1b Opportunity Spotting Frank Martin

Hunter Centre for Entrepreneurship

1b Opportunity Evacuation New Venture Creation 2012

Opportunity Spotting
Is it about finding an opportunity . . . or the ability continually spot opportunities? Can firms be opportunity seeking?

Faint hearted neer won fair lady attributed to Miguel

de Cervantes 1574 in Don Quijote

Enterprising
Approaches to Opportunity Spotting Why nothing is impossible.
1b Opportunity Evacuation New Venture Creation 2012

Why produce a Plan?

"Would you tell me, please, which way I ought to go from here?" "That depends a good deal on where you want to get to," said the Cat. "I dont much care where--" said Alice. "Then it doesnt matter which way you go," said the Cat.

"--so long as I get SOMEWHERE," Alice added as an explanation. "Oh, youre sure to do that," said the Cat, "if you only walk long enough."
(Alices Adventure in Wonderland)
1b Opportunity Evacuation New Venture Creation 2012

On Spotting Opportunities

In business . . . there is no such thing as a threat only opportunities disguised as treats . .

So where others see a problem entrepreneurs see a chance to do something different and better
1b Opportunity Evacuation New Venture Creation 2012

Stages of Starting a Business 1

Acquiring Motivation
Finding the stimulus and commitment Building the Support Network

Finding an Idea
Getting a raw idea for further investigation Alternatives forgetting into business, e.g., franchising or buying a going concern.

Validating the Idea

Technical testing of Product or Service
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Market Acceptance

Stages of Starting a Business - 2

Identifying the Resources Determining the scale
Resources needed.

Negotiating to get into Business

Legal Structure, Ownership Funding, Premises Contracts

Birth and Survival

Business processes, regulation Relationship with customers and suppliers

1b Opportunity Evacuation New Venture Creation 2012

9 Steps into Business (Non-Recursive)

Get the first step right and then follow through? Too easy!
Generate and refine the business idea Gauge demand for the product/service

Produce detailed Business Plan

Arrange Resources Adopt legal structure Make tax and legal arrangements Confirm sales Potential in BusinessPlan
START BUSINESS
1b Opportunity Evacuation New Venture Creation 2012

Approaches to Start-Up
Which is best?
Intuitive

Methodical

Clear goals and plans methodically pursued. Minimises risk. Maximises chances of support. Can lead to paralysis by analysis.

A clear intention to go into business, but step-by-step. Steps related to risk reduction or maintaining existing commitments. e.g. working in spare time to develop product/service leads to self employment, to forming partnership or company, to taking on staff. Incremental Often involves some degree of planning, but can be highly pragmatic.

1b Opportunity Evacuation New Venture Creation 2012

Being Opportunist

Opportunistic, go for it, strong personal belief, minimal planning. Sometimes seen (by outsiders!) as the true entrepreneurial approach. Has the advantages of speed but tends to be very high risk.

An opportunity is a business concept that if turned into a tangible product or service offered by a business enterprise will result in a financial profit Entrepreneurial opportunity
is about seeing an opportunity AND
Talking the talk

Exploiting that opportunity

Walking the walk

1b Opportunity Evacuation New Venture Creation 2012

Crash and Burn . .

BUT Opportunities arise from experience

High potential/high risk - the breakthrough technologies (Schumpeter) Lower potential/lower risk - the steady as she goes opportunities (Kirzner)

AND personal goals and objectives important in shaping what is and what is not an opportunity for the individual.

This is what gives risk profiles

Individual Risk Profiles
Comfort Zones

Organisational Risk profile

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Approaches? Being Intuitive

Opportunistic, go for it, strong personal belief, minimal planning.
Sometimes seen (by outsiders!) as the true entrepreneurial approach. Has the advantages of speed (fads and fashions, secrecy etc.) Tends to be very high risk business. Evolutionary rather than revolutionary ideas The Cheshire Cat
Source: Richardson and Clarke (1993)

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1b Opportunity Evacuation New Venture Creation 2012

Entrepreneurial Opportunities
What makes a truly successful entrepreneur is not intelligence, education, lifestyle or background. The principal factor that seems to determine success is the entrepreneurs ability to effectively deal with opportunities through the dynamics of an organizational setting, thereby enabling the people concerned to be actively and enthusiastically involved and successful. Entrepreneurs who strive to establish a setting that is supportive . . . help to instil within those individuals a loyalty that will serve to enhance the continued achievement of organizational excellence and the operational success of the organization. Darling et al 2007 12
1b Opportunity Evacuation New Venture Creation 2012

How to Evaluate an opportunity?

Attractive
Opportunity
(rather than just a good idea)

Timely

Creates value

Sustainable

1b Opportunity Evacuation New Venture Creation 2012

What is an opportunity?
A new

or improved product A new service A new means of production A new way of distributing the product or service An improved service New combinations

Or a hybrid of the above

1b Opportunity Evacuation New Venture Creation 2012

Best ways to create opportunities?

Combining resources
Solving problems/eradicating pain Satisfying unmet needs Using existing knowledge/skills in a different way Taking advantage of new trends

1b Opportunity Evacuation New Venture Creation 2012

Assessing the opportunity

Investment (20) Timescale (20) Assessing the opportunity Risk (20)
Different entrepreneurs different perspectives

Impact of change (20)

Return (ROI) (20)

The pentagon model of opportunity assessment (Rae, 2007) 1b Opportunity Evacuation New Venture Creation 2012

Investment
Resources are a key dimension of any opportunity. Key issues include: How much is required and over what period? Is staged investment
required?

Tangible
Intangible

Is Franchising cheaper than a new start?

What proportion of your own resources does this represent and what additional resources are required? If so, who will contribute them and on what terms? What does the investment actually buy? Is it tangible assets that have disposal value or it is intangible resources

such as knowledge, information, expertise, networks, IPR?

1b Opportunity Evacuation New Venture Creation 2012

Risk and uncertainty

Essential to evaluate risks involved arising from uncertainty surrounding the opportunity. These may include:
Knowledge: Lack of information about market factors and likely demand The economy: Fluctuations in macro-economic conditions such as market stability, currency exchange and interest rates Technology: Will the technology work as planned? Financial factors: Are the financial costings realistic and achievable?

Risk is the risk of loosing money Customers: Will they buy and pay as expected? Professional gambler??
Competition: How will they respond? Supply chain: Will supplier and distributors deliver as expected? Human elements: Does the venture team have the management skills, experience, credibility and expertise to manage the venture?
1b Opportunity Evacuation New Venture Creation 2012

Return and value added

Also vital to assess the acceptability of the return which should take into account the following factors:
The amount invested: It may be acceptable to lose a small amount completely Return in relation to risk: The higher the risk, the higher the return will normally be

Timescale over which return will come: Risk tends to increase further ahead in time The form of return: e.g. As capital growth in the investment or as a flow of income The exit strategy: e.g. As liquidation of assets, sale as a going concern, flotation, value anticipated and timescale

The size of return: What profits will be generated? What are the costs? What prices can be set? What will be the margin?
1b Opportunity Evacuation New Venture Creation 2012

Impact of innovation and change

It assessing the impact of change caused by the opportunity,

important to examine the extent to which it will either drive and lead a change process

Strategic and disruptive innovations can reduce competitor's power and create new markets. The following key factors are vital to assess:
How far does the opportunity create or develop a new market, identify unmet demand, or meet customer requirements in a new way?

Does the opportunity apply innovation to offer customers new benefits or meet their needs more effectively? Does the opportunity use a new distribution method to communicate and sell to customers? Will the opportunity lead to significant change in the structure of the industry e.g. for competitors and suppliers?
1b Opportunity Evacuation New Venture Creation 2012

Timescale
Achieving the right timing is crucial factor in the viability of an opportunity. Creating an entirely new market or product can create high rewards but also high risks Some opportunities can be ahead of their time or take too long to establish customer acceptance. Key issues to consider include:
Is the timing of entry 'leading' the rest of the market, which may give an advantage but also require greater time and investment? Is it entering the market at the same time as competitors, or trailing behind in a mature or declining market? What is the duration of the opportunity from short to long term? What is the lead time needed to enter the market?

When will the investment achieve a return?

1b Opportunity Evacuation New Venture Creation 2012

The Idea or the Individual?

Timmons (1994) emphasises fit;
fit between the individuals, and the opportunity, and between the individuals and their abilities to resource and exploit the opportunities.

Other fundamentals are:

the founders are the drivers of the entrepreneurial process: the quality of the lead entrepreneur and the team are vital
a team grows a business while a solo entrepreneur makes a living (Timmons, 1994, p.20),

a business idea is not necessarily an opportunity, entrepreneurs seek access and control of re sources rather than ownership, timing is a vital component of good fit
Timmons, cited in Scott, 1999
1b Opportunity Evacuation New Venture Creation 2012

Types of opportunity
Personal risks
financial - can you afford to lose your investment career - can you return to your previous job family and social - how will it affect your reputation psychic - how afraid are you of failure

Business risks
market - will the product sell? credit - will the customers pay, and when? operational - are the right control systems in place? resources - are the resources (people, finance) adequate? reputational - does the market believe this can be done
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Vision v Intent
External Environment

Opportunity Spotting
Qualifying and adding value

Building Capability
Innovation and Preparation

Allocating Resources
Organisational Fit Efficiency v Effectiveness

Walk the walk and talk the talk

After Gibb 1987 & Thompson 2005

Internal to the Organisation

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Its about Adding Value . . .

Nilson (1992) defines value added as:
constantly looking for ways to improve the perceived valuefor-money of products and services. Compared with reactive marketing, value-added marketing means constantly seeking out new opportunities to exceed customer expectation and beat the competition. Value added market relies on continual research to spot emerging opportunities that others are missing. So a good Business (Idea) is distinctive, no-one else is brave (or stupid) enough to do it! Being average (me-too) is not special but it is safe!
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SEARCHING FOR OPPORTUNITIES

Meet already articulated needs better (by an order
of magnitude or marginally)
niches and market gaps customer complaints

Define a new need and meet it by creating the market (changing the world, history making)
Disruptive innovation

exploitation of enabling technologies

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Forward Looking Organisations

(not Individuals)
Having a good product or service is not distinctive Do not compete on price, compete on focused differentiation Market orientated means putting customer value first?
(Porters Generic strategy)

Understanding what buyers want and achieving that profitably. Look for a sustainable and differential competitive advantage Formal bureaucracies are the antithesis of the market opportunity seeking enterprising organisation.
entrepreneurship and marketing are focused on innovation and change. The really skilful entrepreneur sees things in a way no one else does. They perceive opportunities in the market place which perhaps are not yet fully formed but are currently no more than shapes and patterns arising from a new technology and fashion or trend, a possible cultural shift. Carson (1995)
Hunter Centre for Entrepreneurship; New Venture Creation
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Forward Looking Organisations

Is it about the person (entrepreneur) or the organisation (enterprise)? Formal bureaucracies are the antithesis of the market opportunity seeking enterprising organisation.
entrepreneurship and marketing are focused on innovation and change. The really skilful entrepreneur sees things in a way no one else does. They perceive opportunities in the market place which perhaps are not yet fully formed but are currently no more than shapes and patterns arising from a new technology and fashion or trend, a possible cultural shift. Carson (1995)

Forward looking organisations are always looking for new opportunities new ways to add value.
Hunter Centre for Entrepreneurship; New Venture Creation
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Opportunity evaluation
Purpose of opportunity evaluation is to assemble all known information about the opportunity and use it to investigate essential, strategic decisions Aims to reduce risk of project failure and to ensure opportunity offers attractive rewards Critical factors:
Reasons for perceived opportunity solving a problem, meeting a need Market opportunity for business size, value, duration Key market segments and customer groups, preferences and distribution channels Barriers to entry and protecting the opportunity Industry structure, driving forces and competition Routes to market Who may support or invest in the business Options, resources and key success factors for the project Dynamic effects of change on the industry
1b Opportunity Evacuation New Venture Creation 2012

However...
'While information reduces risk, the entrepreneur cannot expect to eliminate all risk and sometimes they must make a step in the dark. The entrepreneur must walk a narrow path between making ill-informed and ill-judged decisions, and inertia caused bybecoming more interested in gathering and analysing information than in taking direct action' (Wickham, Strategic Entrepreneurship, 2006).

'It is easy to get carried away with enthusiasm for the potential of an opportunity and to neglect the risks representing the downside, only to discover these later. On the other hand, over-analysis can lead to very slow decision-making or even failure to act at allIn some situations, it may be better to act and learn quickly from what happens, and then modify the strategy, than to fail to act at all' (Rae, Entrepreneurship: From Opportunity to Action, 2007).

1b Opportunity Evacuation New Venture Creation 2012

Spotting Opportunities
Information
Market Characteristics Product Characteristics Buyer Characteristics

The heuristic approach.

Process is interactive each cycle refines the opportunity

Analysis
Critical relationships Key Success Factors

Synthesis
Refine Critical relationships

New Opportunity
Wickham, Strategic Marketing, Pitman, p158, 1998
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Opportunities: Wood and trees

Opportunities are about creating value not reducing cost by doing something cheaper.

Most people fail to pursues opportunities, even when they are obvious
Opportunity rarely found in well-documented markets (but look out for disruptive innovations)

Opportunities are not necessarily the result of inventions the best one may not be innovations . .
So why do some people discover opportunities?
Superior opportunity recognition capabilities, given access to the same information. It a way of viewing the world.
1b Opportunity Evacuation New Venture Creation 2012

The best Opportunities

The greater the number of entrepreneurs searching in a given area, the lower the probability that any given one of them will be first to make a discovery. If each entrepreneur is basically as well equipped for search as the others, then his probability of obtaining a reward from search varies inversely with the number of entrepreneurs in the field Casson (1982)
Hence Competition sucks! and the best opportunities are unique but not so unique that NO-ONE has done it before. That is just plain stupid Quick in and quick out!
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