Identifying and Recognizing Opportunities
Essentially, entrepreneurs recognize an opportunity and turn it into a successful business. An opportunity is a favorable set of circumstances that creates a need for a new product, service, or business. Most entrepreneurial ventures are started in one of two ways. Some ventures are externally stimulated. In this instance, an entrepreneur decides to launch a firm, searches for and recognizes an opportunity, and then starts a business, as Jeff Bezos did when he created Amazon.com. In 1994, Bezos quit his lucrative job at a New York City investment firm and headed for Seattle with a plan to find an attractive opportunity and launch an e-commerce company.
Other firms are internally stimulated, like Bench Prep. An entrepreneur recognizes a problem or an opportunity gap and creates a business to fill it. Regardless of which of these two ways an entrepreneur starts a new business, opportunities are tough to spot.
Identifying a product, service, or business opportunity that isn’t merely a different version of something already available is difficult. A common mistake entrepreneurs make in the opportunity recognition process is picking a currently available product or service that they like or are passionate about and then trying to build a business around a slightly better version of it. Although this approach seems sensible, such is usually not the case.
The key to opportunity recognition is to identify a product or service that people need and are willing to buy, not one that an entrepreneur wants to make and sell. An opportunity has four essential qualities: It is 1) attractive, 2) durable, 3) timely, and 4) anchored in a product, service, or business that creates or adds value for its buyer or end user.
For an entrepreneur to capitalize on an opportunity, its window of opportunity must be open. 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. As the market grows, firms enter and try to establish a profitable position. At some point, the market matures, and the window of opportunity closes. Three Ways to Identify an Opportunity; 1) Observing Trends, 2) Solving a Problem, and 3) Finding Gaps in the Marketplace.
This is the case with Internet search engines. Yahoo!, the first search engine, appeared in 1995, and the market grew quickly, with the addition of Lycos, Excite, AltaVista, and others. Google entered the market in 1998, sporting advanced search technology. Since then, the search engine market has matured, and the window of opportunity is less prominent. Today, it would be very difficult for a new start-up search engine firm to be successful unless it offered compelling advantages over already established competitors or targeted a niche market in an exemplary manner.
Bing, Microsoft’s search engine, is enjoying success with approximately 27 percent market share (compared to 68 percent for Google), but only after Microsoft has exerted an enormous amount of effort in head-to-head competition with Google.
It is important to understand that there is a difference between an opportunity and an idea. An idea is a thought, an impression, or a notion. An idea may or may not meet the criteria of an opportunity. This is a critical point because many entrepreneurial ventures fail not because the entrepreneurs that launched them didn’t work hard, but rather 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.
Now let’s look at the three approaches entrepreneurs can use to identify an opportunity. Once you understand the importance of each approach, you’ll be much more likely to look for opportunities and ideas that fit each profile.