The Importance of Opportunity Recognition

Money in hand

Picture this: two young entrepreneurs trying to make money on spring break; it’s March and the weather is starting to get warm but can still be brisk at times.  Both individuals have an idea to make a little money on their Spring break by selling ice-cold lemonade at a stand in front of their houses for local business people to purchase while walking by.  While the individuals have the same idea, their locations differ in that one lives on a street running North and South and one lives on a street running East to West. 

Being in an urban environment, at certain times of the day the buildings will block the sunlight from reaching those walking on the street, dramatically lowering the temperature.  Can you guess which entrepreneur had better luck selling lemonade at rush hour during a brisk Spring break? The one who’s street has the sun running down it of course! This is a small but meaningful scenario when trying to understand the importance of opportunity recognition for a new entrepreneur.  That is why you will find below some simple guidelines to how to be most effective at recognizing lucrative opportunities.  Over the course of this post we will cover 5 attributes that differentiate an opportunity from an idea, the importance of recognizing patterns and creative thinking, how to recognize a window of opportunity, and review what screening criteria you can review to determine whether or not a new venture is an opportunity or not.

Five Attributes of an Opportunity:

1) They create or add significant value to a customer or end user.

2) They address a true market problem with some form of competitive advantage.

3) The need for the product or service is pervasive, the customer has a high sense of urgency, and is willing to pay for a solution.

4) They have robust market, growth, margin and profitability characteristics that can be proven.

5) The founders and management team have collective domain experience that matches the opportunity.

As you can imagine, it is not every day that an opportunity emerges.  That being said, it is also true that a good idea is nothing more than a tool in the hands of an entrepreneur.  This is just the first of many steps in the process of developing an idea into an opportunity.

Being able to recognize patterns in the marketplace to understand where there is a need that hasn’t been yet met by those already in the market is essential for a successful entrepreneur.  While this type of market understanding can be developed over time, there is value in working to enhance your creative thinking so as to allow your mind to think as an entrepreneur without as much experience.  Human beings work with a balance between two sides of their brains; the left side controlling rational, logical function and the right side controlling intuitive and nonrational thoughts.  Taking advantage of these different modes of thought so as to approach ideas creatively is of great value to an entrepreneur.  Here are some brainstorming rules to consider when focusing on developing your creative process as you compare new business ideas and opportunities:

1) Define your purpose.

2) Choose participants.

3) Choose a facilitator.

4) Brainstorm spontaneously, copiously.

5) No criticisms, no negatives.

6) Record ideas in full view.

7) Invent to the “void.”

8) Resist becoming committed to one idea.

9) Identify the most promising ideas.

10) Refine and prioritize.


Once you are thinking creatively and confident you will be proficient at recognizing if a product or service is an idea or opportunity, next it is important to consider the window of opportunity that might exist for that product or service.  The window that is ideal is one that will be open and remain open long enough to achieve the required returns.  As a market grows, so do the opportunities; despite any growth period however, it is never good to assume an opportunity will be open forever and it’s important to evaluate if a company will be around long enough to be profitable.  It takes a good amount of time to determine if a new venture is a success or failure so if the window won’t be open long enough to see your returns it might be another reason to deter from joining a new business.

               Finally, once a venture is in your lap and you are working to evaluate whether or not they could be a success, there are several screening criteria to confirm whether or not your initial evaluation remains intact.  When considering Marketing, it is ideal to be going into a fragmented or emerging industry.  This will typically allow for some vacuums and asymmetries that create unfulfilled market niches.  A larger market size is ideal, this will allow your company to generate larger revenues with only 1% market share.  A market that is growing at an annual rate of 30-50% also allows for the entrant of new companies as there is so much volume to go around.  If there are other suppliers in the area that are out of product there is a need for a replacement that we can provide.  When considering the economics of the situation, attractive opportunities have the potential for profits in the range of 10-20%.  Additionally, it should be projected and anticipated that companies will have positive cash flow within 2 years.  For Harvesting purposes, if a business has higher value-added strategic performance then they are going to be valued much higher; these businesses are usually started and grown so they can be sold.  For the management team, they must be strong and contain those well respected in the industry with proven profit and loss experience.  Additionally, the more industry experience you have that can be applicable is ideal.  Owners must also decide if any investment is worth the personal risk an evaluate the opportunity costs associated with the new venture.  Seven strategic differentiate strategies available are: Degree of Fit, Team, Timing, Technology, Flexibility, Pricing, and Distribution Channels.

               We hope this has helped you take a peek inside the mind of an entrepreneur so you can start working in creative thinking and opportunity recognition on a daily basis.  Just remember the following quote: “Perhaps the existence of business plans and the language of business give an misleading impression of business building as a rational process.  But as any entrepreneur can confirm, starting a business is very much as series of fits and starts, brainstorms and barriers.  Creating a business is a round of chance encounters that leads to new opportunities and ideas, mistakes that turn into miracles.”

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