Spotting The Market Opportunity

The key to entrepreneurship is the ability to identify, pursue and capture the value from business opportunities. Entrepreneurs exist to pursue opportunity. Without it, they have no raison detre. No one can call themselves an entrepreneur until they have identified and at least begun to pursue an opportunity.

The problem in addressing the topic of opportunity and particularly the question what makes a good opportunity is that it is hard to generalise. The underlying nature of technologies and the way they are adopted by customers and specific industry and competitive dynamics make the construction of a checklist of opportunity characteristics difficult.

 

It is even harder to generalise about where entrepreneurs find opportunity. For some, it came as a result of considerable thought and exploration. For others, it is the product of a fortunate set of circumstances and a quick response to a lucky phone call from a desperate potential customer.

However, having said that, we can draw from entrepreneurship research over the past 15 years. We can also draw from research on those who bet on entrepreneurs for a living: private investors and venture capitalists.

Their reflections provide some guidelines on opportunity, and in reviewing these sources, you will find some consistent themes regarding the characteristics of good opportunities.

One note of caution however. The one thing we do know about entrepreneurial opportunity is that the opportunity models developed by strategy and marketing researchers may not fully apply to new-venture opportunities.

More than once, existing strong competitors in industries, such as computers (for example IBM), have asked themselves how these young upstarts have been so successful in pursuing opportunities that did not appear on their own radar screens.

The problem may lie in the underlying source of the models used by large competitors: they were taken from observations of long-run market competition in established markets not from establishing markets.

Despite the difficulty in generalising from the experiences of successful and unsuccessful entrepreneurs about opportunity, we will attempt to summarise what we know.

What is an opportunity?

Opportunity may be defined as a business concept that if turned into a tangible product or service offered by a business enterprise will result in financial profit.

Are there any general points we have learned about opportunity by observing entrepreneurs? The answer comes in a few cautionary points.

Opportunities are about creating value, not necessarily lowering cost. Some would-be entrepreneurs become fixated on whether their product is cost competitive or the lowest-cost product.

The name of the game, however, is not necessarily about low cost, despite what some popular production strategy gurus have said. It has been, and always will be, about creating value. Does the opportunity help to increase the customers effectiveness and efficiency? It is simple economics: if it is worth it, people pay. The failure of some entrepreneurs who believe they have not come in at the correct cost is that they have not communicated value.

One example is a productivity software package that was launched in the early days of microcomputer software. It was priced below $ 90 per copy. The company selling the product was doing poorly vis-a-vis other packages. What did consumers tell it? you cannot provide value since all you do is communicate through price.

The company brought the price closer to $120 per copy and used the additional revenue to advertise in order to put over the products value. Turnover climbed precipitously.

Opportunities are not the same for everyone. Many economic and business models suggest that somehow opportunity is out there and that it simply happens. The only problem is who will invest in it.

Dont get caught in this perspective. If there is one truth that comes from the experience of entrepreneurs, it is that not everyone is equally equipped to perceive or capture

an opportunity.

The experience of each individual or team makes them more or less able to identify and capture opportunity. In addition, each individuals perspective (which is a product

of their products, services, markets or skills) is different.

What does this mean? It means that although you may be worried that someone else will pursue your opportunity it is not necessarily perceived as an opportunity by anyone else. They may not have your advantages.

It also means that even though something may be an opportunity for someone else perhaps you ought to avoid it.

Not everyone pursues opportunities, even if they are obvious. How many times, when someone else started a business and made money out of it, have you said to yourself I had the same idea? Profit is left to those who wish to show initiative and pursue, rather than just think about, a business opportunity. Most people and companies do not pursue opportunity, especially if they are reasonably satisfied with the

status quo. You must show real initiative to pursue opportunity.

Complex opportunities break down. Unfortunately, it appears that the more complex an opportunity for example, involving a large number of parties and integrating numerous steps and components for it to work successfully the more unlikely it is to come to fruition or to work in the long-run.

Some entrepreneurs find that in pursuing ideas they must involve more and more parties. They can then become caught up in the artistry of the opportunity and forget how vulnerable they are when so many components must work together.

These are the entrepreneurs who are often heard lamenting that they had worked out the opportunity but it was just one little problem that ripped it apart.

Opportunity is not always (rarely?) found in well-documented growth markets. Too many entrepreneurs and venture capitalists have been lured into pursuing opportunities of which everybody else is aware.

For example, an excessive number of companies were established, virtually simultaneously, in the hard disk drive industry in the US to pursue the new Winchester drive technology. Only a few survived.

A simple rule might be that if an opportunity is discussed in detail on the front page of the Financial Times you might then take the time to determine whether it is going to be a real value-added opportunity for you. I always enjoy those advertisements in business journals that note an undiscovered entrepreneurial opportunity that has been successfully pursued by thousands.

Opportunities are not necessarily the result of inventions by the entrepreneur. Despite the comment that entrepreneurs are not necessarily inventors, many are determined to invest time and effort in searching for opportunities based on a technological breakthrough. This may be admirable, even desirable, but is

not necessary.

The source of opportunities

Entrepreneurial opportunities come in many ways, shapes and forms. Some individuals are gifted in identifying and throwing off ideas for products and services at a rapid pace. Others conceive how they can make money from an idea they get from a newspaper or hear about from a friend or acquaintance.

Most entrepreneurs have to show a modicum of creativity, although a particularly creative mind is not required. The role of entrepreneurs is not to be people of ideas. Their role is to be creative in structuring a business around an opportunity and then implementing their ideas.

What we have observed, however, is that the business opportunities they identify are usually related to experience. It is rare that someone has a lightening bolt out of the blue and identifies a new blockbuster opportunity in a field with which they are not, or only slightly, familiar. Opportunities are usually related to our work experience or social environment.

The simple rule is: if you want to develop a new concept in a specific, unfamiliar business then work in that business so that you know how it functions.

Types of opportunities

Opportunities are not all the same in either potential or risks. We often glorify the individuals who identify and pursue the radical new technologies. However, the reality is that these types of entrepreneurial opportunities are the exceptions not the rule.

Some individuals seek to identify and pursue such high-potential, high-risk opportunities. Others look for opportunities that have lower risk/return profiles in which the entrepreneur accepts less profit for the sake of a lower-risk project. This may involve not the pursuit of some new high-density, silicon-based chip but the transplanting of a franchise operation from one country to another.

Most successful entrepreneurial opportunities involve the pursuit of relatively simple ideas. For example, entrepreneurs have made significant sums from mass merchandising carpets in more attractive stores, making buns locally for McDonalds or locating convenience shops in emerging, high-traffic areas.

In looking for opportunity, consider not only the risk/return relationship but also, and probably more importantly, your own objectives. Some people are looking for the opportunity of a life-time with massive potential. These are often the entrepreneurs we hear about. The Bransons (Virgin) and Gates (Microsoft) of this world fit into this category.

Others are interested in what we often refer to as life-style opportunities and businesses. If you are looking for a business opportunity to help you realise a pattern in your life, then you must be careful to define the limits you wish to impose on the nature of that business.

There are many people who start everything from specialist hotels to mail-order companies because the daily operation of such businesses also enables them to pursue a certain life-style. Many individuals who, for example, wish to spend more time, or more structured time, with their families are looking for a different balance between the opportunity and potential profit.