Opportunity Recognition to Feasibility Analysis

1. ABDM4233 ENTREPRENEURSHIP
From Opportunities
to
Feasibility Analysis
by
Stephen Ong
Principal Lecturer (Specialist)
Visiting Professor, Shenzhen

2. From ideas to opportunities
 Linking supply and demand approaches
 Is there a match between a social
entrepreneur’s idea and a need?
 According to Maslow, people address their
needs in order
 From the most basic physiological needs
 To higher order needs
 Social entrepreneurs can recognize when
lower level needs have NOT been met
2-2

3. Maslow’s hierarchy of needs, and
social entrepreneurship potential
self-transcendence Programs to create mentors
self-actualization College scholarships
aesthetic The arts
cognitive Academic programs
self-esteem Empowerment programs
belongingess Community programs
safety and security School and neighborhood safety
physiological Proper nutrition
Maslow’s hierarchy Example programs that meet
2-3
different needs

4. What is An Opportunity?
1 of 2
An opportunity is a favorable
Opportunity Defined set of circumstances that
creates a need for a new
product, service, or business.
2-4

5. What is an Opportunity?
2 of 2
Four Essential Qualities of an Opportunity
2-5

6. Three Ways to Identify an Opportunity
2-6

7. First Approach: Observing Trends
1 of 2
 Observing Trends
 Trends create opportunities for entrepreneurs to
pursue.
 The most important trends are:
 Economic forces
 Social forces
 Technological advances
 Political action and regulatory change
 It’s important to be aware of changes in these areas.
2-7

8. First Approach: Observing Trends
2 of 2
Environmental Trends Suggesting Business
or Product Opportunity Gaps
2-8

9. Sources of opportunities
 Technological change
 Using the internet for political fundraising
 Change in public policy
 New opportunities for faith-based groups
 Changes in public opinion
 Opposition to wars (Vietnam and Iraq)
 Changes in tastes
 E.g., higher education adapts to student
interests
 Demographic changes
 Serve immigrants and help them assimilate
2-9

10. Trend 1: Economic Forces
Example of Economic Trend
Creating a Favorable Opportunity
Economic trends help
determine areas that are • A weak economy favors
start-ups that help consumers
ripe for new start-ups and
save money.
areas that start-ups should
• An example is GasBuddy.com,
avoid.
a company started to help
consumers save money on gas.
2-10

11. Trend 2: Social Forces
Examples of Social Trends
Social trends alter how
people and businesses • Aging of baby boomers
behave and set their • The increasing diversity of
priorities. These trends the workplace
• Increasing interest in social
provide opportunities for networks such as Facebook
new businesses to and Twitter
accommodate the • An increasing focus on health
changes. and wellness
• Increasing interest in “green”
products
2-11

12. Trend 3: Technological Advances
1 of 2
Examples of Entire Industries
Advances in technology that Have Been Created as the
frequently create business Result of Technological
Advances
opportunities.
• Computer industry
• Internet
• Biotechnology
• Digital photography
2-12

13. Trend 3: Technological Advances
2 of 2
Example: H20Audio
Once a technology is An example is H20Audio, a
created, products often company started by four
emerge to advance it. former San Diego State
University students, that
makes waterproof housings
for the Apple iPhone and
iPod.
2-13

14. Trend 4: Political Action and Regulatory
Changes
1 of 2
General Example
Political action and Laws to protect the environment
regulatory changes also have created opportunities for
provide the basis for entrepreneurs to start firms that
opportunities. help other firms comply with
environmental laws and
regulations.
2-14

15. Trend 4: Political Action and Regulatory
Changes
2 of 2
Specific Example
Company created to help The No Child Left Behind Act
of 2002 requires states to
other companies comply develop criterion-based
with a specific law. assessments in basic skills to be
periodically given to students in
certain grades. Kim and Jay
Kleeman, two high school
teachers, started Shakespeare
Squared, a company that helps
high schools comply with the
act.
2-15

16. Second Approach: Solving a Problem
1 of 2
 Solving a Problem
 Sometimes identifying opportunities simply involves
noticing a problem and finding a way to solve it.
 These problems can be pinpointed through observing
trends and through more simple means, such as
intuition, serendipity, or change.
2-16

17. Embrace
THE PROBLEM THE SOLUTION
 20,000,000 low-birth  New affordable
weight pre-mature innovative products for
babies medical
 Hypothermia (Loss of  Product Costs 1% of
body heat) kills Western baby incubator
4,000,000 within first
month
 16,000,000 survivors
face diabetes, heart
disease and low IQ
risks.

18. Second Approach: Solving a Problem
2 of 2
• A problem facing the U.S. and
other countries is finding
alternatives to fossil fuels.
• A large number of
entrepreneurial firms, like
this solar farm, are being
launched to solve this problem.
2-18

19. Third Approach: Finding Gaps in the
Marketplace
1 of 2
 Gaps in the Marketplace
 A third approach to identifying opportunities is to find
a gap in the marketplace.
 A gap in the marketplace is often created when a
product or service is needed by a specific group of
people but doesn’t represent a large enough market to
be of interest to mainstream retailers or manufacturers.
2-19

20. GrameenPhone Bangladesh
“Stay Close”
Market Gap Village Phone Fills the Gap
 Low incomes of the  400,000 GP women
rural poor unable to operators in rural
afford mobile villages
communications  Microfinance loan
 Disconnected rural USD200 from Grameen
communities bank
 High middlemen costs  Universal access to
in trade denying income mobile communications
improvements for 55,000 villages(2006)
… 100,000,000 users
 http://tedblog.typepad.com/tedblog/2006/10/iqbal_quadir_
 Improved personal and
village incomes

21. Third Approach: Finding Gaps in the
Marketplace
2 of 2
Specific Example
Product gaps in the In 2000 Tish Cirovolv
marketplace represent realized there were no guitars
potentially viable on the market made
business opportunities. specifically for women. To
fill this gap, she started Daisy
Rock Guitars, a company that
makes guitars just for women.
2-21

22. Get information for socially-
entrepreneurial ideas
Education
Life experience Stocks of knowledge Intelligence and alertness
Work experience
Networks
Access to information Utilization of information
Creative process of ideas and opportunities
2 - 22

23. Personal Characteristics of the
Entrepreneur
Characteristics that tend to make some people better
at recognizing opportunities than others
Prior Experience Cognitive Factors
Social Networks Creativity
2-23

24. Prior Experience
 Prior Industry Experience
 Several studies have shown that prior experience in an
industry helps an entrepreneur recognize business
opportunities.
 By working in an industry, an individual may spot a market
niche that is underserved.
 It is also possible that by working in an industry, an individual
builds a network of social contacts who provide insights that
lead to recognizing new opportunities.
2-24

25. Cognitive Factors
 Cognitive Factors
 Studies have shown that opportunity recognition may
be an innate skill or cognitive process.
 Some people believe 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.
2-25

26. Social Networks
1 of 3
 Social Networks
 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 and ideas than people with sparse
networks.
 Research results suggest that between 40% and 50% of
people who start a business got their idea via a social
contact.
 Strong Tie Vs. Weak Tie Relationships
 All of us have relationships with other people that are
called “ties.” (See next slide.)
2-26

27. Social Networks
2 of 3
 Nature of Strong-Tie Vs. Weak-Tie Relationships
 Strong-tie relationship are characterized by frequent
interaction and form between coworkers, friends, and
spouses.
 Weak-tie relationships are characterized by infrequent
interaction and form between casual acquaintances.
 Result
 It is more likely that an entrepreneur will get new
business ideas through weak-tie rather than strong-tie
relationships. (See next slide.)
2-27

28. Social Networks
3 of 3
Why weak-tie relationships lead to more new business ideas
than strong-tie relationships
Strong-Tie Relationships Weak-Tie
Relationships
These relationships, which These relationships, which
typically form between like- form between casual
minded individuals, tend to acquaintances, are not as
reinforce insights and ideas apt to be between like-
that people already have. minded individuals, so one
person may say something
to another that sparks a
completely new idea.
2-28

29. Creativity
1 of 2
 Creativity
 Creativity is the process of generating a novel or useful
idea.
 Opportunity recognition may be, at least in part, a
creative process.
 For an individual, the creative process can be broken
down into five stages, as shown on the next slide.
2-29

30. Creativity
2 of 2
Five Steps to Generating Creative Ideas
2-30

31. Full View of the Opportunity
Recognition Process
Depicts the connection between an awareness of emerging trends
and the personal characteristics of the entrepreneur
2-31

32. Techniques for Generating Ideas
Brainstorming Focus Groups
Library and
Internet Research
2-32

33. Brainstorming
 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.
2-33

34. Focus Groups
 Focus Group
 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 the way they do about a
particular issue.
 Although focus groups are used for a variety of
purposes, they can be used to help generate new
business ideas.
2-34

35. Library and Internet Research
1 of 3
 Library Research
 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.
2-35

36. Library and Internet Research
2 of 3
Examples of Useful Search
Large public and Engines and Industry Reports
university libraries • BizMiner
typically have access to • ProQuest
search engines and • IBISWorld
industry reports that would • Mintel
cost thousands of dollars • LexisNexis Academic
to access on your own.
2-36

37. Library and Internet Research
3 of 3
 Internet Research
 If you are starting from scratch, simply typing “new
business ideas” into a search engine will produce links
to newspapers and magazine articles about the
“hottest” new business ideas.
 If you have a specific topic in mind, setting up Google
or Yahoo! e-mail alerts will provide you with links to a
constant stream of newspaper articles, blog posts, and
news releases about the topic.
 Targeted searches are also useful.
2-37

38. Other Techniques
 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.
 Day-In-The-Life Research
 A type of anthropological research, where the
employees of a company spend a day with a customer.
2-38

39. Encouraging New Ideas
 Establishing a Focal Point for Ideas
 Some firms meet the challenge of encouraging,
collecting, and evaluating ideas by designating a specific
person to screen and track them—for if it’s everybody’s
job, it may be no one’s responsibility.
 Another approach is to establish an idea bank (or
vault), which is a physical or digital repository for
storing ideas.
 Encouraging Creativity at the Firm Level
 Creativity is the raw material that goes into innovation
and should be encouraged at the organizational and
individual supervisory level.
2-39

40. Protecting Ideas From Being Lost or
Stolen
 Step 1
 The idea should be put in a tangible form such as
entered into a physical idea logbook or saved on a
computer disk, and the date the idea was first thought
of should be entered.
 Step 2
 The idea should be secured. This may seem like an
obvious step, but is often overlooked.
 Step 3
 Avoid making an inadvertent or voluntary disclosure of
an idea, in a manner that forfeits the right to claim
exclusive rights to it.
2-40

41. Feasibility Analysis
 Entrepreneurs do not lack creative
ideas, but …
 Is a particular idea a viable foundation
for creating a successful business?
 Feasibility study addresses the
question: “Should we proceed with
this business idea?”
4 - 41

42. Feasibility Analysis
A feasibility study:
 Is not the same as a business plan.
 Serves as a filter, screening out ideas that
lack the potential for building a successful
business before an entrepreneur commits
the necessary resources to building a
business plan.
 Is an investigative tool.
4 - 42

43. Elements of a Feasibility Analysis
Industry and Product or Service
Market Feasibility Feasibility
Financial
Feasibility
4 - 43

44. Elements of a Feasibility Analysis
Industry and Product or Service
Market Feasibility Feasibility
Financial
Feasibility
4 - 44

45. Industry and Market
Feasibility Analysis
Two areas of focus:
2. Determining how attractive an
industry is overall as a “home” for a
new business.
3. Identifying possible niches a small
business can occupy profitably.
4 - 45

46. Five Forces Model
Five forces interact with one another to
determine the setting in which companies
compete and, hence, the attractiveness of
the industry:
1. Rivalry among companies in the industry
2. Bargaining power of suppliers
3. Bargaining power of buyers
4. Threat of new entrants
5. Threat of substitute products or services
4 - 46

47. Five Forces Model
Potential
Entrants
Threat of
New Entrants
Bargaining Power
Industry
of Suppliers Bargaining Power
Competitors
of Buyers
Suppliers Buyers
Rivalry among
existing firms
Threat of Substitute
Products or Services
Substitutes
4 - 47

48. Five Forces Model
Potential
Entrants
Threat of
New Entrants
Bargaining Power
Industry
of Suppliers Bargaining Power
Competitors
of Buyers
Suppliers Buyers
Rivalry among
existing firms
Threat of Substitute
Products or Services
Substitutes
4 - 48

49. Rivalry Among Companies
 Strongest of the five forces
 Industry is more attractive when:
 Number of competitors is large, or, at
the other extreme, quite small
 Competitors are not similar in size or
capacity
 Industry is growing fast
 Opportunity to sell a differentiated
product or service exists
4 - 49

50. Five Forces Model
Potential
Entrants
Threat of
New Entrants
Bargaining Power Industry
of Suppliers Competitors Bargaining Power
of Buyers
Suppliers Buyers
Rivalry among
existing firms
Threat of Substitute
Products or Services
Substitutes
4 - 50

51. Bargaining Power of
Suppliers
 The greater the leverage of suppliers,
the less attractive the industry.
 Industry is more attractive when:
 Many suppliers sell a commodity
product
 Substitutes are available
 Switching costs are low
 Items account for a small portion of
the cost of finished products
4 - 51

52. Five Forces Model
Potential
Entrants
Threat of
New Entrants
Bargaining Power Industry
of Suppliers Competitors Bargaining Power
of Buyers
Suppliers Buyers
Rivalry among
existing firms
Threat of Substitute
Products or Services
Substitutes
4 - 52

53. Bargaining Power of
Buyers
 Buyers’ influence is high when number of
customers is small and cost of switching to a
competitor’s product is low.
 Industry is more attractive when:
 Customers’ switching costs are high
 Number of buyers is large
 Customers want differentiated products
 Customers find it difficult to collect information
for comparing suppliers
 Items account for a small portion of customers’
finished products
4 - 53

54. Five Forces Model
Potential
Entrants
Threat of
New Entrants
Bargaining Power Industry
of Suppliers Competitors Bargaining Power
of Buyers
Suppliers Buyers
Rivalry among
existing firms
Threat of Substitute
Products or Services
Substitutes
4 - 54

55. Threat of New Entrants
 The larger the pool of potential new entrants,
the less attractive an industry is.
 Industry is more attractive to new entrants
when:
 Advantages of economies of scale are absent.
 Capital requirements to enter are low
 Cost advantages are not related to company
size
 Buyers are not loyal to existing brands
 Government does not restrict the entrance of
new companies
4 - 55

56. Five Forces Model
Potential
Entrants
Threat of
New Entrants
Bargaining Power Industry
of Suppliers Competitors Bargaining Power
of Buyers
Suppliers Buyers
Rivalry among
existing firms
Threat of Substitute
Products or Services
Substitutes
4 - 56

57. Threat of Substitutes
 Substitute products or services can
turn an industry on its head.
 Industry is more attractive to new
entrants when:
 Quality substitutes are not readily
available
 Prices of substitute products are not
significantly lower than those of the
industry’s products
 Buyers’ switching costs are high
4 - 57

58. Five Forces Matrix
4 - 58

59. Business Prototyping
 Entrepreneurs test their business
models on a small scale before
committing serious resources to
launch a business that might not work.
 Recognizes that a business idea is a
hypothesis that needs to be tested
before taking it full scale.
4 - 59

60. Elements of a Feasibility Analysis
Industry and Product or Service
Market Feasibility Feasibility
Financial
Feasibility
4 - 60

61. Product or Service
Feasibility Analysis
 Determines the degree to which a
product or service idea appeals to
potential customers and identifies the
resourced necessary to produce it.
 Two questions:
1. Are customers willing to purchase
our product or service?
2. Can we provide the product or
service to customers at a profit?
4 - 61

62. Product or Service
Feasibility Analysis
 Primary research: Collect data firsthand
and analyze it.
 Customer surveys and questionnaires
 Focus groups
 Secondary research: Gather data that
already has been compiled and analyze it.
 Prototypes
 In-home trials
4 - 62

63. Elements of a Feasibility Analysis
Industry and Product or Service
Market Feasibility Feasibility
Financial
Feasibility
4 - 63

64. Financial Feasibility Analysis
 Capital requirements –an estimate of
how much start-up capital is required
to launch the business.
 Estimated earnings – forecasted
income statements
 Return on investment – Combining the
previous two estimates to determine
how much investors can expect their
investments to return.
4 - 64

65. Further Reading
 Scarborough, Norman, M. 2011. Essentials of
Entrepreneurship and Small Business
Management. 6th edition. Pearson.
 Brooks, Arthur C. (2006) Social Entrepreneurship :
A Modern Approach to Social Value Creation.
Pearson
 Barringer, Bruce R. & Ireland, R. Duane, 2011
Entrepreneurship – Successfully launching new
ventures 4th edition, Pearson.
 Schaper, M., Volery, T., Weber, P. & Lewis, K. 2011.
Entrepreneurship and Small Business. 3rd Asia
Pacific edition. John Wiley.