Chapter 2: Recognizing Opportunities and Generating Ideas
Environmental Factor Business Opportunity it Might Create
Economic factor An increase in disposable income in the hands of
teenagers creates opportunities to create new
electronics products that appeal to teenagers.
Social factors An increase in the percentage of elderly people in
the U.S. creates opportunities to create new
products that help elderly people deal with
everyday chores.
Technological factors An increase in the percentage of people who use
smartphones creates opportunities for companies
to create products and services that enhance the
usefulness of smartphones.
Political Action and The passage of new environmental protection
Regulatory Changes regulations creates opportunities for companies to
create products to help firms comply with the
regulations.
2-6.
How can “solving a problem” create a business opportunity for an entrepreneur
to pursue?
MyLab Question.
2-7.
How can finding a gap in the marketplace create a business opportunity?
Answer: A gap in the marketplace suggests that particular clientele, such as
people who need plus-sized clothing or people who are hard to fit, are not being
adequately serviced. Providing products or services for these people represents a
business opportunity. The trick is whether there is a large enough critical mass of
people in a particular area to support a business that fills a gap in their
marketplace for a specific clientele.
2-8.
What is meant by the term opportunity recognition?
Answer: Opportunity recognition refers to the process of perceiving the
possibility of a profitable new business or a new product or service.
2-9.
In what ways does prior industry experience provide an entrepreneur an
advantage in recognizing business opportunities?
Answer: By working in an industry, an individual may spot a market niche that
is underserved.
2-10.
What is entrepreneurial alertness and why is it important to entrepreneurs?
Answer: There are some who think that entrepreneurs have a “sixth sense” that
allows them to see opportunities that others miss. This sixth sense is called
entrepreneurial alertness, which is formally defined as the ability to notice things
without engaging in deliberate search. Entrepreneurial alertness is important,
because individuals with higher levels of entrepreneurial alertness will
presumably identify more business opportunities.
2-11.
How does an extensive social network provide an entrepreneur an advantage in
recognizing business opportunities?
Answer: The extent and depth of an individual’s social network affects
opportunity recognition. People who build a substantial network of social and
professional contacts will be exposed to more opportunities or ideas than people
with sparse networks. This exposure can lead to new business starts.
2-12.
What is the difference between a weak-tie and a strong-tie relationship? Which
type of tie is most likely to help an entrepreneur find an idea and why?
MyLab Question.
2-13.
What is creativity?
Answer: Creativity is the process of generating a novel or useful idea.
Opportunity recognition may be, at least in part, a creative process. It is easy to
see the creativity involved in the formation of many products, services, and
businesses.
2-14.
How does creativity contribute to the opportunity recognition process?
Answer: Opportunity recognition may be, at least in part, a creative process. On
an anecdotal basis, it is easy to see the creativity involved in forming many
products, services, and businesses.
2-15.
What are the five stages of the creative process for an individual?
Answer: The five stages of the creative process are as follows:
Stage 1: Preparation is the background, experience, and knowledge that an
entrepreneur brings to the opportunity recognition process.
Stage 2: Incubation is the stage during which a person considers an idea or thinks
about a problem; it is the “mulling things over” phase.
Stage 3: Insight is the flash of recognition—when the solution to a problem is
seen or an idea is born.
Stage 4: Evaluation is the stage of the creative process during which an idea is
Chapter 2: Recognizing Opportunities and Generating Ideas
subjected to scrutiny and analyzed for its viability.
Stage 5: Elaboration is the stage during which the creative idea is put into a final
form.
2-16.
What are the differences between an opportunity and an idea and why are those
differences important for entrepreneurs?
Answer: An opportunity has four essential qualities: it is (1) attractive, (2)
durable, (3) timely, and (4) anchored in a product, service, or business that
creates or adds value for its buyers or end users. An idea is a thought,
impression, or notion. It may or may not meet the criteria of an opportunity.
2-17.
Why is “no criticism” the number-one rule for brainstorming?
Answer: Brainstorming is used to generate a number of ideas quickly. It is not
used for analysis or decision making. No criticism is allowed. Criticism stymies
creativity and inhibits the free flow of ideas.
2-18.
How is a focus group used to generate new business ideas?
Answer: A focus group is a gathering of 5 to 10 people who are selected because
of their relationship to the issue being discussed. Although focus groups are used
for a variety of purposes, they can be used to help generate new business ideas.
Usually focus groups are conducted by trained moderators. The moderator’s
primary goals are to keep the group “focused” and to generate lively discussion.
2-19.
What is the purpose of day-in-the-life research?
Answer: Day-in-the-life research refers to sending a team of testers to the homes
(or businesses) of a company’s users, to see how its products are working and
gain insights for new product ideas.
APPLICATION QUESTIONS
2-20.
Justin Coban plans to write an e-mail message to his dad asking for a loan. The
purpose of the loan will be to start a company to sell an environmentally friendly
line of cleaning supplies that are suitable for light manufacturing facilities. Justin
has spent the past two years developing the products in his spare time, and wants
to convince his dad that the idea represents an attractive business opportunity.
What information and insights about his potential company should Justin include
in the e-mail message?
Answer: Justin should try to convince his dad that (1) the idea meets the four
tests of an opportunity, (2) the idea either takes advantage of an environmental
Chapter 2: Recognizing Opportunities and Generating Ideas
trend, solves a problem, or fills a gap in the marketplace, and (3) he has done
sufficient research, either through brainstorming, focus groups, and/or library
and Internet research, to assure himself that the idea is attractive.
2-21.
Identify three start-ups, other than those discussed in the chapter and listed in
Table 2.2, which were started to solve a problem. Briefly describe the problems
the three start-ups are solving and how they are going about doing so.
Answer: There are countless examples that students might suggest. Urge your
students to browse through magazines such as Inc. and Entrepreneur for
suggestions if they are having a hard time coming up with ideas. The Springwise
blog (www.springwise.com) also provides fresh examples of new products and
services on a near daily basis.
2-22.
Marshall Hanson, the founder of Santa Fe Hitching Rail, a chain of nine steak
restaurants in New Mexico, is considering expanding his menu, which is
currently restricted to steak, hamburger, potatoes, and fries. He has just read a
book about entrepreneurship and learned that entrepreneurs should study social
trends to help identify new product opportunities. What are some current social
trends that might help Marshall choose items to add to his menu? Given the
trends you list, what items do you suggest Marshall add to expand his
restaurant’s menu?
Answer: This is a good thought question for students. The obvious social trend
that Marshall should pay attention to is the increasing emphasis that Americans
are paying to health and fitness. Marshall’s menu features food that is high in fat
and cholesterol. Although that menu may appeal to a certain clientele, Marshall
might think about broadening his menu to include lower fat foods, such as
chicken, fish, and salads.
2-23.
Tiffany Jones owns a small chain of fast-casual restaurants in Denver that sell
sandwiches, soups, wraps, and desserts. In general, her restaurants are
successful, but she feels they are getting “stale” and could benefit from new
ideas. What techniques could Tiffany use to generate new ideas for her
restaurants.
Answer: Brainstorming, focus groups, and Internet and library research.
2-24.
As mentioned in the chapter, “prior experience” in an industry helps
entrepreneurs recognize business opportunities. This concept of “help” extends
to prior experience in any aspect of life—whether it is sports, music, or a
volunteer activity. In what areas do you have a good amount of prior experience?
How could this prior experience position you to start a business?
Answer: This is a good question for an individual assignment. Make sure your
students directly tie their prior experience to a potential business opportunity.
Chapter 2: Recognizing Opportunities and Generating Ideas
Some students will argue that they really don’t have any prior experience that
would lend itself to a business opportunity. In these cases, challenge your
students to think harder. All of us have unique experiences that might lend
themselves to business opportunities.
2-25.
Make a list of your strong-tie and weak-tie relationships. Include at least five ties
on each list. Select two names from your list of weak-tie relationships, and
speculate on the types of new business ideas that you think these individuals
would be uniquely qualified to help you contemplate.
Answer: This is a good question for an individual assignment.
2-26.
Imagine that you’ve been hired by Fitbit, the wearable activity tracker, to
conduct focus groups on your campus to get a better sense of how Fitbit can be
as relevant and useful to college students as possible. How would you go about
setting up the focus groups? What are the primary issues on which you would
concentrate with the focus groups?
Answer: Most students will repeat the material in the chapter in regard to how to
set up a focus group to get a better sense of how Fitbit can be as relevant and
useful to college students as possible. Challenge your students to be as
thoughtful and creative as possible in regard to the primary issues they’d zero in
on in the focus group.
2-27.
How could Jamie Heywood and Ben Heywood, the co-founders of
PatientsLikeMe, the subject of case 1.2 in Chapter 1, have utilized library and
Internet research to flesh out their business idea?
Answer: There is undoubtedly much that Jamie and Ben Heywood could have
learned about amyotrophic lateral sclerosis (ALS) and other diseases (and how
people coped with them) via library and Internet research, regarding what the
options were, the cost of treatment, etc.
YOU BE THE VC 2.1
Company: PillPack (www.pillpack.com)
Business Idea: Create an online pharmacy that is easier to use than traditional
pharmacies.
Chapter 2: Recognizing Opportunities and Generating Ideas
You Be the VC Scorecard
PillPack
(www.pillpack.com)
Item
Strength of New-Venture
Team
Strength of the Opportunity
Strength of the Industry
Strength of Business Model
Average Score
Decision: We would fund this firm. A big plus in PillPack’s favor is the strength of its
do not seem to have direct competitors and so they are likely to get a first mover
Chapter 2: Recognizing Opportunities and Generating Ideas
advantage. Their business model is less encouraging until they get to be the size that
increases their pricing power.
YOU BE THE VC 2.2
Company: Feetz (www.feetz.com)
Business Idea: Using 3D printing technology, make custom fit shoes for every person.
You Be the VC Scorecard
Feetz
(www.feetz.com)
Item
Score/Comments
Strength of New-Venture
Team
1 2 3 4 5
Principal founder Lucy Beard is a Chartered Financial
Analyst and former actuary who has held positions at
Intuit and Zynga before launching Feetz with her
husband, Nigel. Nigel Beard, a Ph.D. in microfluids, is
chief technical officer. There is both the technical and
the business side well represented here.
Strength of the Opportunity
1 2 3 4 5
This is a hard one to evaluate. For many people,
footwear is a fashion accessory. Feetz seems to address
the comfort part well but not necessarily the fashion
part. There is an opportunity to focus on the part of the
footwear market that is looking simply for comfortable
footwear, but we don’t know how big that is.
Strength of the Industry
1 2 3 4 5
Given the success of the Dr. Scholes brand, it is possible
that there is a sizeable market for people who want
shoes that are comfortable and not necessarily
fashionable. We don’t know that. Given that Feetz
focuses on comfort primarily, they may be addressing a
smaller part of the market.
Strength of Business Model
The model is not scalable as is since each pair needs to
be custom made. Down the road, Feetz is looking at
1 2 3 4 5
Chapter 2: Recognizing Opportunities and Generating Ideas
selling the technology and/or partnerships with shoe
retailers like DSM. This may be the better way to go.
Average Score
3.25/5.0
Decision: We would not fund Feetz. The management team appears quite capable but
less attractive is the size of the opportunity and the current business model. We don’t
know the size of the intersection in the market between those who need comfortable
shoes and are less particular about fashion. If this segment is very small, then Feetz
doesn’t have any headroom to grow. We do not know the full financial effect of their
partnerships for us to evaluate if this is the path forward.
CASES
Case 2.1
PledgeMusic and Zinepak: Creating New Businesses in the Music Industry by Directly
Engaging Fans
DISCUSSION QUESTIONS
2.32.
What environmental trends are working in favor of PledgeMusic and Zinepak?
What environmental trends are working against each company?
Answer: The environmental trends that are working for both PledgeMusic and
ZinePak are (1) an increased level of comfort that people have on technology; (2)
the need for interactive, more immersive experience that digital technology
enables; (3) an increase in the number of social media platforms that people work
from, which now includes Facebook and Twitter; and (4) an increasing mobile
population. All of these factors favor both companies’ immersive solution that can
be accessed from all of a user’s devices. The trends working against both
companies are (1) the sheer number of devices that people have is increasing the
complexity of the services offered and (2) the threat that either company could be
vulnerable to technological disruption.
2.33.
What gap or gaps in the marketplace does both PledgeMusic and ZinePak fill? On
a scale of 1 to 10 (10 is high), how elegantly do you think each company is filling
the gap or gaps you identified?
Chapter 2: Recognizing Opportunities and Generating Ideas
Answer: Both companies fill a similar gap: hard core music fans – the Super Fans
– are willing to spend more money than what they currently spend to get to know
their favorite performers, except that there are very few avenues for them to do it.
While student reactions may differ, PledgeMusic may have the more elegant
solution (grade of 8-9) because what it is offering is more interactive and more
immersive that what ZinePak does.
2.34.
Suggest one or two additional business ideas that would allow musicians to better
engage with their Super Fans.
Answer: One idea could be for performers to record personal birthday or other
wishes for their fans. This is a good exercise to get students to exercise their
creativity.
Case 2.2
Rover.com: Don’t Chuckle: This Is One Impressive Business Idea
DISCUSSION QUESTIONS
2.35.
In the United States, what environmental trends are supporting the development of
Rover.com’s business?
Answer: Most students will assemble a list that includes (1) increasingly mobile
population—which necessitates that dog owners need their dogs watched by
others more often, (2) aging of the population—many older people have dogs for
companionship, and (3) increase in the spread of technology and mobile
devices—people may be more willing to leave their dogs in the care of others if
they can get frequent updates on their dogs via e-mail and other forms of digital
communications.
2.36.
How might Rover.com use focus groups to gain a better understanding of its
current and potential customers and their needs?
Answer: Most students will revert to the information in the chapter about focus
groups. Challenge your students to apply the material in the text to specifically
how Rover.com would set up focus groups and utilize the information gleaned
through them.
2.37.
In this chapter, we noted that a true business opportunity is attractive, durable,
timely, and anchored in a product or service that creates value for a buyer. To
what extent does Rover.com’s service satisfy each of these criteria?
Answer: Rover.com’s service is attractive in that it places a dog owner’s dog in a
home rather than a kennel. This aspect of Rover.com’s service provides a dog
more personalized attention and is healthier, given that the dog will not be in close
Chapter 2: Recognizing Opportunities and Generating Ideas
proximity to a large number of other dogs, some of which may be sick. The
service is durable in that the number of dogs and dog owners in the United States
continues to go up. The amount of money that people spend on their pets, dogs
included, also continues to go up each year. The service is timely in that the
population in general is increasingly mobile, meaning that people travel more
which necessitates dog owners needing to find others to watch their dogs. Finally,
the service is anchored in a product or service that creates value for a buyer. The
entire intent of Rover.com is to provide a dog owner a better experience than
placing a dog in a kennel. There are many examples throughout the case where
Rover.com achieves this objective.