Opportunity Recognition and the Screening Process

Today’s Objectives• Understand where business ideas

come from• Understand how to perform an initial

high level screening / evaluation of business opportunities

• Understand the influence of the external environment

• Take away action – screening checklist

Business Creation & Start-up Process Adapted from Deakins (2006)

Idea formulation

Opportunity Recognition

Pre-start Planning and Preparation

Entry and Launch

Post-entry Development

where can you find

BIG IDEAs?

Sources of Ideas• Every day problems / needs / complaints

– E.g. Sports Division / Cisco / Netflix• Personal experience

– Work, home, education, skills and talents • Hobbies and interests

– Lifestyle entrepreneurs• Newspapers, magazines, media• Other countries• Deliberate Search

– Business Opportunity Profiles– On-line databases– Patents and licensing

• Factors of Change

Pizza Express Case Study

• Founded Peter Boizot – 1965• Influenced by Italian and German

experiences - pizzaiolos• Formed an exclusive alliance with

London’s only mozzarella maker• By 2003 over 300 outlets in UK, Ireland,

Spain and France

External Environment Drives Change• Political/Legal - legislation, taxation policy, employment

law, health and safety, foreign trade, terrorism, war • Economic - local, national, global, industry – inflation,

interest rates, employment rates, exchange rates, money supply, energy costs

• Socio-cultural – population demographics, income distribution, lifestyle changes, education levels, social mobility, values, attitudes

• Technological - new products, new processes, new and emerging discoveries, internet, etc

• Ecological/Environmental – Climate change, pollution, waste products, recycled technology, energy efficiency

USA – Some Hot Recent Business Ideas (www.entrepreneur.com)

• Consulting services• Financial planning• Personal Trainer• Pet Products• Mobile computer training• Household cleaning• Doula service • Gardening • Health services

• Tech Education– For Kids– For Seniors

• Maternity Clothes• Online Learning• Life Coach• Security• Senior Care Market• Senior Clothes• Art services

Drucker’s 7 Sources of Innovative Opportunities

Organisational / Sectoral• The unexpected (event or

success or failure)• The incongruity – between

what actually happens and plan

• The inadequacy in underlying processes

• The changes in industry or market structure

External• Demographic changes• Changes in perception,

mood and meaning• New knowledge (both

scientific and non scientific)

Last is most difficult, least reliable and least predictable

Opportunity Recognition• Converting an idea into a business

opportunity is the key element of the process of business creation

• Entrepreneurs are attuned to opportunity• Opportunity must take priority over

innovation• Opportunities are generated by change

Opportunity has Four Essential Qualities - Barringer and Ireland, 2006

• Attractive• Durable• Timely • Anchored in product/service which adds value to buyer/end user

“I never perfected an invention that I did not think about in terms of the service it might give others... I find out what the world needs, then I proceed to invent” Thomas Edison

Wow products /services such as the Dyson vacuum cleaner and the bar and massage service in Virgin Upper Class, Amazon

One Product is Not Enough!• Dyson vacuum cleaner

took 5 years and 5,127 prototypes

• First product, G-Force, sold for $2000 each in Japan

• Vacuums, washing machines, Airblade hand dryer (sales $6 billion worldwide), Air Multiplier

Window of Opportunity Varies

Internet Search Engines

• 1995 – Yahoo• Quickly followed by Lycos, Excite,

AltaVista, etc• 1998 – Google (advanced technology)

Ideas not Innovative Opportunities

• Sinclair C5• E-stamps and Stamps.com• Tartan tanks

Evaluating Idea / Opportunity• Must be a clearly defined market need

– Customer analysis, segments, motivations, unmet needs, gaps in market

• Idea needs to be economically viable– Market attractiveness e.g. size? growth? trends? entry

barriers?– Profit potential?– Resources needed / available?

• Technical feasibility• Competitive advantage / USP

– Competitor analysis• Fit with your personal / company objectives /

experiences / core competencies• Timing must be right – window of opportunity• Risks / threats – Environmental analysis

What to look for

• Limitations of what’s currently available• Trends and changes (beware fads)• Something new and different• Unfilled niche• Technological advances• Speed to market

Conclusions• Generating ideas and new products is easy - but

you need customers and markets• The real challenge is converting ideas into a

business opportunity• The better you understand your consumer the

better your chances of winning in the market place • Evaluation and assessment of markets is key to

developing business ideas and new products and services

Screening Checklist

Screening Check List – Market Factors

Is the market large? Yes No

Is the market highly competitive? (Direct/indirect)

Is this an emerging / growth market? Is there any pending legislation which might impact market demand?

Are there any obvious barriers to entry?Are there reachable / receptive customers close by? (Think about distribution channels, etc)

Screening Check List – Competitive Advantage?

Is there a well identified market need for the product/service?Yes No

Can we establish a USP for our product / service? – Price? Quality? Speed of response? Unique features?

Is our product / service a significant improvement on our competitors?

Can we protect our product?

Can we establish first mover advantage?

Screening Check List – Management Capability

Do we have personal knowledge / experience / the right skills / experience?

Yes No

Do we have an interest in the service?

Do we know other people who have the rights skills / experience?

Have we the right contacts and networks?

Is there specific training we can receive to improve our chances of success?

Screening Check List – Resources / Economics

Is this a low cost start up business model?Yes No

Do we have access to the money necessary to start this business?

Is this a sizeable / scaleable business opportunity?

Is it worth doing?

Screening Check List – Other

Yes No

European dimension?

Personal / corporate values? e.g. Environmental considerationsCultural barriers and attitudes?

Summary

• Need to tailor checklist to individual idea• Seeking

– Large and growing market– Reachable customers– An innovative product which adds value– Right window of opportunity

• Assess whether to abandon, reform or enhance the idea