Opportunity Recognition
For entrepreneurs to exist and thrive there must be opportunities to develop new goods and services, means to gather the resources to produce these good and services, mechanisms to bring them to market at a price greater than their cost of production.
What differentiates entrepreneurial opportunities from other profit-making opportunities is that to exploit entrepreneurial opportunities, one must discover a new means to an end, with unknown outcomes and with resources not yet under the control of the entrepreneur.
Exploiting opportunity means that the entrepreneur must assume a risk. Furthermore there must be differing viewpoints on the value of resources so that the entrepreneur can discover a value that was not previously identified. This scenario is what is commonly termed “finding a niche in the market.” In a situation where more than one entrepreneur perceives the same value for a resource (in other words, finds the same niche), competition for profit occurs. The entrepreneur must then seek another source of value, another niche to differentiate himself or herself from the competition.
For entrepreneurs to recognize an opportunity, they have to process, from experience, prior information that is compatible with the new information they receive from scanning the environment. The new information may be in the form of a customer need, a niche that is not being served, or the juxtaposition of two opposing ideas that triggers an entrepreneurial opportunity. However, an entrepreneurial opportunity will never reach the market place if the entrepreneur can’t identify a way to make it happen. That is why so many inventions do not become commercialized, their inventors are unable to visualize their commercial applications, and it often takes teaming with a business entrepreneur to complete the commercialization process.
Opportunity Exploitation
Recognizing an opportunity is only part of the equation; deciding to exploit that opportunity is the other pat. Why do entrepreneurs choose to act on an opportunity when others do not? Not every opportunity has a sufficient high expected value to warrant action. The return on the investment of time and effort must be large enough to offset the opportunity cost of exploiting another opportunity or doing something else (such as taking a job). Moreover, entrepreneurs must consider their ability to acquire the necessary resources – capital, land and equipment, human resources and so on. Some research suggests that entrepreneurs who have ready access to capital and strong connection s to resource providers are more likely to choose to exploit an opportunity that meets their other criteria.
Another factor that seems to propel entrepreneurs to move forward with an opportunity is information from the previous employment and industry experience that serves to reduce the cost of commercializing the opportunity and therefore increases the probability that the opportunity will be exploited.
More recent research tells us that entrepreneur’s decisions to exploit an opportunity are influenced by their level of optimism. In fact, entrepreneurs typically perceive their chances of success as much higher than they may actually be. Entrepreneurial optimism tends to minimize the amount of information the entrepreneur requires to make the decision to exploit an opportunity and is reflected in overtly optimistic forecasts of sales and profits. Entrepreneurs also display a tendency to act first and analyze at leisure.
The Network Effect
Networking is the exchange of information and resources among individuals, groups, or organizations whose common goals are to mutually benefit and create value for the members. Research in the field of entrepreneurship has revealed much about the positive effects of networking. For instance, entrepreneurship has been found to be a relational process. Entrepreneurs do not act autonomously but, rather, are “embedded in a social context, channeled and facilitated or constrained and inhibited by peoples’ positions in social networks.”
Strong ties are the entrepreneur’s close friends and family members whom he or she knows well, whereas weak ties are the entrepreneur’s acquaintances and business contacts. In general, acquaintances are not socially involved; that is, entrepreneurs do not generally spend their nonbusiness hours with acquaintances. Nevertheless, these weak ties play an important role in the entrepreneurial process because entrepreneurs typically move forward faster with the help and support of weak ties who are not biased by a prior history with the entrepreneur. Family and close friends, on the other hand, tend to restrict the entrepreneurs potential because they look at the impact on them of the entrepreneur’s activities. Entrepreneurs rely on their weak ties for objective advice.
Entrepreneurs who successfully use their networks to build their businesses generally are committed to the success of the people in their network, are active listeners, and approach every contact with an open mind. In the same way, they derive the maximum value from their network ties.
