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Chapter 2Diane M. Sullivan, Ph.D. 2011

Some sections modified from: Barringer & Ireland (2008)

Recognizing Opportunities and Generating Ideas

Part I

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What is an Entrepreneurial Opportunity?What is an Entrepreneurial Opportunity?

A favorable set of circumstances that creates the need for a new product, service or A favorable set of circumstances that creates the need for a new product, service or businessbusiness

An opportunity has An opportunity has fivefive essential qualities: essential qualities:

1.1. AttractiveAttractive

i.i. What makes this venture good for an ENT to start? What value does the ENT/investor extract What makes this venture good for an ENT to start? What value does the ENT/investor extract from the opportunity?from the opportunity?

2.2. DurableDurable

i.i. How is the opportunity competitively sustainable (e.g., not easily imitated, unique in some why How is the opportunity competitively sustainable (e.g., not easily imitated, unique in some why that allows for a competitive advantage)?that allows for a competitive advantage)?

3.3. Timely Timely (window of opportunity is open)(window of opportunity is open)

i.i. What environmental, market, or industry trends suggest now is the time for the opportunity?What environmental, market, or industry trends suggest now is the time for the opportunity?

4.4. Anchored in a product, service, or business that Anchored in a product, service, or business that adds valueadds value to buyer/end userto buyer/end user

i.i. What value do customers extract from this business? Does it solve a problem or fulfill a need? What value do customers extract from this business? Does it solve a problem or fulfill a need? Does it save them time/money?Does it save them time/money?

5.5. Adds value to necessary network partners Adds value to necessary network partners (e.g., those providing resources necessary (e.g., those providing resources necessary for venture success)for venture success)

i.i. How does the opportunity add value to others that you need to help make you firm work—your How does the opportunity add value to others that you need to help make you firm work—your resource providers? resource providers?

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Identifying Opportunities via Observing TrendsIdentifying Opportunities via Observing Trends

Observing Trends in External EnvironmentObserving Trends in External Environment

Economic Economic

Social and DemographicSocial and Demographic

TechnologicalTechnological

Political/LegalPolitical/Legal

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Trend 1: Economic ForcesTrend 1: Economic Forces

State of the economyState of the economy Consumers’ level of disposable incomeConsumers’ level of disposable income Spending patterns (e.g., who has money to spend and Spending patterns (e.g., who has money to spend and

who’s cutting costs)who’s cutting costs) An increase in the number of women in the workforce and An increase in the number of women in the workforce and

their related increase in disposable incometheir related increase in disposable income Many large firms are trying to cut costsMany large firms are trying to cut costs

Entrepreneurs have taken advantage of this trend by starting firms Entrepreneurs have taken advantage of this trend by starting firms that help other firms control coststhat help other firms control costs

Increasing gas pricesIncreasing gas prices

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Economic Trend: Teen AffluenceEconomic Trend: Teen Affluence

2002: teen shoppers spent over $170 billion2002: teen shoppers spent over $170 billion

2007: teen shoppers spent $163 billion2007: teen shoppers spent $163 billion

Analysts project teen spending upswing by 2013 Analysts project teen spending upswing by 2013

Source: Source: Mintel Oxygen, 2011Mintel Oxygen, 2011

What are the three biggest industries where teens spend What are the three biggest industries where teens spend their money?their money?

1) Clothing 2) Music 3) Movies1) Clothing 2) Music 3) Movies

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Economic Trend: Fuel PricesEconomic Trend: Fuel Prices

““The national average retail price for regular gasoline could exceed The national average retail price for regular gasoline could exceed $4.00 in 2011 $4.00 in 2011 (U.S. Energy Information Administration, 2011)(U.S. Energy Information Administration, 2011)..

Electric Bikes Provide Greener CommuteElectric Bikes Provide Greener Commute

““The surging cost of gasoline and a desire for a greener commute are turning The surging cost of gasoline and a desire for a greener commute are turning more people to electric bikes as an unconventional form of transportation. … more people to electric bikes as an unconventional form of transportation. … they’re flying off the shelves…”they’re flying off the shelves…”

Source: CSource: Cnn.com, 2008nn.com, 2008

Chrysler, EPA develop new hybrid technologyChrysler, EPA develop new hybrid technology

““Chrysler has teamed up with the Environmental Protection Agency to Chrysler has teamed up with the Environmental Protection Agency to commercialize a unique hybrid vehicle technology.”commercialize a unique hybrid vehicle technology.”

SourceSource: Wall Street Journal, 2011: Wall Street Journal, 2011

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Trend 2: Social and Demographic ForcesTrend 2: Social and Demographic Forces

Changes in social trends and characteristics of Changes in social trends and characteristics of the population provide openings for new the population provide openings for new businesses businesses The proliferation of fast-food isn’t because people The proliferation of fast-food isn’t because people

love fast foodlove fast foodIt’s because people are busy, and have disposable incomeIt’s because people are busy, and have disposable income

The aging of the population creates new needs in The aging of the population creates new needs in multiple industriesmultiple industries

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Trend 2: ExamplesTrend 2: Examples

• Family/work patterns

• Childcare

• Scheduling

• Aging of the population

• Healthcare

• Financial management

• Increasing diversity in the workplace

• Training

• Globalization of industry

• Transportation

• Taxation

• Regulatory compliance

• Online shopping

• Focus on health care and fitness

• Weight management

• Trainers

• Computers and the Internet

• Hardware/software/training

• Shopping alternatives

• Number of cell phone users

• New technology/complimentary products

• New forms of entertainment

• Video games

• DVR

• Laser tag

• Fantasy sports teams

• Online entertainment

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Social Trend: Health Conscious ConsumersSocial Trend: Health Conscious Consumers

Recession Fuels Confectionary PurchasesRecession Fuels Confectionary PurchasesHowever…However…

Consumers are more likely to purchase candy that is low fat, Consumers are more likely to purchase candy that is low fat, low sugar, low calorie and that are made with real fruit and low sugar, low calorie and that are made with real fruit and organic ingredientsorganic ingredients

Source: Source: Mintel Oxygen (2010)Mintel Oxygen (2010)

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Social Trend: `Tween MarketSocial Trend: `Tween MarketKiddie calls are on the horizon for the growing 'tween market Kiddie calls are on the horizon for the growing 'tween market

“’“’Tweens [ages 8-12] constitute a lucrative retail market … 23 million Tweens [ages 8-12] constitute a lucrative retail market … 23 million members … Retail studies say this demographic is on the leading edge members … Retail studies say this demographic is on the leading edge of the most-consumer-oriented generation in history. They increasingly of the most-consumer-oriented generation in history. They increasingly have disposable income, and their voice now factors heavily into family have disposable income, and their voice now factors heavily into family purchases.”purchases.”

“ … “ … when they shop for themselves, ‘tweens ignore toys … preferring when they shop for themselves, ‘tweens ignore toys … preferring clothes, video games and electronics.”clothes, video games and electronics.”

“ “ The world's No. 2 toymaker [Hasbro, Inc.] is going after the … The world's No. 2 toymaker [Hasbro, Inc.] is going after the … 'tween market with a walkie-talkie-like device that resembles a mobile 'tween market with a walkie-talkie-like device that resembles a mobile phone.”phone.”

Source: Source: St. Louis Tribune, February 12, 2005St. Louis Tribune, February 12, 2005

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Social Trend: `Tween MarketSocial Trend: `Tween Market

LG Migo

Firefly Mobile

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Demographic Trend: Aging PopulationDemographic Trend: Aging Population

FranceFrance: Analysts project the aging French population will : Analysts project the aging French population will result in reduced consumer mobility, leading to an increased result in reduced consumer mobility, leading to an increased demand for convenience shopping.demand for convenience shopping. Carrefour, Intermarché and Leclerc moving to local, neighborhood Carrefour, Intermarché and Leclerc moving to local, neighborhood

format storesformat stores

SpainSpain: Analysts project that the aging population will impact : Analysts project that the aging population will impact the food market—consumers will prefer value prices and food the food market—consumers will prefer value prices and food specialists versus larger supermarketsspecialists versus larger supermarkets

SourceSource: Mintel Oxygen, 2010: Mintel Oxygen, 2010

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Demographic Trend: Aging PopulationDemographic Trend: Aging Population Technology Needs of SeniorsTechnology Needs of Seniors

http://www.cbsnews.com/video/watch/?id=7171169n&tag=mncol;lst;2

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Trend 3: Technological AdvancesTrend 3: Technological Advances Technological AdvancesTechnological Advances

Entrepreneurs must keep on top of how new technologies Entrepreneurs must keep on top of how new technologies affect current and future business opportunitiesaffect current and future business opportunities

Industries have emerged due to technological advances Industries have emerged due to technological advances Computer industry, Internet, biotechnology, digital photographyComputer industry, Internet, biotechnology, digital photography

Once developed, new firms form to take technology to Once developed, new firms form to take technology to higher levelhigher level

RealNetworks was started to add video capability to the InternetRealNetworks was started to add video capability to the Internet

Massively Multiplayer Online Role Playing Games (MMORPG)Massively Multiplayer Online Role Playing Games (MMORPG) EverQuestEverQuest World of WarcraftWorld of Warcraft Second LifeSecond Life

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Technological Trend: ComputersTechnological Trend: ComputersVirtual Gaming and the Economics of MMORPGs

“…supply-and-demand market exists for virtual items … that it crosses over with the real world. [This includes:] … (Castronova, E., 2005)

•The purchase of in-game items for real-world currency • $1.6 billion in sales in 2010 (The New York Times, 2010).

•Exchanges of real-world currencies for virtual currencies

Virtual Crimes on the Rise

Dutch teenager was arrested for stealing virtual furniture (BBC News, 2007)

“Virtual killer faces real jail after murder by mouse” (McNeill, 2008)

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Technological Trend: EmailTechnological Trend: Email

Text message essay baffles British teacherMonday, March 3, 2003 Posted: 10:17 AM EST (1517 GMT)

The girl's essay began:

"My smmr hols wr CWOT. B4, we used 2go2 NY 2C my bro, his GF & thr 3 :- kids FTF. ILNY, it's a gr8 plc."

Source: CNN.com

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Trend 4: Political Action and Regulatory ChangesTrend 4: Political Action and Regulatory Changes

Political action and regulatory changes provide the Political action and regulatory changes provide the basis for new business opportunitiesbasis for new business opportunities EPA laws create opportunities to start firms that help other EPA laws create opportunities to start firms that help other

firms comply with environmental laws and regulationsfirms comply with environmental laws and regulations

Non-smoking legislation in Ohio and other statesNon-smoking legislation in Ohio and other states

Periods of war/conflict Periods of war/conflict

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Legal/Political Trend: Increased SecurityLegal/Political Trend: Increased Security

High Condition (Orange). A High Condition is declared when there is a high risk of terrorist attacks.

Source: US Department of Homeland Security

“The controversy over airport body scanners has created a crop of entrepreneurs … that promise to keep parts of your body from showing up on the images … agents see.”

Source: Cnn.com, 2011

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Legal/Political Trend:Legal/Political Trend:FCC Indecency Regulations BreachedFCC Indecency Regulations Breached

Legal Trend Social TrendHoward Stern Show Taken Off Clear Channel Stations

FCC to investigate incident at end of halftime show

Source: CNN.com

Tuesday, February 3, 2004 Posted: 7:58 AM

Source: Clear Channel Communications, Inc. Press Release

Wednesday February 25, 2004

Whoops!

2020

Suggestions for the Coming Week:Suggestions for the Coming Week:

• Think about a domain you are familiar with like:• College students• University environment• Your favorite hobbies• Your favorite sports• Your favorite technologies• Etc.

• Research trends that might impact these areas in the coming years

• Do any of these trends suggest that new needs/problems might emerge that need to be fulfilled/solved?

• Can you come up with a way to meet those needs or solve those problems?