WEEK 9 OPPORTUNITY RECOGNITION AND IDEA

GENERATION
Introduction
 General approaches used to identify opportunities
 Qualities of a viable entrepreneurial opportunity
 Idea and techniques of generating business ideas

Opportunity Recognition
 Importantly, 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
 Entrepreneurial opportunity exists wherever there is a need or
want, problem or challenge that can be addressed, solved, or
satisfied in an innovative way
Qualities of a viable Entrepreneurial Opportunity
 Attractive- fulfilling a need, adding value or solving a
customer problem
 Durable- Long lasting
 Timely-coincides with customer demand or needs
 Anchored in a product/service-Creates/adds value for
buyer/user
 Compatible with the goals and talents of the
entrepreneur and enterprise management team
For an entrepreneur to capitalize on this opportunity, the window
of opportunity must be open and remain open long enough.
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.

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 In other words, the term window of opportunity is the
length of time available to get the business idea to market
before the market either diminishes due to lessening demand
or is dominated by a competitor.

General Approaches Used to Identify Opportunities

There are three general approaches entrepreneurs use to identify
an opportunity:
1) Observing trends
- The first approach to identifying opportunities is to observe
trends and study how they create opportunities for
entrepreneurs to pursue. The most important trends to
follow are economic trends, social trends, technological
advances, and political action and regulatory changes. As
an entrepreneur or potential entrepreneur, it’s important to
remain aware of changes in these areas
- keen observation skills and a willingness to stay on top of
changing environmental trends are key attributes of
successful entrepreneurs

2) Solving a Problem

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 - The second approach to identifying opportunities is to
recognize problems and find ways to solve them. Problems
can be recognized by observing the challenges that people
encounter in their daily lives and through more simple
means, such as intuition, serendipity, or chance. There are
many problems that have yet to be solved.
- Consistent with the above observation, many companies
have been started by people who have experienced a
problem in their own lives, and then realized that the
solution to the problem represented a business
opportunity.
3) Finding Gaps in The Market
- Gaps in the marketplace are the third source of business
opportunities. There are many examples of products that
consumers need or want that are not available in a
particular location or are not available at all.
- Product gaps in the marketplace thus represent potentially
viable business opportunities.
- Another common way that gaps in the marketplace are
recognized is when people become frustrated because they
cannot find a product or service that they need and
recognize that other people feel the same way.

Idea and Techniques of Generating Business Ideas

- An idea is a thought, an impression, or a notion.
- Ideas are an entrepreneur’s raw material. This implies that
not all ideas that do not materialize are necessarily
worthless.
Idea generation
- is the creative process of generating, developing and
communicating new ideas
- involves coming up with many ideas, selecting the best
idea or ideas, working to create a plan to implement the

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 idea, and then actually taking that idea and putting it into
practice
Sources of Ideas

• Reading books, newspapers, magazines

• Media- radio, TV
• Networks, Friends, colleagues
• Observation, Hobbies
• Creative thinking seminars
• Active listening
• Industry newsletters
• Competitors, Suppliers, distributors, customers
• Personal research and development
• Universities and other research organizations
• Consultants
Techniques For Generating Ideas

1. Brainstorming
- Is a technique used to generate a large number of ideas and
solutions to problems quickly.
- A brainstorming “session” typically involves a group of people, and
should be targeted to a specific topic.
- Rules for a brainstorming session:
No criticism.
Freewheeling is encouraged.
The session should move quickly.
Leap-frogging is encouraged.
2. Focus group Discussion
- A focus group is a gathering of five to ten people, who have been
selected based on their common characteristics relative to the
issues being discussed.
- These groups are led by a trained moderator, who uses the
internal dynamics of the group environment to gain insight into why
people feel they way they do about a particular issue.

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- Although focus groups are used for a variety of purposes, they can
be used to help generate new business ideas
The strength of focus groups is that they help to uncover what’s on
their customers’ minds through the give‐and‐take nature of a group
discussion
3. Library and internet search
- Libraries are an often-underutilized source of information for
generating new business ideas.
- The best approach is to talk to a reference librarian, who can point
out useful resources, such as industry-specific magazines, trade
journals, and industry reports.
Simply browsing through several issues of a trade journal or an
industry report on a topic can spark new ideas.
- Large public and university libraries typically have access to
search engines and industry reports
4. Conducting Surveys
- A survey is a method of gathering information from a sample of
people. The sample is usually just a fraction of the population to be
studied. Surveys generate new product, service, and business ideas
because they ask specific questions and get specific answers
5. Customer advisory boards.
Some companies set up customer advisory boards that meet
regularly to discuss needs, wants, and problems that may lead to
new ideas
6.Day‐in‐the‐life research.
Other companies conduct varying forms of anthropological research,
such as day‐in‐the‐life research
Steps to generating creative ideas:

1.Preparation: is the background, experience, and knowledge that

an entrepreneur

brings to the opportunity’s recognition process.

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2.Incubation: is the stage during which a person considers an idea
or things about

problem; it is the mulling thing over phase.

3.Insight: is the flash of recognition_ when a solution to a problem

is seen or any idea is born

4.Evaluation: is a particular challenging stage of the creative

process because it

require an entrepreneur to take a candid look at the variability of an

idea

5.Elaboration: is the stage during which the creative idea is put

into a final form

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 LECTURE TEN

ENTREPRENEURSHIP PROCESS

The process of entrepreneurship has 4 distinct phases

1) Identification and evaluation of the opportunity

- Opportunity identification is the process by which an
entrepreneur comes up with ideas that has commercial
value.
- Most good business opportunities result from an
entrepreneur’s alertness to possibilities or from unfulfilled
needs/gaps in the market, customer complaints, and
feedback from channel members.
- Each opportunity must be carefully screened and
evaluated. This allows the entrepreneur to assess whether
the specific product or service has the returns needed
compared to the resources required
- Basically, the evaluation process involves looking at:
o The length of the opportunity/the market size and the
length of the window of opportunity
o Real and perceived value of the opportunity
o Risks and returns of the perceived opportunity
o Opportunity fit with the personal skills and goals of
the entrepreneur so that he/she is able to put the
necessary time and effort to make the venture
succeed
o The opportunity uniqueness in the competitive
business environment
2) Development of the business plan
- To exploit the said opportunity, a good business plan must
be developed to describe the future direction of the
business
- A good business plan is essential in developing the
opportunity and determining the resources required,

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 obtaining those resources, and successfully managing the
resulting venture.
3) Determination of the required resources
- An entrepreneur must determine the resources needed
for addressing the opportunity and undertake an appraisal
of the resources at hand so as to differentiate resources
that are critical.
- He/she must secure/acquire the needed resources at
the right time while bearing in mind that as the business
develops more resources will be needed to finance the
growth of the venture
- Hence, there is need to identify alternative sources of
resources at reasonable cost
4) Management of the resulting enterprise
- At this stage the entrepreneurs need to implement a
management style and a structure that will guide the
venture as it grows by establishing control systems to help
identify and resolve any problems as they arise
- He/she must decide on the future prospects of the business
(Harvesting)
- Therefore, an entrepreneur needs to:
o Develop a management style
o Understand key variable for success
o Identify problems and potential solutions
o Implement control systems
o Develop growth strategy

DRIVERS OF ENTREPRENEURSHIP

The rapid increase in entrepreneurs has been as a result

1. Entrepreneurs as Heroes
The most successful entrepreneurs have been given hero status and
they serve as role models for aspiring entrepreneurs.

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2. Entrepreneurial Education
More colleges and universities now offer entrepreneurship education
at both undergraduate and graduate levels. More students are
enrolled in entrepreneurship classes across the world. A rapidly
growing number of college students see owning a business as an
attractive career option, and in addition to signing up for
entrepreneurship courses, many of them are launching companies
while in school. Today, more colleges and universities offer at least
1 course in entrepreneurship or small business management.

3. Economic and Demographic Factors

Most entrepreneurs start their businesses between the ages of 25
and 44. The economic growth over the last 20 years has created
many business opportunities and a significant pool of capital for
launching companies to exploit them.

4. Shift to a Service Economy

The service sector accounts for 80 percent of the jobs and about 50
percent to the gross domestic product (GDP). Because of their
relatively low start-up costs, service businesses have been very
popular with entrepreneurs. The booming service sector has
provided entrepreneurs with many business opportunities, from
hotels and health care to computer maintenance and Web-based
service

5. Technology Advancements
With the help of modern business tools-the Internet, personal
computers, tablet computers, personal digital assistants, smart
phones, copiers, color printers, instant messaging, and voice mail-
even one person working at home can look like a big business. Now
the cost of sophisticated technology is low enough that even the
smallest companies can use technology to gain a competitive edge.
Majority of business owners say that technology allows them to
differentiate their companies from the competition.

6. Outsourcing

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Entrepreneurs have discovered that they do not have to do
everything themselves. Because of advances in technology,
entrepreneurs can outsource many of the operations of their
companies and retain only those in which they have a competitive
advantage. Doing so enhances their flexibility and adaptability to
ever changing market and competitive conditions.

7. Independent Lifestyle
Entrepreneurship fits the way most citizens want to live—
independent and self-sustaining. Increasingly, entrepreneurs are
starting businesses for lifestyle reasons. They want the freedom to
choose where they live, the hours they work, and what they do. This
gives entrepreneurs the flexibility to work the hours they prefer and
live where they want to are far more important than money.

8. E-commerce and the World Wide Web

The proliferation of the World Wide Web, the vast network that links
computers around the globe via the Internet and opens up endless
oceans of information to its users, has spawned thousands of
entrepreneurial ventures. Many entrepreneurs see the power of the
Web and are putting it to use. For many small companies the Web is
an essential tool.

9. International Opportunities
No longer are small businesses limited to pursuing customers within
their own borders. The dramatic shift to a global economy has
opened the door to tremendous business opportunities for those
entrepreneurs willing to reach across the globe. With so many
opportunities in international markets, even the smallest businesses
can sell globally, particularly with the help of the Internet.

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 LECTURE 11
PATHS TO SMALL BUSINESS OWNERSHIP & FAMILY
BUSINESSES
Ways of starting a small business or a family business
a) Starting from scratch
This approach lets an individual start with a clean slate and allows
the individual to build the business the way he/she wants. An
individual by self-selects the type of innovations (goods or services),
which they will offer, secures location, and hires your employees,
and then it’s up to the individual to develop his/her customer base
and build the business reputation.
Advantages
 You are your own boss
 Unlimited potential for wealth
 Challenge of bringing your product to market
 Opportunity to develop your own business policies and practices
 Personal satisfaction of accomplishment
Disadvantages
 Cash flow fluctuation
 Lack of support
 Sole responsibility
 Limited resources and possible gaps between business and
technical skills
 Difficulty financing

b) Buying an existing business

Buying an existing business provides already a proven product,
current customers, active suppliers, a known location, and trained
employees. It also makes it easier to predict the business’s future
success
Advantages
 Already up and running
 Potential for immediate salary

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 Established company reputation and customer base
 Existing facility, equipment and trained employees
 Established track record on which to base projections
Disadvantages
 Significant research required to identify and assess viability of
business
 Business value may be difficult to determine
 Assets may be overvalued
 Difficult to begin slowly or try business out
 Possibility of having to pay for goodwill
 Reduced feeling of personal satisfaction from creating and building
a business
 Possibility of inheriting employees who do not share your vision
 Changing previous business practices may create customer
resistance
 Difficulty financing

c) Securing a franchise
 A franchise is a legal and a commercial relationship between the
owner of a trade mark, or a trade name and an individual or a
group seeking to use that identification in business
 A franchiser (the company that sells the franchise) grants
the franchisee (the buyer securing the franchiser) the right to
use a brand name and to sell its goods or services.
 Franchising, actually involves purchasing the right to use the
name, products, services, trademarks, and business concepts of
another company
Types of Franchise
i) Trade name Franchise
The franchisee purchases the right to use the franchisers
trade name (e.g. brand name use)
ii) Product distribution Franchise

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 The franchisee is licensed to sell specific products under the
franchisers brand name and trademark through a selective
and limited distribution network.
iii) Pure/comprehensive/business format Franchise
The franchisee is provided with a complete business format
and system such as license for the trade name, the physical
plant, the products and services to be sold, methods of
operation, marketing plan, and the necessary business
support services.
The franchisee purchases the rights to use all of the elements
of a fully integrated business operation.

Factors to consider before becoming a franchisee

1) Franchiser success in terms of performance, recognition,
reputation and consumer protection
2) Franchiser durability: determine the length of experience, and
whether it is a long term opportunity and they own intellectual
property rights
3) Franchisers financial health: examine the financial statements to
determine the health of the company
4) Start-up investment: get all information related to the franchise
cost. It is important get clarification about the ongoing costs and
the startup costs
5) Financing support: find out if the franchiser offers competitive
financing that is likely to support your activities until you reach a
positive cash flow. It is important to undertake financial
projections under various conditions and know the available
options
6) Purchasing requirements and terms of agreement
7) Competition
8) Management fit

Advantages of buying a franchise

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  Possibly easier to access financing
 Access to quality training and ongoing support provided by
the franchiser on how to undertake day-to-day operations of
the business successfully.
 Established concept with reduced risk of failure – in terms of
proven product and business format
 Use of well-known trademark or trade name
 Access to lower cost and possible centralized buying
 Fewer start-up problems
 Access to extensive advertising
Disadvantages of buying a Franchise
 Possible exaggeration of franchisor advantages
 Franchisor may saturate your territory
 Cost of franchise and other fees may reduce your profit
margin
 Inflexibility due to restrictions imposed by franchisor
 Costs of supplies and materials may be more expensive

d) Family business
A greater number of individuals realize their entrepreneurial dreams
through entering or starting a family business.
The word Family refers to a group of people bound by a shared
history and a commitment to share a future together, while
supporting the development and well-being of individual members.
A Family Business refers to a company or a venture owned and
operated by two or more members of the same family together or in
succession, through exercise of kinship ties (Kin relationships are
traditionally defined as ties based on blood and marriage),
management roles, and ownership rights.
Family members most frequently involved in family businesses are
spouses, siblings, children, and parents. A family business is
composed of both a family and a business which are two separate

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institutions each with its own members, goals, and values that
overlap in the firm.

Features of family businesses

 Family traditions and their legacy are of great importance in
these businesses and younger generations have tended to
remain faithful to their family’s way of doing business. This is
because the family legacy and traditions are kept intact and
become a habit that anchors decision making
 The observance of traditions reminds current young family
executives of where the business came from and creates a
structure for future decision making.
 It recognizes the values of earlier generations, inspires next
generations and acts as a source of pride for the family and
employees of the business

Advantages of family businesses

1. Common values - family are likely to share the same ethos
and beliefs on how things should be done. This provides sense
of purpose and pride, and a competitive edge for the business.
2. Strong commitment - building a lasting family enterprise
means putting extra effort needed to make it a success. A
family is more likely to understand the need for more flexible
approach to the working hours.
3. Loyalty - strong personal bonds mean that family members
are likely to stick together in hard times and show the
determination needed for business success.
4. Stability - knowing you're building for future generations
encourages the long-term thinking needed for growth and
success
5. Decreased costs - family members may be more willing to
make financial sacrifices for the sake of the business. For
example, accepting lower pay than they would get elsewhere

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 to help the business in the longer term, or deferring wages
during a cashflow crisis.
6. Knowledge: Family businesses often have particular ways of
doing things which can be desirable and protected within the
family.

Disadvantages of family businesses

1. Lack of skills or experience - some family businesses
appoint family members into roles that they do not have the
skills or training for. This can have a negative effect on the
success of the business and lead to a stressful working
environment.
2. Family conflict - conflict can arise in any business, but it's
important to consider that disputes within a family business
can become personal as the staff are working with the people
closest to them. Bad feelings and resentment could destabilise
the business' operations and can put family relations at risk.
3. Favouritism – it is difficulty to make objective decisions. For
instance, when promoting staff, such can be influence by
favoritism, being done not basing on the best person for the
job but on family relations.
4. Succession planning - many family business owners may
find it difficult to decide who will be in charge of the business
if they were to step down. The leader must determine
objectively who can best take the business forward and aim to
reduce the potential for future conflict - this can be a daunting
decision.
5. Sibling rivalry – problems created by sibling rivalry on who
makes decisions can also affect the business

Therefore, family businesses are significant in any given economy.

However, it has been noted that only 30 percent of family
businesses survive to the second generation, just 12 percent make

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it to the third generation, and only 3 percent survive into the fourth
generation and beyond. Business periodicals are full of stories
describing bitter disputes and disagreements among family
members that have crippled or destroyed once thriving businesses.

To avoid the senseless destruction of thriving family businesses,

owners should do the following:
 Work to build positive relationships among family members both
at and away from work
 Demonstrate respect for other family members’ abilities and
talents
 Separate responsibilities in the company based on each person’s
interests, abilities, and talents
 Develop plans for minimizing the potentially devastating effects
of estate taxes
 Develop plans for management succession long before
retirement looms before them

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