- Apply the two primary pathways to opportunity identification - Demonstrate how entrepreneurs find opportunities through active search and alertness [SLIDE 1] When the famous explorer George Leigh Mallory was asked why he climbed Mount Everest, he answered, "because its there". If we apply this concept -- the idea of taking opportunities simply because they are there for the taking, we could argue that entrepreneurial opportunities exist. We just need to find them. The assumption that opportunities exist independent of entrepreneurs and are waiting to be found is called the finding approach. It is based on the concept that entrepreneurial opportunities exist as a consequence of the changing landscape in technology, consumer preferences, government regulations and demographics. In the finding approach, the role of savvy entrepreneurs is to deliberately search for these opportunities by scanning the environment, staying alert, making use of available information and ensuring they are the first to exploit opportunities as soon as they discover them. Decisions are considered as risky in this approach. Since opportunities already exist, it stands to reason that the information is available and the data there to be collected. The data can be used through a process of analysis techniques to work out the probability of the outcome if you were to pursue the opportunity. In other words, the information is available to reasonably ascertain the level of risk. [SLIDE 2] An alternative approach is the building approach. Recall from our very first lesson the work of Sara Saravathy, who proposed that entrepreneurs focus on creating a future rather than predicting it; creating new opportunities, making new markets, and producing new products and services through action. In Sarasvathy’s theory of effectuation, entrepreneurs interact with their environment by observing how the market and customers respond to their activities, and learning from the results produced by that activity. This is the essence of the building approach. [SLIDE 3] Both the finding and building theories attempt to explain the pathways entrepreneurs take to identify and exploit opportunities, yet they tend to differ in their approach to opportunity creation. The building approach assumes that opportunities do not exist independent of entrepreneurs, but are instead a product of the mind. In the building approach, opportunities are created, not found. They originate from the entrepreneurs' prior knowledge and experience, which equip the entrepreneur to create them. This approach advocates using what you know, whom you know, and who you are. Whereas the finding approach perceives decision making to be risk, in the building approach, decision making is uncertain. Since the opportunity does not exist yet, it needs to be created. Thus, information about how to proceed is not readily available. Unlike the finding approach, in order to learn, improve and succeed, the entrepreneur must continually take actions and adjust to changing circumstances. The entrepreneur cannot predict the probability of the outcomes given the potential lack of information. This leaves the entrepreneur with two decisions: either to find ways to source the information and resources in order to create an opportunity, or to decide against the opportunity altogether. [SLIDE 4] Watch the video to see how Snapchat is using the building approach. [SLIDE 5] We all possess certain information sets established by our existing knowledge. By actively searching these sets, we can access a wealth of information. For example, you could use your own knowledge base to search for people who could potentially support you in your venture such as your inner circle of friends, family, business contacts and so on. While such rational and conscious search processes are useful, they do not always apply to every situation, especially when discoveries can occur so randomly. If we confine ourselves to searching only within our personal inventory of information, we run the risk of missing chances that fall outside what we think we know. The tendency to miss chance opportunities relates to a study we considered earlier which described why some people are lucky and others are unlucky. Unlucky people are too focused on what they are supposed to be looking for in contrast to other people who tend to have greater potential to recognize chance opportunities. The finding approach suggests that any existing opportunity is there to be exploited as long as we have the skills and awareness to do so. But if that were the case, why aren't there floods of people rushing in to seize every possible existing opportunity? It would be difficult to produce profit-making products and services with everyone else doing the same thing. Therefore, it is not enough for entrepreneurs to identify opportunities within the confines of their existing knowledge sets. In short, active search can be helpful in the recognition of opportunities, but we also need to be alert to nonobvious opportunities when they arise. [SLIDE 6] Opportunities are everywhere waiting to be discovered. Alertness is the ability to identify opportunities in one's environment. This does not mean rationally and systematically searching the environment or one's own information sets. Rather, entrepreneurs who are alert recognize opportunities that already exist through their daily activities, in some instances, even being taken by surprise by what they observe. Think back to the example of Bette Nesmith Graham, the inventor of Liquid Paper. Graham was not actively searching for an opportunity to invent a correction fluid, but became alert to the idea through her daily secretarial duties. This experience shows that we are capable of recognizing opportunities even when are not actively looking for them. [SLIDE 7] Some researchers believe that entrepreneurs are more adept at spotting opportunities than nonentrepreneurs for three reasons:
  1. They have access to more information
  2. They may be more prone to pursuing risks rather than avoiding them
  3. They may possess different cognitive styles – ways and patterns of thinking. As we have already seen, cognitive styles attributes to successful entrepreneurs include a higher degree of intelligence, creativity and self-efficacy.
[SLIDE 8] We have considered how entrepreneurs recognize opportunities, but once they have identified them, how do they go about building on them? The two major factors in the building of opportunities are prior knowledge and pattern building. Studies indicate that entrepreneurs with preexisting knowledge of an industry or market, together with a broad network, are more likely to recognize opportunities than those who have less experience or fewer contacts. Successful entrepreneurs often have prior knowledge with respect to a market, industry or customers, which they can then apply to their own ventures. Another key factor in building opportunities is pattern recognition: the process of identifying links or connections between apparently unrelated things or events. Some of the simplest ideas are born from making links from one event to the other. For instance, compact wheeled luggage was used by airline crew for years before the same type of luggage was marketed for passengers. This idea to make the product available to airline passengers came from an airline pilot, who connected the dots between three major trends that were happening at the time such as an increase in the number of passengers, which made airports busier and carrying traditional luggage more difficult, the overflow of bags to be checked in, and the inconvenience of carrying bags long distances as a result of expanding airports. Once these dots were connected, the product was marketed to customers to enormous success. We can all train ourselves to get better at this process. We do so by identifying changes in our environment, engaging in active searches, and keeping an open mind!