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Chapter 2

Entrepreneurship: Successfully Launching

New Ventures, Bruce R. Barringer

R. Duane Ireland

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Chapter Objectives(1 of 2)

1. Common Start ups Mistakes2. Explain why it’s important to start a new firm when

its “window of opportunity” is open.3. Explain the difference between an opportunity and

an idea.4. Describe the three general approaches entrepreneurs

use to identify opportunities.5. Identify the four environmental trends that are most

instrumental in creating business opportunities.

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Chapter Objectives(2 of 2)

6. Identify the five steps in the creative process.7. Describe the purpose of brainstorming and its use

as an idea generator.8. Describe how to use surveys to generate new

business ideas.

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What is An Opportunity?(1 of 2)

• Idea is a thought, an impression, or a notion. An idea may or may not meet the criteria of an opportunity

• Opportunity Defined– An opportunity is a favorable set of circumstances that

creates the need for a new product, service, or business idea.– Most entrepreneurial firms are started in one of two ways:

• Some firms are internally stimulated. An entrepreneur decides to start a firm, searches for and recognizes an opportunity, then starts a business.

• Other firms are externally stimulated. An entrepreneur recognizes a problem or an opportunity gap and creates a business to fill it.

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What is an Opportunity?(2 of 2)

An opportunity has four essential qualities

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Window of Opportunity

• Window of Opportunity– The term “window of opportunity” is a metaphor

describing the time period in which a firm can realistically enter a new market.

• Once the market for a new product is established, its window of opportunity opens, and new entrants flow in.

• At some point, the market matures, and the window of opportunity (for new entrants) closes.

• Example of Web-Search Engines.

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Three Ways to Identify An Opportunity

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First Approach: Observing Trends(1 of 2)

• Observing Trends– The first approach to identifying opportunities is to observe

trends and study how they create opportunities for entrepreneurs to pursue.

– There are two ways that entrepreneurs can get a handle on changing environmental trends:

• They can carefully study and observe them.• They can purchase customized forecasts and market analyses from

independent research firms.– Two caveats while observing

• It is important to Differentiate b/w Fashion and Fad• Trends are interconnected

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First Approach: Observing Trends(2 of 2)

Environmental Trends Suggesting Business or Product Opportunity Gaps

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Trend 1: Economic Forces

• Economic Forces– Economic forces affect consumers’ level of disposable

income.– When studying how economic forces affect opportunities,

it is important to evaluate who has money to spend and who is trying to cut costs.

– A weak economy • Make more people start businesses• Paradoxically, provides business opportunities for start-ups

that help consumers save money.• Provides opportunities for firms to sell items at a “discount.”• Effect of economic trends on Behavior. (more people going

back to school.)

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Trend 2: Social Forces(1 of 2)

• Social Forces– Changes in social trends provide openings for new

businesses on an ongoing basis.– Often a product or service exists more because of

satisfying a social need than the more transparent need the product fills.

• The continual proliferation of fast-food restaurants, for example, isn’t happening because people love fast food. It is happening because people are busy, and have disposable income.

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Trend 2: Social Forces(2 of 2)

Examples of Social Forces That Allow For New Business Opportunities

The increasing diversity of the workforce Increasing interest in social networks

such as Facebook and Twitter Proliferation of mobile phones and mobile

phone apps Emphasis on clean forms of energy

including wind, solar, biofuels, and others Increasing number of people going back

to school and/or retraining for new jobs Increasing interest in healthy foods and

“green” products

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Trend 3: Technological Advances

• Technological Advances– Given the rapid pace of technological change, it is vital that

entrepreneurs keep on top of how new technologies affect current and future business opportunities.

– Entire industries have emerged as the result of technological advances.

• Emergence of Apple iPod, iPhone, iPad and similar devices

– Once a new technology is created, new businesses forms are developed to take the technology to a higher level.

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Trend 4: Political and Regulatory Changes

• Political and Regulatory Changes– Political and regulatory changes provide the basis for new

business opportunities.• For example, laws that protect the environment have created

opportunities for entrepreneurs to start firms that help other firms comply with environmental laws and regulations.(Anti-Dengue spry)

– Similarly, changes in government regulations motivate business owners to start firms that differentiate themselves by “exceeding” the regulations.(less pollution, energy )

– Businesses and industries are so dependent on favorable government regulations for their literal survival.(Export industry)

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Second Approach: Solving a Problem(1 of 2)

Every Problem is a Brilliantly Disguised Opportunity

Sometimes identifyingopportunities simply

involves noticing a problemand finding a way to

solve it.

These problems can bepinpointed through observing

trends and through more simplemeans, such as intuition,

or chance etc.

Some business ideas are clearlyinitiated to solve a problem.

(e.g. technology)OR

Someone experienced a ProblemsIn their own life.

Some problems are solved by Entrepreneurs who frame a problem

Differently

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Third Approach: Finding Gaps in the Marketplace

• Gaps in the Marketplace– A third approach to identifying opportunities is to find a gap in

the marketplace.– A gap in the marketplace is often created when a product or

service is needed by a specific group of people but doesn’t represent a large enough market to be of interest to mainstream retailers or manufacturers.

• This is the reason that small clothing boutiques and specialty shops exist.• The small boutiques, which often sell designer clothes or clothing for hard-

to-fit people, are willing to carry merchandise that doesn’t sell in large enough quantities for Wal-Mart, GAP, or JC Penney to carry.

– A related technique for generating new business ideas is to take an existing product or service and create a new category for a completely different target market.

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Personal Characteristics of the Entrepreneur

Characteristics that tend to make some people better at recognizing opportunities than others

Prior Experience Social Networks

Cognitive Factors Creativity

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Prior Industry Experience

• Prior Industry Experience– Several studies have shown that prior experience in an industry

helps an entrepreneur recognize business opportunities. There are several explanations for this.

• By working in an industry, an individual may spot a market niche that is underserved.

• It is also possible that by working in an industry, an individual builds a network of social contacts who provide insights that lead to recognizing new opportunities.

• Corridor principle, which states that once an entrepreneur starts a firm, he or she begins a journey down a path where “corridors” leading to new venture opportunities become apparent

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Cognitive Factors

• Cognitive Factors– Studies have shown that opportunity recognition may be an

innate skill or cognitive process.– Some people believe 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.

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Social Networks(1 of 3)

• Social Networks– The extent and depth of an individual’s social network

affects opportunity recognition. – People who build a substantial network of social and

professional contacts will be exposed to more opportunities and ideas than people with sparse networks.

– In one survey of 65 start-ups, half the founders reported that they got their business idea through social contacts.

• Strong-Tie Vs. Weak-Tie Relationships– All of us have relationships with other people that are

called “ties.”

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Social Networks(2 of 3)

• Nature of Strong-Tie Vs. Weak-Tie Relationships– Strong-tie relationship are characterized by frequent

interaction and form between coworkers, friends, and spouses.

– Weak-tie relationships are characterized by infrequent interaction and form between casual acquaintances.

• Result– It is more likely that an entrepreneur will get new business

ideas through weak-tie rather than strong-tie relationships.

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Social Networks(3 of 3)

Strong-Tie Relationships Weak-Tie Relationships

These relationships, which typically form between like-minded individuals, tend to

reinforce insights and ideas that people already have.

The relationships, 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.

Why weak-tie relationships lead to more new business ideas than strong-tie relationships

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Creativity(1 of 2)

• Creativity– Creativity is the process of generating a novel or useful

idea.– Opportunity recognition may be, at least in part, a creative

process.– For an individual, the creative process can be broken down

into five stages, as shown on the next slide.

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Creativity(2 of 2)

Five Steps to Generating Creative Ideas

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Techniques For Generating Ideas

Brainstorming Focus Groups

Surveys Other Techniques

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Brainstorming(1 of 2)

• Brainstorming– Is a technique used to generate a large number of ideas and

solutions to problems quickly.– Includes legal pad and jotting down interesting business ideas to

formal “brainstorming sessions” led by moderators.– A brainstorming “session” typically involves a group of people,

and should be targeted to a specific topic.– Rules for a brainstorming session:

• No criticism.• Freewheeling is encouraged.• The session should move quickly.• Leapfrogging is encouraged

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Brainstorming(2 of 2)

• Brainstorming (continued)– There are two reasons brainstorming generates ideas that

might not arise otherwise:• Because no criticism is allowed, people are more likely

to offer ideas than they would in a traditional setting.• Brainstorming sessions can generate more ideas than a

traditional meeting because brainstorming focuses on creativity rather than evaluation.

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Focus Groups

• Focus Group– A focus group is a gathering of five to ten people, who

have been selected based on their common characteristics relative to the issues being discussed.

– These groups are led by a trained moderator, who uses the internal dynamics of the group environment to gain insight into why people feel they way they do about a particular issue.

– Although focus groups are used for a variety of purposes, they can be used to help generate new business ideas.

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Library and Internet Research

– Library can point out useful resources, such as industry-specific magazines, trade journals, and industry reports.

– You can start from scratch, simply typing “new business ideas” into Google or Yahoo.

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Other Techniques

• Customer Advisory Boards– Some companies set up customer advisory boards that meet

regularly to discuss needs, wants, and problems that may lead to new ideas.

• Day-In-The-Life Research– A type of anthropological research, where the employees of

a company spend a day with a customer.

Mistakes Start-Ups Make1. Single Founder or not having a Good Team.2. Entering into a Business without ensuring

Competitive Advantage.3. Weak Planning and Wrong Assessment of Market

Potential.4. Under estimating the Cost and Overestimating the

Price.5. Not having the Financial Prudence.

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Mistakes Start-Ups Make

6. Lack of Financial Tie-ups and Awareness on Approvals Required.

7. Failure due to Wrong Or Non-Ethical Purchasing Decisions

8. Productions Lacunae9. Lack of Flexibility & Obsession with an idea

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