Entrepreneurship: Successfully Launching New Ventures, 1/e Bruce R. Barringer R. Duane Ireland Chapter 2 ©2006 Prentice Hall 2-1 What is an Opportunity? (1 of 2) • Most entrepreneurial firms are started in one of two ways: – Internally stimulated: entrepreneur decides to start a firm, searches for and recognizes an opportunity, then starts a business. – Externally stimulated: entrepreneur recognizes a problem or an opportunity gap and creates a business to fill it. • Opportunity Defined – An opportunity is a favorable set of circumstances that creates the need for a new product, service or business idea. ©2006 Prentice Hall 2-2 What is an Opportunity? (2 of 2) An opportunity has five essential qualities. 1. Attractive 2. Durable 3. Timely 4. Anchored in a product, service, or business that adds value for its buyer or end user 5. Should also add value for necessary network partners (e.g., those providing resources necessary for venture success) ©2006 Prentice Hall 2-3 Difference Between an Idea and an Opportunity • Idea – An idea is a thought, impression, or notion. It may or may not meet the criteria of an opportunity. • Difference Between an Idea and an Opportunity – Many businesses fail, not because the entrepreneurs that started the businesses didn’t work hard—they fail because there was no real opportunity to begin with. – Before getting excited about a business idea, it is crucial to understand whether the idea fills a need and meets the criteria for an opportunity. ©2006 Prentice Hall 2-4 Opportunity Recognition • Opportunity recognition is the process of perceiving the possibility of a profitable new business or a new product or service – Thus, opportunity recognition involves perceiving the possibility of potential opportunity that is • • • • Attractive Durable Timely Anchored in a product, service, etc. that offers value to the customer or end user – Adds value to required network partners ©2006 Prentice Hall 2-5 Window of Opportunity • 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. ©2006 Prentice Hall 2-6 Two ways to Identify an Opportunity • Observing Trends – Economic – Social – Technological – Political/Legal – Globalization* • Solving a Problem ©2006 Prentice Hall 2-7 How Are Opportunities Identified? First Approach: Observing Trends Figure 2.1 Environmental Trends Suggesting Business, Product and Service Opportunity Gaps ©2006 Prentice Hall 2-8 Trend 1: Economic Forces • Economic Forces – Economic forces affect consumers’ level of disposable income. – Who has money to spend and who is trying to cut costs. • An increase in the number of women in the workforce and their related increase in disposable income was one of the factors that led the founders of buyandhold.com to target women. • Many large firms are trying to cut costs. Entrepreneurs have taken advantage of this trend by starting firms that help other firms control costs. ©2006 Prentice Hall 2-9 Economic Trend: Teen Affluence • Last year teenage shoppers spent over $170 billion — double the amount just 10 years earlier (ABC news, 2003). • Over the past five years, teen purchases … have grown [more] than the teen population, rising from $122 billion annually in 1997 to $170 billion last year (The Sun Herald, 2003). ©2006 Prentice Hall 2-10 Economic Trend: Fuel and Steel Prices Higher Gas Prices: The Next Motorcycle Sales Boom Is In Sight “…it’s evident we’ll see motorcycle sales continue to increase in the coming months.” Source: Mehren, 2004 Auto Suppliers Applaud Congressional Resolution on Steel Hearings “ …Motor & Equipment Manufacturers Association (MEMA) … commended … a resolution calling on the International Trade Commission (ITC) to consider – and report on – the impact of U.S. antidumping or countervailing duties on steel-consuming manufacturers.” “… ITC hearings will be held in March and April to review duties on … steel … found to be unfairly priced or “dumped” into the U.S. market…” Source: MEMA, February 10, 2005 ©2006 Prentice Hall 2-11 Trend 2: Social Forces • Social Forces – Changes in social trends provide openings for new businesses on an ongoing basis. – The continual proliferation of fast-food isn’t happening because people love fast food. It is happening because people are busy, and have disposable income. – The Sony Walkman developed not because consumers wanted smaller radios but because people wanted to listen to music while on the go. ©2006 Prentice Hall 2-12 Trend 2: Social Forces 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 ©2006 Prentice Hall 2-13 Social Trend: Health Conscious Consumers Inside Story: 10 Candy Trends “Fueled by popularity of the Atkins diet and a health-conscious uprising in America, products that are low in fat, carbs, sugar and calories are hitting retail shelves at lightening speed.” “ACNielsen reports that in 2002, diet candies grew the fastest, claiming 23 percent of the $24 billion candy market.” Source: Carneal (2004), American Wholesale Marketers Association ©2006 Prentice Hall 2-14 Social Trend: `Tween Market Kiddie calls are on the horizon for the growing 'tween market “’Tweens [ages 8-12] constitute a lucrative retail market … 23 million members … Retail studies say this demographic is on the leading edge of the mostconsumer-oriented generation in history. They increasingly have disposable income, and their voice now factors heavily into family purchases.” “ … when they shop for themselves, ‘tweens ignore toys … preferring clothes, video games and electronics.” “ The world's No. 2 toymaker [Hasbro, Inc.] is going after the … 'tween market with a walkie-talkie-like device that resembles a mobile phone.” Source: St. Louis Tribune, February 12, 2005 ©2006 Prentice Hall 2-15 Trend 3: Technological Advances • Technological Advances – Given the pace of technological change, entrepreneurs need to keep on top of how new technologies affect current and future business opportunities. – Entire industries have emerged due to technological advances. • Examples: computer industry, Internet, biotechnology, and digital photography. – Once a technology is created, new firms form to take the technology to a higher level. • For example, RealNetworks was started to add video capability to the Internet. ©2006 Prentice Hall 2-16 Technological Trend: Avis takes a bite of Bluetooth “… Avis Europe is improv[ing] customer service by using Bluetooth-enabled … mobile devices and wireless check-in infrastructure … to cut down on the time taken for its staff to check-in a car being returned to the depot by the customer.” Source: Europe Intelligence Wire, February 10, 2005 ©2006 Prentice Hall USB drives go beyond storage “... a new company called U3 … said it would promote the next generation in flash drive technology.” “Keychain drives are going beyond … storage … They're going to … [run] applications … [like] PowerPoint [,] … and ScanDisk.” “A few companies have already endorsed the idea: McAfee … antivirus software vendor [and] ... Zone Labs … the firewall maker …” Source: Hesseldahl (2005), Forbes 2-17 Technological Trend: Text message essay baffles British teacher Monday, March 3, 2003 Posted: 10:17 AM EST (1517 GMT) The girl's essay began: "My smmr hols wr CWOT. B4, we used 2go2 NY 2C my bro, his GF & thr 3 :- kids FTF. ILNY, it's a gr8 plc." Source: CNN.com ©2006 Prentice Hall 2-18 Trend 4: Political Action and Regulatory Changes • Political Action and Regulatory Changes – Political action and regulatory changes provide the basis for new business opportunities. – For example, laws that protect the environment have created opportunities for entrepreneurs to start firms that help other firms comply with environmental laws and regulations. ©2006 Prentice Hall 2-19 Legal/Political Trend: Legal Unrest Source: CBSnews.com High Condition (Orange). A High Condition is declared when there is a high risk of terrorist attacks. Visitors wait in line to be fingerprinted and photographed at the U.S. Customs check point at San Francisco International Airport in San Francisco. ©2006 Prentice Hall Source: US Department of Homeland Security 2-20 Legal/Political Trend: FCC Indecency Regulations Breached Legal Trend FCC to investigate incident at end of halftime show Social Trend Howard Stern Show Taken Off Clear Channel Stations Whoops! Source: CNN.com Tuesday, February 3, 2004 Posted: 7:58 AM Source: Clear Channel Communications, Inc. Press Release Wednesday February 25, 2004 ©2006 Prentice Hall 2-21 Trend 5: Globalization • Recall from Chapter 1: – Globalization • Today, over 97% of all U.S. exporters are small businesses with fewer than 500 employees. • Export markets are vital to the U.S. economy and provide outlets for the sale of U.S. produced products and services ©2006 Prentice Hall 2-22