreneurship. © SAGE Publications, 2018.

Strategies for Idea Generation

Analytical strategies

Search strategies

Imagination-based strategies

Habit-breaking strategies

Opportunities Start With Thousands of Ideas

Neck, Entrepreneurship. © SAGE Publications, 2018.

Strategies for Idea Generation

5. Relationship-seeking strategies

6. Development strategies

7. Interpersonal strategies

Opportunities Start With Thousands of Ideas

Figure 5.2: Everyday Spinoffs From NASA

Neck, Entrepreneurship. © SAGE Publications, 2018.

Opportunities Start With Thousands of Ideas

Source: Inhabitat. (2014) “INFOGRAPHIC: You Won’t Believe How many World-Changing Inventions Came From NASA.” Retrieved from http://inhabitat.com/infographic-you-wont-believe-how-many-world-changing-inventions-came-from-nasa/ and National Aeronautics and Space Administration (2016). Spinoff. https://spinoff.nasa.gov/Spinoff2016/pdf/2016_Brochure_web.pdf

5.3 Two Pathways to Opportunity Identification

The Finding Approach

A concept that assumes that opportunities exist independent of entrepreneurs and are waiting to be found.

Two Pathways to Opportunity Identification

The Building Approach

A concept that assumed that opportunities do not exist independent of entrepreneurs, but are instead a product of the mind.

Two Pathways to Opportunity Identification

Table 5.1: Finding or Building Opportunities

Neck, Entrepreneurship. © SAGE Publications, 2018.

Source: Adapted from Sarasvathy, S. D. (2008). Effectuation: Elements of entrepreneurial expertise. Northampton, MA: Edward Elgar; Alvarez, S. A. & Barney, J. B. (2007). Discover and creation: Alternative theories of entrepreneurial action. Strategic Entrepreneurship Journal, 1, 11–26.

Neck, Entrepreneurship. © SAGE Publications, 2018.

Building Opportunity

Prior knowledge

Pattern Recognition

Another key factor in building and recognizing opportunities is pattern recognition: the process of identifying links or connections between apparently unrelated things or events. Pattern recognition takes place when people “connect the dots” in order to identify and then build on opportunities. The “nine-dot exercise” (Figure 5.3) illustrates the limitations of our thinking. The challenge is to connect nine dots by drawing 4 straight lines without lifting your pen from the paper and without backtracking. If you who have difficulty completing the task, your mind may be blocked by the imaginary “box” created by the dots. To help overcome such limitations, try to think of the dots beyond any of the imaginary constraints.

R. A. Baron, “Opportunity recognition as pattern recognition: How entrepreneurs “connect the dots” to identify new business opportunities,” Academy of Management Perspectives 20, no. 2 (2006): 104-119. The concept of pattern recognition comes from a rich research stream in cognition. See for example: Matlin, M.W. 2002. Cognition, 5th ed. Fort Worth, TX: Harcourt College Publishers

E. Raudsepp and G. Hough. 1977. Creative growth games. New York: Jove Publications. The nine-dot exercise is referred to as “Breaking Out” and is found on page 29. The solution is on page 113.

Figure 5.3: Nine-Dot Exercise

Neck, Entrepreneurship. © SAGE Publications, 2018.

Source: Raudsepp, E., & Hough, G. (1977). Creative growth games. New York, NY: Jove. The nine-dot exercise is referred to as “Breaking Out” and is found on page 29. The solution is on page 113.

Neck, Entrepreneurship. © SAGE Publications, 2018.

Finding Opportunities

Active search

Alertness

Researchers have identified two major factors in the building of opportunities: prior knowledge and pattern recognition. As described in our earlier discussion of the finding approach, prior knowledge is preexisting information gained from a combination of life and work experience. Many studies indicate that entrepreneurs with pre-existing knowledge of an industry or market, together with a broad network, are more likely to recognize opportunities than those who have less experience or fewer contacts. Successful entrepreneurs often have prior knowledge with respect to a market, industry, or customers which they can then apply to their own ventures.

S. Shane, “Prior knowledge and the discovery of entrepreneurial opportunities," Organization Science, 11 no. 4 (2000):448–469.

A.McKelvie, & J.Wiklund. “How knowledge affects opportunity discovery and exploitation among new ventures in dynamic markets,” In J.E. Butler (Ed.), Opportunity identification and entrepreneurial behavior (219– 239). (Greenwich, Ct: Information Age Publishing, 2004).

5.5 From Idea Generation to Opportunity Recognition

Neck, Entrepreneurship. © SAGE Publications, 2018.

Idea Generation to Opportunity Recognition

Idea generation: Production of ideas for something new

Creativity: Production of ideas for something new that is also potentially useful

Baron, Robert A. and Shane, Scott A. (2008) Entrepreneurship: A Process Perspective. South-Western Educational Publishing: Mason, Ohio. P. 69.

Neck, Entrepreneurship. © SAGE Publications, 2018.

Opportunity Recognition

Recognition that ideas are not only new and potentially useful, but also have the potential to generate economic value

From Idea Generation to Opportunity Recognition

Baron, Robert A. and Shane, Scott A. (2008) Entrepreneurship: A Process Perspective. South-Western Educational Publishing: Mason, Ohio. P. 69.

Figure 5.4: Idea Generation, Creativity, and Opportunity Recognition

Neck, Entrepreneurship. © SAGE Publications, 2018.

Source: Baron, R. A., & Shane, S. A. (2008). Entrepreneurship: A process perspective (p. 69). South-Western Educational: Mason, OH.

Neck, Entrepreneurship. © SAGE Publications, 2018.

Approaches to Enhance Creativity

SEEC MODEL

Securing

Expanding

Exposing

Challenging

From Idea Generation to Opportunity Recognition

Researchers applied the SEEC model to a group of students studying business-related subjects in an effort to better understand the impact of training on the ability to generate innovative ideas leading to opportunity identification. Students were asked to complete tests and questionnaires before and after the SEEC training.

During the training, the students were also asked to enter 5 ideas per week into an opportunity register, and were frequently encouraged to look at the world in a new way by thinking of everyday events as potential opportunities. Every time the class met, they spent time sharing ideas or investigating the origins of existing everyday products and services. Students were also given a range of SEEC exercises to help them think more creatively.

By the end of the SEEC training, researchers found that students not only had the ability to generate more ideas for business opportunities, but that these ideas had the characteristic of being more innovative. The training had enabled the students to become more skilled at identifying viable opportunities.

Table 5.2: SEEC Model

Neck, Entrepreneurship. © SAGE Publications, 2018.

From Idea Generation to Opportunity Recognition

Source: Adapted from DeTienne, D. R., & Chandler, G. N. (2004). Opportunity identification and its role in the entrepreneurial classroom: A pedagogical approach and empirical test. Academy of Management Learning and Education, 3, 242–257. Material on pp. 246–248.

Neck, Entrepreneurship. © SAGE Publications, 2018.

SEEC Model

Securing

Being consciously aware of possibilities

Focus on capturing ideas

Record ideas for later use

From Idea Generation to Opportunity Recognition

SEEC Model

Expanding

Involves acquiring new skills

Share knowledge to solve problems

From Idea Generation to Opportunity Recognition

SEEC Model

Exposing

Focus on opening ourselves to circumstances and events

Brainstorming is a useful tool to build exposure

From Idea Generation to Opportunity Recognition

The training methods used by the SEEC researchers involve practice and action. Listing your ideas in a book, sharing ideas, and collaborating with others are all actions that can transform an opportunity into a reality. As we have explored, practicing creativity provides us with a better chance of recognizing opportunities.

SEEC Model

Challenging

Overcoming past failures by braving new encounters

Focus on new efforts and trying new things

From Idea Generation to Opportunity Recognition

Making an Idea a Reality

Time

Resources

Commitment

WORK!

From Idea Generation to Opportunity Recognition

In Love With Your Idea?

Mindshift: In Love With Your Idea?

Find some classmates and practice this quick brainstorming exercise. It’s best to have a group of five or more. The more people you have, the more powerful the exercise will be. You’ll need a few materials before you begin:

A sheet of paper for every group member

A pen or pencil for every group member

A pencil that will not be used—or a picture of a pencil, if you are working with a large group

A timer

Mindshift: In Love With Your Idea?

Here are your instructions. They are quite simple: You have five minutes to brainstorm as many uses as you can for a pencil. Yes, a pencil! Go for quantity, do not judge your ideas, and keep in mind that wild ideas are just as acceptable as are mundane ideas. Start the timer and go.

After five minutes have passed, everyone should stop brainstorming uses for a pencil and count how many ideas they have generated. Identify the person with the most ideas—the winner!

Mindshift: In Love With Your Idea?

Ask the winner to identify his or her first and second idea. Then ask the other group members to raise their hands if their list included at least one of these two same ideas. Usually most of the group will raise their hands.

The point of the exercise is: Don’t fall in love with the first ideas that pop into your mind, because most people will come up with those same ideas.

Mindshift: In Love With Your Idea?

Now ask the winner to share an idea from the very bottom of his or her list. Typically, you will find that not many people in the room have that idea on their lists. The thoughts we generate when we keep “digging,” prodding ourselves to think of more and more ideas, are the ones that tend to be the most original and novel.

Brainstorming not only takes practice; it also takes energy, as it requires pushing beyond the easiest, most obvious ideas. Don’t fall in love with the ideas at the top of your list. They won’t be novel. Instead, keep going to get the most innovative ideas.

1. In view of this exercise, can you explain the popular saying, “You always nd something in the last place where you looked for it”?

MINDSHIFT: CRITICAL THINKING

2. Do you agree that it is always important to look for new ideas and solutions if a workable solution already exists? Give examples to support your answer.

MINDSHIFT: CRITICAL THINKING

3. In what ways did the exercise challenge your previous assumptions and beliefs? Did you learn anything that surprised you?

MINDSHIFT: CRITICAL THINKING