1. Developing successful business ideas
Chapter 2
Developing successful business ideas
Identifying and recognizing opportunities
Ways for identifying opportunities
Personal characteristics of the entrepreneur
Techniques for generating ideas

2. Identifying and recognizing opportunities
An opportunity is a favorable set of circumstances that creates a need
for a new product, service or business.
It is difficult to recognize a product, service or business opportunity that
is not a different version of something already available.
An opportunity has four essential qualities:
It is attractive
It is durable
It is timely
It is anchored in a product, service or business that creates or adds value for its buyer or end user.

3. For an entrepreneur to capitalize on an opportunity, its window of
opportunity must be open.
The term “window of opportunity“ describes the time period in which a
firm can 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.
Example:
This is the case with Internet search engines. Yahoo!, the first search
engine, appeared in 1995 and the market grew rapidly, and other firms
(such as Lycos, Excite, AltaVista) entered the market. Google entered
the market in 1998, having an advanced search technology. 

4. Since then, this market has matured and the window of opportunity has
closed. Today it would be very difficult for a new start-up search engine
firm to be successful unless it had important financial resources and
offered advantages over its rivals.
It is important to understand that there is a difference between an
opportunity and an idea.
An idea is a thought, impression or notion and it may or may not meet
the criteria of an opportunity.
This is a critical point as many businesses fail not because the
entrepreneurs didn` t work hard but rather because there was no real
opportunity to begin with.

5. Ways for identifying opportunities
There are two ways to identify an opportunity:
Observing trends and studying how they create opportunities for entrepreneurs to pursue
Solving a problem
Observing trends and studying how they create opportunities for
entrepreneurs to pursue
The most important trends to follow are:
Economic factors
Social factors
Technological advances
Political actions
Regulatory changes

6. Economic factors affect consumers` level of income:
 When incomes are high, people are more willing to buy products and services that enhance their lives
 Individual sectors of the economy have a direct impact on consumer buying patterns: a drop in interest rates leads to an increase in new home construction and furniture sales
It is important to evaluate who has money to spend: an increase in the number of women and of teenagers in the workforce increased the demand for products they need and buy
 The pressure on firm to improve their economic performance increased the need for cost control. Many entrepreneurs have taken advantage of this trend by starting firms that help other firms control costs.
Example:
In the chemical industry, ChemConnect provides an online marketplace
to make it less expensive for chemical companies to buy and sell
chemicals on a global scale.

7. Social factors that allow for new opportunities are the following:
 family and work patterns (the number of two-income households and the number of single-parent families)
the aging of the population
the globalization
 the increasing diversity in the workforce
 the increasing focus on health care and fitness
 the proliferation of computers and the Internet
the continual increase in the number of cell phone users
 new forms of music and other types of entertainment
Examples:
a). The proliferation of fast-food restaurants is not due primarily to people` s love of fast-food but rather to the fact that people are busy: the number of households with both parents working remains high. 

8. b). The Sony Walkman was developed not because consumers wanted smaller radios but because people wanted to listen to music while on move.
c). Although the number of households that have Internet access continues to grow, the window of opportunity to launch a new Internet search engines is closed. Substantial opportunities may exist in other Internet-related areas, such as wireless Internet access, Web TV.
Technological advances
Given the rapid pace of technological change, it is vital for entrepreneurs to remain on top of how technologies affect current and future opportunities.
Once a technology is created, products emerge to advance it.
Advances in technology frequently combine with economic and social changes to create opportunities.

9. Examples:
The creation of cell phone is a technological achievement, but it was motivated by an increasingly mobile population that found many advantages to communicate with its coworkers, customers, friends and families from everywhere.
Many e-commerce firms were established, allowing people to use their sites to order products, pay for them and choose how quickly they are shipped. But not only the technology makes e-commerce so attractive. The ultimate reason most people buy online is because they are busy and prefer to shop when they have free time, regardless of the traditional store hours.
Political actions and regulatory changes also provide basis for
opportunities.
New laws create opportunities for entrepreneurs to start firms to help companies comply with these laws.
Political change creates new business and product opportunities

10. Example:
Global political instability and the threat of terrorism increased the need
of firms for new products and services to protect their physical assets,
intellectual property, their customers and employees.
Examples of how changes in environmental trends provide opportunities
for new products and businesses:
Economic trends:
Changing environmental trend: Teenagers with more cash and disposal income.
Resulting new business, product and service opportunities: designer cloths, compact discs, DVD players, handheld computers.
Companies that resulted: GAP, Banana Republic, MTV, Palm.

11. Social trends:
(1).
(A) Increasing predominance of dual-income families leaves time to cook at home.
(B) Resulting new business, product and service opportunities: restaurants, microwaveable dinners, food delivery services.
(C) Companies that resulted: McDonald `s, KFC, Olive Garden, Domino `s Pizza.
(2).
(A). Increased mobility of the population as the result of better transportation and increased disposable income.
(B) Resulting new business, product and service opportunities: cell phones, laptop computers, phone cards.
(C) Companies that resulted: Nokia, Palm, Research in Motion.

12. Technological trends:
Development of the Internet.
Resulting new business, product and service opportunities: E-commerce, improved communications, improved supply chain management.
Companies that resulted: Yahoo, Amazon.com, America Online, Auto Direct.
Solving a problem
Sometimes identifying opportunities involves noticing a problem and
finding a way to solve it.
There are may problems that have to be solved.
Some business ideas stem from the recognition of problems in
emerging trends.

13. Examples of businesses created to solve a problem:
a). Entrepreneurs: Jerry Jan and David Filo
Year: 1994
Problem: No method to find or organize favorite web sites.
Solution: Created online directories to find and store favorites.
Name of business that resulted: Yahoo!
b). Entrepreneur: Anita Roddick
Year: 1976
Problem: Unable to find small amounts of cream or lotion to sample before buying a large bottle.
Solution: Started a company to provide smaller quantities of bath and body products.
Name of business that resulted: The Body Shop.

14. c). Entrepreneur: Fred Smith
Year: 1973
Problem: Inability to get spare parts delivered on a timely basis for his company, a jet-aircraft sales firm.
Solution: started a new company to help others get packages delivered in a timely manner.
Name of business that resulted: Federal Express

15. Personal characteristics of the entrepreneur
Researchers have identified some characteristics that tend to make
some people better at recognizing opportunities than others.
Opportunity recognition refers to the process of perceiving the
possibility of a profitable new business or a new product/service.
The specific characteristics shared by those who excel at recognizing
opportunities are the following:
Prior experience
Many persons got the idea for their new businesses while working for
companies in the same industries. By working in an industry, an
individual may observe a market niche that is underserved.
It is also possible that while working in an industry, an individual builds a
network of social contacts in that industry who may provide insights that
lead to opportunities.

16. Cognitive factors
Some researchers think that entrepreneurs have a “sixth sense“ that
allows them to see opportunities that others miss.
This is called entrepreneurial alertness which is defined as the ability to
notice things without engaging in deliberate search.
Alertness is a learned skill and people who have more knowledge of an
area tend to be more alert to opportunities than others.
Example:
Google` s founders Larry page and Sergey Brin are true entrepreneurs
because they identified a problem and solved it. Frustrated with what
existing search engines such as Yahoo! and Lycos had to offer, these
two students created a new and improved search engine. Today,
Google is known for its speed, reliability and ease of use.

17. Social networks
People who build a substantial network of social and professional
contacts will be exposed to more opportunities and ideas than others.
In a survey of 65 start-ups, 50 percent of founders reported that they got
their business ideas through social contacts.
Creativity
It is the process of generating an useful idea. Opportunity recognition
may be, at least in part, a creative process.
The five steps to generating ideas are the following:
Preparation is the background, experience and knowledge that entrepreneur brings to the opportunity recognition process.
Example:
An athlete must practice to excel, an entrepreneur needs experience to
observe opportunities.

18. Incubation is the stage during which a person considers an idea or thinks about a problem.
Sometimes incubation is a conscious activity and sometimes it is unconscious and occurs while a person is engaged in another activity.
Insight is the flash of recognition, when the solution to a problem is seen or an idea is born.
In a business context this is the moment an entrepreneur recognizes an opportunity.
Evaluation is the stage of the creative process during which an idea is analyzed for its viability. Many entrepreneurs skip this step and try to implement an idea before they have made sure it is viable.
Elaboration is the stage during which the creative idea is put into a final form (such as a new product, service or business).
In the case of a new business, this is the point at which a business plan is written.

19. Techniques for generating ideas
Brainstorming is used to generate a number of ideas quickly.
A brainstorming session is targeted to a specific topic about which a
group of people come up with ideas.
The leader of the group asks the participants to share their ideas.
One person shares an idea, another person reacts to it, another person
reacts to the reaction and so on. All the ideas are recorded.
The rules of conducting brainstorming sessions are:
No criticism is allowed because it stops creativity and inhibits the free flow of ideas.
It is encouraged the care free expression of ideas, free of rules or restraints.
The session moves quickly and it is important to capture the essence of an idea.
Using one idea as a means of jumping forward quickly to other ideas.

20. Some employees may be reluctant to suggest an idea.
To avoid this situation, some firms conduct electronic brainstorming
sessions that are supported by group support system software.
Most brainstorming sessions involve the employees of a firm. But Kodak
hosts pizza-video parties where groups of customers meet with the
company` s technical people to discuss problems and needs and to find
potential solutions.
Focus groups
Focused groups can be used to help generate new business ideas.
A focus group is formed of 5 to 10 people who are selected because of
their relationship to the issue being discussed.
The weakness is that because the participants do not represent a
random sample, the results cannot be generalized to larger groups.

21. Usually, focus groups are conducted by trained moderators, their goals
being to keep the group “focused“ and to generate lively discussion.
Example:
A coffee shop might conduct a focus group consisting of 7 to 10
customers and ask them “What is that you don` t like about our coffee
shop?“ A customer may say that the one-pound bag should be replaced
with a larger quantity (such as three or five pound bag) for a discount
price. In that case he would use more coffee because he wouldn` t run
out so often. The moderator may then ask the group “How many people
here would buy three-pound or five –pound bags of our coffee if there
were available?“ If five hands shoot up, the coffee shop may have just
discovered an idea for a new product line.

22. Survey is a method of gathering information from a sample of individuals.
The sample is usually just a fraction of the population being studied.
Surveys can be conducted over the phone, by mail, online or in person.
The most effective surveys sample a “random“ portion of the population. In that case everyone in the population has an equal chance of being chosen making the results of the survey generalizable to the larger population.
Surveys generate new product/service and business ideas because they ask specific questions and get specific answers.