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The aim of this chapter is to look at opportunity evaluation and utilisation from the perspective of an
entrepreneurial start-up. Firstly, the role of ideas is touched on, followed by looking at what an
opportunity is, and then focusing on important issues that an entrepreneur has to consider when
evaluating an opportunity. This will assist entrepreneurs to make the most of an opportunity, or to
be able to determine when it is not as lucrative as it may initially have seemed to be. The chapter
walks the entrepreneur
4.2 THE ROLE OF IDEAS
idea to be a lucrative one, it must add value for the purchaser or end user OF offering T (in terms of
the product or service
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entrepre, translate into an opportunity and as ive furs should be creative and innovatask 0
ding a good idea is the first step in the ty j Converting an entrepreneur's creativlaN
opportunity.
Potential entrepreneurs more often than not put too much emphasis on their ideas. This can
result in entrepreneurial myopia,
4.3 THE OPPORTUNITY
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According to Nieman and Bennett (2014), an opportunity is a gap left in the market
by those who currently serve it. An opportunity can have the qualities of being
attractive, durable and timely.
why some individuals recognise opportunities (i.e. discover or create) and others do
not, the focus falls on the ability of an individual to identify six distinct factors.
According to George, Parida, Lahti and Wincent (2016), these factors are: prior
knowledge, social capital, cognition, environmental conditions, entrepreneurial
alertness and systematic search.
These factors are interrelated, which means that if one of these factors were to be
left out, an incomplete understanding of how individuals create or discover
opportunities would be presented. The proposed
opportunities are discovered indicates that they emerge from changes in the
environment (i.e. technology, demography )
these changes create a disequilibrium that can potentially be exploited by the
entrepreneur
changes come in the form of technological, political and regulatory, and social and
demographic opportunities.’
4.4 WHEN IS AN IDEA AN OPPORTUNITY?
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For an idea to be an opportunity it must have the qualities of being
attractive,
durable
and timely,
as well as being anchored in a product or service (Stokes & Wilson 2017).
Essentially, this means that an attractive idea must have the power to please the consumer’s
mind or eye and awaken his or her interest, thus drawing the consumer to purchase the
goods or service.
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For the idea to be durable, it must have the inherent ability to continue in a particular
condition and not wear out soon
In order for the idea to be timely, it must be presented to the market at an oppotune time,
neither ahead of nor behind its correct time — a time when the market is ready it.
4.5 DEVELOPING ENTREPRENEURIAL OPPORTUNITIES THROUGH IDEA
GENERATION
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Finding good ideas and converting them into opportunities is a conscious, deliberate,
creative process.
Strydom and Nieuwenhuizen (2015) state that certain techniques can be used when
searching for a business idea.
These can be divided into five broad approaches:
1.
2.
3.
4.
5.
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the generation of ideas from skills, expertise and aptitude;
from common needs;
from existing problems;
from everyday problems;
from other sources.
Business opportunities can arise when entrepreneurs use their skills, expertise or aptitude to
provide a product or service to the market.
sources from which entrepreneurs commonly obtain the inspiration for business
opportunities are business publications, inventors’ associations, expired patents,
advertisements, trade shows, overseas products, the Yellow Pages and Internet forums or
blogs. Situations in which products and services are aligned with market demand and
facilitate value are considered to be entrepreneurial opportunities.
Within an entrepreneurial opportunity there are three actions based on the preconditions of
its existence; these are opportunity creation, discovery and recognition.
1.
Opportunity creation -occurs when neither the product nor the
demand exists and must be invented from scratch.
2.
opportunity discovery-If a product or market demand exists and
another condition must be identified, this is classified as
opportunity discovery.
3.
opportunity recognition.- If the product and market demands are
obvious, exploring new ways to organise such demands is
considered opportunity recognition
4.6OPPORTUNITY EVALUATION
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when the entrepreneur starts with the process of evaluating an opportunity, five
basic questions should be asked:
1. What are the risks and rewards of this opportunity?
2. Is this an attractive and sufficient market opportunity?
3. In terms of a technological and market perspective, is the proposed solution feasible?
4. Will there be a sustainable competitive advantage?
5. Will this opportunity be lucrative?
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A feasible business idea jg an idea that can potentially be converted inty a
business
a non-feasible idea is an idea without any potential of being converted into a
business.
In order to determine whether or not a business idea will translate into a lucrative
opportunity that possesses the qualities of being timely, attractive and durable,
the entrepreneur must follow a strategy of evaluating or screening the revealed
opportunity.
The process of screening and evaluating opportunities helps the entrepreneur to
see clearly whether his or her venture will be one high or low potential.
 The criteria used to screen OPPORTUNITY be summarised as
follows:
1.Industry and market issues
2. Economics e Harvest issues
3 Management team
4 Fatal flaw issues
5 Personal criteria
6 Strategic differentiation
4.6.1 industry and market issues
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The customers who make up the niche market tend to be accessible as well as
willing to urchase the product or service. They also tend not to display brand
loyalty to other products or services.
The attractiveness of a market is determined by the following factors:
1 Market structure
2 Market size
3 Market capacity
4 Market share
5 Cost structure
Market structure
When speaking of market structure, reference is made to the following:
1. The number of sellers present in a market
2 .The size distribution of sellers
3. Product differentiation
4 .Entry and exit conditions
5. The number of buyers present
6. Demand sensitivity to price changes
Market conditions that make it possible for €t-potential ventures to thrive are
ones Where unfulfilled market niches are involved
An unattractive market, or one which pro- motes low-growth potential for
entrepreneurial ventures, is one in which there is a high concentration of
buyers and sellers
(2)mature or declining industries and perfect competition.
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(3()Demand Sensitivity to price changes by the consumers is not an ideal
situation for the entrepreneur, and neither are easy entry conditions and
difficult exit conditions.
(4) Where there is low product differentiation,
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Market size
A large and growing market refers to one in which competitors do not
perceive capturing a portion of the market to be a threat to them and where a
small portion of the market share can still translate into substantial and
increasing sales volumes.
Market capacity
A market at full capacity in a growth situation _ where demand outweighs
possible current supply
Market share
A firm that is unable : become a market leader by capturing a substantial
portion of the overall market, is a low growth potential venture.
Cost structure
Generally, a firm that can provide low-cost goods and services while providing
value for money is attractive. However, a firm that faces declining cost
conditions on a continual basis ceases to be attractive or exhibit great growth
potential.
4.6.2 Economics
 Businesses that possess high and durable gross margins usually have high and
durable profits
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A venture that achieves a positive cash flow quickly, ie. within three years, is
attractive. Once the time to reach break-even and a positive cash flow takes
longer than three years, the potential for the venture to be attractive is
substantially reduced.
4.6.3 Harvest issues
 Attractive ventures in attractive markets tend to have the harvest objective in
mind.
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Unattractive ventures in not so attractive markets tend to postpone drawing
up a contingency plan of harvesting.
4.6.4 Management team issues
 It is both important and beneficial for a venture to have an entrepreneurial
team that possesses proven experience within the chosen industry
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The members of the team should identify exhibit, qualities such as industry
and technical experience, integrity and intellectual honesty , commitment to
excellence, tolerance of ambiguity, opportunity obsession, innovativeness,
internal locus g well as determination and perseverance
4.6.5 Fatal flaw issues
 The presence of one or more fatal flaws render, an opportunity unattractive.
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Fatal flaws in the venture can be caused by :
1.markets that are too small
2 markets with overwhelming competition
3. markets where the cost of entry is too high
4. markets where entrants are unable to produce a sustainable competitive
advantages.
4.6.6 Personal criteria
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An attract opportunity does not have excessive downside risks attached to it. An attractive
opportunity both desirable and good for the enterprise.
A successful entrepreneur takes calculated risks and has relatively high stress-tolerance
levels, in addition to being opportunity a committed to excellence, exhibiting the need to
achieve, being creative and innovative, tolerant of ambiguity and uncertainty, and
possessing internal locus of control.
4.6.6 Strategic differentiation
 Strategic differentiation refers to how a venture positions itself to take
advantage of the given market conditions to its benefit, while at the same
time differing from the competitors in terms of the value added to consumers.
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adding value to consumers is established on the basis of providing unique
product and services that consumers perceive as different and are willing to
pay a premium price for.
The key element of strategic differentiation is therefore uniqueness and it
takes creativity and innovation to create “a unique” value
4.7THE PURSUIT OF ENTREPRENEURIAL OPPORTUNITIES
 established businesses have a Stronger position than smaller entrepreneurs in
terms of market entry and share.
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because established businesses have more experience; they have a strong and
secure network with suppliers, customers and intermediaries; and their costs are
lower .
They manage to identify opportunities in the market and turn them into variable
business ventures regardless of the presence of the more established
organisations. there are numerous reasons for this. The common ones can be
attributed to :
1 Organisational inertia : occurs when an organization refuses to adapt in
a responsive manner changes that occ0ur in the marketplace.
2 organisational complacence : to the organisation resting adopting on
its laurels due to past success and adapt a “we have made it” attitude
and this result the organisation not exploiting opportunities as
effectively and as efficiently as it could, and as it used to do in the past,
Once businesses grow and become larger.
3 Bureaucracy: when businesses grow and become larger and more
Successful, the levels in the hierarchy expand due to increased financial,
operational and human resources, Communication between the
different functions and departments becomes slow and cumbersome.
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4.8 WHY BIGGER BUSINESSES LEAVE GAPS IN THE MARKET
 these gaps (however small) are left open, it makes it very easy for smaller
ventures to spot the opportunity and make the most of it.
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The most common reasons for bigger or more established businesses leaving gaps
in the market are the following:
1.Failure to see new opportunities
2.Underestimation of new opportunities
3.Technological inertia
4.Cultural inertia
5.Politics and internal fighting
6.Government intervention to and (smaller) entrants support new
4.8.1 Failure to see new opportunities.
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Large organisations must, in order to grow and not fall prey to the trap of rigidity,
bureaucracy and stagnation, also actively search for new opportunities,
Large businesses should scan the environment for opportunities that they can
make the most of by utilising their strengths.
Failure to do this may result in organisational inertia(the failure or inability to
respond to environmental changes as they occur)
4.8.2 Underestimation of new opportunities
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Most organisations view opportunities in terms of monetary value
the value of the opportunity is analysed in relation to the size of the business that
will potentially pursue it.
Alternatively, smaller ventures will pursue opportunities that a larger organisation
would not, because to the smaller venture these opportunities are ones with value
and are thus attractive.
4.8.3 Technological inertia
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opportunities are pursued through innovation.
Innovation involves doing something different in a radical or incremental manner.
Radical innovation refers to unprecedented Breakthrough
incremental innovation can be defined as systematic evolution of a product or Services
newer or larger markets .
This technological approach simply refers to the methods and ways used to do somethings
or to achieve certain objectives or goals through technology.
4.8.4 Cultural inertia
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Organisational culture refers to the beliefs, norms and values that an organisation upholds
and lives or operates by.
Organisational culture and technology are very closely linked.
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The large business unwillingness to change puts them in a position of not being able to
pursue new opportunities This leaves wide-open gaps for technologically and small business
grab these opportunities
4.8.5 Politics and internal fighting
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More established an organisation becomes the more entrenched political infighting become.
In order for there to be a healthy amount of harmony in the organization employees need to
feel and exhibit a certain affiliation to align with organisation goals and the organisation
should do the same for it’s employees
4.8.6 Government intervention to support new (and smaller) entrants
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SMMEs are responsible for many new innovations and for job creation.
the smaller businesses tend to get more support
This support takes the form of skills training, financing, access to government tenders,
assistance with market access, as well as the development and implementation of SMMEfriendly legislation.