©2008 Prentice Hall 2-1 Chapter 2 Entrepreneurship: Successfully Launching New Ventures, 2/e Bruce R. Barringer R. Duane Ireland

©2008 Prentice Hall 2-2 What is An Opportunity? (1 of 2) 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.

©2008 Prentice Hall 2-3 What is an Opportunity? (2 of 2) An opportunity has four essential qualities

©2008 Prentice Hall 2-4 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.

©2008 Prentice Hall 2-5 Three Ways to Identify An Opportunity

©2008 Prentice Hall 2-6 First Approach: Observing Trends (1 of 2) Observing Trends –Trends must be observed to determine how they create opportunities for entrepreneurs to pursue.

©2008 Prentice Hall 2-7 First Approach: Observing Trends (2 of 2) Environmental Trends Suggesting Business or Product Opportunity Gaps

©2008 Prentice Hall 2-8 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. The increase in the number of women’s boutique clothing stores parallels the increase of professional women in workforce. As large firms try to cut costs, entrepreneurs have taken advantage of this trend by starting firms that help them control costs.

©2008 Prentice Hall 2-9 Trend 2: Social Forces (1 of 2) Social Forces –Changes in social trends provide openings for new businesses on an ongoing basis. –The proliferation of fast-food restaurants, isn’t happening because people love fast food, but because people are busy, and have disposable income. –Similarly, the Sony Walkman was developed not because consumers wanted smaller radios but because people wanted to listen to music while on the go.

©2008 Prentice Hall 2-10 Trend 2: Social Forces (2 of 2) Examples of Social Forces That Allow For New Business Opportunities Family and work patterns. The aging of the population. The increasing diversity in the workplace. The globalization of industry. The increasing focus on health care and fitness. The proliferation of computers and the Internet. The increase in the number of cell phone users. New forms of entertainment.

©2008 Prentice Hall 2-11 Trend 3: Technological Advances Technological Advances –Does the new technologies create a business opportunity? –Entire industries have emerged as the result of technological advances: Examples: The computer industry, the Internet, biotechnology, and digital photography. Example: RealNetworks was started to add audio capability to the Internet.

©2008 Prentice Hall 2-12 Trend 4: Political and Regulatory Changes Political and Regulatory Changes –Political and regulatory changes provide the basis for new business opportunities. Example: Laws that protect the environment have created opportunities for entrepreneurs to start firms that help other firms comply with environmental laws and regulations. Example: Firms have been started to help companies comply with the Sarbanes-Oxley Act of 2002 (public companies must keep complete records, including messages and electronic documents, for at least five years).Sarbanes-Oxley Act of 2002

©2008 Prentice Hall 2-13 Second Approach: Solving a Problem (1 of 2) Second Approach: Solving a Problem Sometimes identifying opportunities simply involves noticing a problem and finding a way to solve it. These problems can be pinpointed through observing trends and through more simple means, such as intuition, serendipity, or chance. Some business ideas are clearly initiated to solve a problem. For example, Symantec Corp. created Norton antivirus software to guard computers against viruses.

©2008 Prentice Hall 2-14 Second Approach: Solving a Problem (2 of 2) Businesses Created to Solve a Problem

©2008 Prentice Hall 2-15 Third Approach: Finding Gaps in the Marketplace Gaps in the Marketplace –Created when a product or service is needed but doesn’t represent a large enough market for large companies. Example: small boutiques, sell designer clothes or clothing for hard-to-fit people; merchandise that doesn’t sell in quantities large enough for Wal-Mart, GAP, or JC Penney to carry.

©2008 Prentice Hall 2-16 Personal Characteristics of the Entrepreneur Characteristics that tend to make some people better at recognizing opportunities than others Prior ExperienceSocial Networks Cognitive FactorsCreativity

©2008 Prentice Hall 2-17 Prior Industry Experience –Several studies have shown that prior experience in an industry helps an entrepreneur recognize business opportunities. By working in an industry, an individual may spot a market niche that is underserved. By working in an industry, an individual builds a network of social contacts who provide insights that lead to recognizing new opportunities.

©2008 Prentice Hall 2-18 Cognitive Factors –Studies have shown that opportunity recognition may be an innate skill or cognitive process. –Some entrepreneurs may have a greater ability to see opportunities that others miss.

©2008 Prentice Hall 2-19 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.” (See next slide.)

©2008 Prentice Hall 2-20 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. (See next slide.)

©2008 Prentice Hall 2-21 Social Networks (3 of 3) Strong-Tie RelationshipsWeak-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

©2008 Prentice Hall 2-22 Creativity (1 of 3) 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.

©2008 Prentice Hall 2-23 Creativity (2 of 3) CREATIVE PROCESS Individual  Environment Scanning  Networking  Hobby  Work Experience  Social Needs IDEAS & OPPORTUNITIES Group  Brainstorming  Gordon Method  Free Association  Forced Relationships  Attribute Listing  Big-Dream  Parameter Analysis  R&D

©2008 Prentice Hall 2-24 Creativity (3 of 3) Five Steps to Generating Creative Ideas

©2008 Prentice Hall 2-25 Full View of the Opportunity Recognition Process Depicts the connection between an awareness of emerging trends and the personal characteristics of the entrepreneur

©2008 Prentice Hall 2-26 Techniques For Generating Ideas BrainstormingFocus Groups SurveysOther Techniques

©2008 Prentice Hall 2-27 Brainstorming (1 of 2) Brainstorming –Is a technique used to generate a large number of ideas and solutions to problems quickly. –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. Leap-frogging is encouraged.

©2008 Prentice Hall 2-28 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. –In most meetings, one person suggests an idea, and immediately the rest of the group begins evaluating it. This happens because most people are better at criticizing ideas than they are at suggesting new ones.

©2008 Prentice Hall 2-29 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 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.

©2008 Prentice Hall 2-30 Surveys (1 of 2) Survey –A survey is a method of gathering information from a sample of individuals. Effective surveys sample a “random” portion of the population, meaning that the sample is not selected haphazardly or only from people who volunteer to participate. –Surveys generate new product, service, and business ideas because they ask specific questions and get specific answers.

©2008 Prentice Hall 2-31 Surveys (2 of 2) Example of a suspect survey technique Self-Selected Opinion PollResult Most call-in television surveys or magazine write-in polls are highly suspect because the participants represent what’s called a self-selected opinion poll. Most people who take the time to participate in a self-selected opinion poll do so because their have either strong positive or strong negative feels about the a particular product or topic.

©2008 Prentice Hall 2-32 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.

©2008 Prentice Hall 2-33 Encouraging New Ideas Encouraging Creativity at the Firm Level –Creativity is the raw material that goes into innovation and should be encouraged at the organizational and individual supervisory level.

©2008 Prentice Hall 2-34 Protecting Ideas From Being Lost or Stolen Although Idea’s themselves have little marketable value there are some steps that can be taken to protect them: –Keep an Idea Log Book, and store it in a secure place. –Minimize voluntary disclosure of an idea. If disclosed have recipient sign a Non-Disclosure Agreement (NDA).

©2008 Prentice Hall 2-35 NON-DISCLOSURE AGREEMENT _________________________ ____________________________, (“COMPANY”) and ___________________________________________________________, (“RECIPIENT”) agree: ___________________ and its designees may from time to time disclose to RECIPIENT certain confidential information or trade secrets generally regarding: ________________ ___________________________________________________________________________ RECIPIENT agrees that RECIPIENT shall not disclose the information so conveyed, unless in conformity with this agreement, and shall protect the same from disclosure with reasonable diligence. As to all information which COMPANY claims is confidential, RECIPIENT shall reduce the same to writing prior to disclosure and shall conspicuously mark the same as "confidential," "not to be disclosed" or with other clear indication of its status. If the information which COMPANY is disclosing is not in written form, for example, a machine or device, shall be required prior to or at the same time that the disclosure is made to provide written notice of the secrecy claimed by. agrees upon reasonable notice to return the confidential tangible material provided by it by upon reasonable request. The obligation of non-disclosure shall terminate when if any of the following occurs: (a) The confidential information becomes known to the public without the fault of RECIPIENT, or; (b) The information is disclosed publicly by COMPANY, or ; (c) A period of 60 months passes from the disclosure, or; (d) The information loses its status as confidential through no fault of RECIPIENT. In any event, the obligation of non-disclosure shall not apply to information which was known to prior to the execution of this agreement. Dated: _________________________ Dated: ______________________ ___________________________________________________________ Signature for COMPANYSignature of RECIPIENT ____________________________________________________________ Printed Name

©2008 Prentice Hall 2-36 Idea Evaluation- Industry Analysis  Competitive Analysis  Growth Trends  State of Art of Technology  Suppliers:  Government Regulations Performing an Industry Analysis

©2008 Prentice Hall 2-37 Industry Classification North American Industry Classification System (NAICS) 23Construction Residential Remodeler 236 Residential Bldg Const Construction of Bldgs Industry Sector NAICS Code for a “Residential Remodeler”

©2008 Prentice Hall 2-38 Idea Assessment LEGAL & ETHICAL? PERSONALLY SUITABLE MARKET ENTRY COMPLEXITY INDUSTRY OUTLOOK CAPITAL REQUIREMENT PROFIT POTENTIAL CONCEPT FEASIBLE? Viable Idea(s) If “No” Abandon Idea. Idea Y or N

©2008 Prentice Hall 2-39 Innovation Process- Idea-to-market IDEA PRE-MARKET MARKET SALES IDEA MORTALITY INVESTMENT PROFIT DOLLARS IDEAS TIME 