1. Chapter 4 Opportunity recognition evaluation

2. Learning Outcomes On completion of this chapter you will be able to:
Understand the foundations for opportunity evaluation
Explain the role of cognitive biases and heuristics in opportunity
evaluating
Understand the different criteria used by venture capitalists to evaluate new venture proposals
Identify the characteristics of successful products and services
Determine how new ideas can be analysed to filter out those that are obviously not feasible or marketable;
Assess the viability of product and service ideas; and
Develop and implement a screening guide that can be used to establish which product or service ideas should be pursued.

3. Valuable business opportunity defined
A perceived means of generating economic value that has not previously been explored and are not currently being exploited by others and meets a need or desire

4. Central characteristics to opportunity
Potential economic value: potential to generate profit.
Newness: including a product, service or technology that did not exist before.
Perceived desirability: moral and legal acceptability of the new product and or service in society

5. Foundations of opportunity recognition and evaluation
In developing a viable business opportunity, the entrepreneur will have to use their cognitive abilities (cognitive approach), develop objectivity (the ability to let go of their personal biases, likes and dislikes) in order to be able to recognise and deal with risks in their pursuit of the most viable opportunity

6. Cognitive approach
The entrepreneur’s preferred way of gathering, processing, and evaluating information

7. Cognitive biases and heuristics
Opportunity evaluation needed to choose opportunity to be exploited
The evaluation criteria reflect values influencing expectations, personal goals, and effort exerted
Entrepreneurs tend to exhibit cognitive biases and overestimate chances of success
Cognitive biases are common types of mental shortcuts used to make judgments about opportunities and the business

8. Role of cognitive biases and heuristics
Risk perception and biases such as
Overconfidence
Planning fallacy
Believe in the law of small numbers
Illusion of control

9. Entrepreneurs evaluation of ventures
Ability to react well to potential growth in the target market
Demonstrated market acceptance
Ten times return on assets in the next five to ten years
The entrepreneur’s risk

10. Venture capitalist evaluation
Experience and a good management team
Proprietary product or service
Marketability
Personal commitment and involvement of the entrepreneur
Openness and honesty
Knowledge and experience
Realistic financials
Exit plan
Return rate on investment
Intellectual property

11. Characteristics of successful products/services
Fulfils a need or want
Have either a niche or mass-market appeal
Render an income and profit
Should often be replenished or repurchased by the customer
Compatibility with existing attitudes and beliefs and a drastic change in the buyer's behaviour should not be necessary
Simple so that the buyer will understand it.
Be easy to communicate the results or benefits to potential users.
Should be made available to potential customers to try out without a large risk.
Should be readily available once the buyer decides to make the purchase

12. Feasibility of products or services
Products or service screening questions
Skills of the entrepreneur/ venture team

13. Marketability
Customers: who and where are they and what are their needs, habits and preferences
Competitors: mere fact that there are competitors could be an indication that the market is large enough to absorb a new product
Suppliers: can play a vital role at the start-up stage of a new business venture
Marketing of products/services

14. Entrepreneur/ Entrepreneurial team
Personality and personal preferences
Skills
Traits/attributes
Relevant experience
Synergy
Exit plans

15. Resources Accessibility of resources Optimising resources
Sustainable advantage
Type and nature of Industry
Capital Requirements

16. Idea screening guide
The idea-screening guide is an instrument that can be used for choosing between different ideas to find the one or two that can be pursued.

17. Idea screening guide Establish criteria to be used
Assign weighting (1-10) to each criterion
Rate (1-10) extent to which each idea meet each criterion
Multiply rating with weight of criterion
Add score for each idea
Idea with highest total should be tentative first choice