Models for spotting entrepreneurial opportunities

Chapter 6

Opportunity and the creative pursuit of innovative ideas

‘Imagine a world in which everything is so intelligently designed that human

activity generates a delightful, restorative ecological footprint.’

William McDonough, The Natural Advantage of Nations

Your viewpoint?

?

Objectives1. To explore how ideas fit within the opportunity identification process2. To define and illustrate the sources of opportunity for entrepreneurs3. To identify the four models of market opportunity: competition, innovation,

alertness and social need4. To examine the role of creativity and to review the major components of the

creative process: knowledge accumulation, incubation process, idea evaluation and implementation

5. To present ways of developing personal creativity: recognise relationships, use lateral thinking, use your ‘brains’, think outside the box, identify arenas of creativity and work in creative climates

6. To introduce how innovation can inspire opportunity through invention, extension, duplication and synthesis

7. To review some of the major misconceptions associated with innovation and to define the 10 principles of innovation

8. To consider the challenges and changing dynamics of social and sustainability innovation

But first

Come up with the worst ideas for a start-up that you can think of.?

Ideas and the search for opportunity Do entrepreneurs have ESP? • Do entrepreneurs have some kind of extra-sensory

perception (ESP) to be able to see what others cannot see over the horizon!?

• Opportunity is central to entrepreneurship. • Both opportunity creation and opportunity recognition

are fundamental to value creation. • Innovation in its purest sense refers to newness.• But . . . just because something is new does not

mean it will automatically create value.

Sources of innovative ideas• How to take advantage of ideas that create opportunities ?• Trends• Unexpected occurrences• Incongruities• Process needs• Industry and market changes• Demographics• Perceptual changes• Knowledge based concepts

Sources of innovative ideas

1. Competition

2. Innovation

3. Alertness

4. Social

Models for spotting entrepreneurial opportunities

Starting with a‘static economy’

• Balance between supply and demand

• Each competitor maintains market share

• No new competitors to disrupt the economy

• This market is ripe for entrepreneurial opportunity!

Model 1: Competition• Entrepreneur identifies

opportunities where – demand is sufficiently high to be able to

obtain a high selling price while – being aware of opportunities to obtain

goods and services at low buying prices.• Also known as ‘arbitrage’: purchasing

low and selling high• New opportunities replace existing

companies or drive them out of business.

Attributed to Richard Cantillon, first entrepreneurship economist

• Disrupts existing markets and create new ones

• Disrupts equilibrium • Creates demand • Cannibalises existing

businesses and causes losses in an economy, but overall output is increased.

Model 2: InnovationFirst elaborated by Joseph Schumpeter (1883-1950

• Opportunities are already ‘out there’ waiting to be discovered.

• But the entrepreneur recognises them due to superior knowledge of the market, industry, technology and/or networks.

• The entrepreneur has the advantage of seeing things differently

Model 3: AlertnessJoseph von Mises,

popularised by Kirzner

• Social innovation seeks to satisfy needs unlikely to be satisfied by the market.

• Uses market-based opportunities to address a social problem

• Market-based solution to address a social problem.

• Customers, suppliers or workforce are different• Venture has a social mission be it an

environmental purpose, animal welfare etc. • What are some examples of social

innovations . . .?•

Model 4: Social need

Replace at 2nd pages

Examples of social innovations

• Community-centred planning• Emissions trading• Fair trade• Habitat conservation• International labour standards• Microfinance• Socially responsible investing• Supported employment

Being creative

How can you become more creative? What are some concrete ways you have practised?

?

Developing your entrepreneurial capacity: Four phases

• Phase 1: Background or knowledge accumulation: Entrepreneurs practise the creative search for background knowledge

• Phase 2: The mind incubation process: Subconscious mulls over the tremendous amounts of information

• Phase 3: The idea experience: A bolt out of the blue

• Phase 4: Evaluation and implementation: Reworking of ideas to put them into final form

•Seeking out a wide variety of perspectives on a situation•Enhanced by reading widely, interacting with others, travelling to new places, recording what is learnt and taking the time to research

Phase 1: Background or

knowledge accumulation

•Allowing the subconscious to work through the information collected in Phase 1•Enhanced by engaging in routine activities, regular exercise, play (e.g. board games and puzzles), meditation and reflection

Phase 2: The mind

incubation process

•The ‘eureka factor’ or when the light bulb comes on in cartoons, which can occur at any time•Enhanced by daydreaming about the project, practicing hobbies, working in a relaxed environment, setting aside the problem, and keeping a notebook

Phase 3: The idea

experience

•Requires courage, self-discipline and perseverance•Enhanced by increasing energy levels, knowing the business planning process, testing the idea with smart people and viewing problems as challenges

Phase 4: Evaluation

and implementation

Entrepreneurial imagination and creativity

• To see opportunities, entrepreneurs blend imaginative and creative thinking with a systematic, logical process ability

• Asking ‘what if…?’ and ‘why not…?’.

• Seeing opportunities where others see problems.

The nature of the creative process‘Human creativity [is] the key factor in our

economy and society … we now have an

economy powered by human creativity.

Creativity … is now the decisive source of

competitive advantage’.

Richard Florida

Your creative potential is something that can be developed and improved. Creativity is not some mysterious and rare talent reserved for a select few. It is a distinct way of looking at the world that is often illogical. The creative process involves seeing relationships among things others have not seen.

Exercise: Can you think of the most common ‘idea stoppers’?

• Here are some examples in English. – ‘Naah.’– ‘Can’t’ (said with a shake of the head

and an air of finality).– ‘That’s the dumbest thing I’ve ever

heard.’

• Give some examples in another language!

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Exercise: Can you think of the most common ‘idea stoppers’

• ‘Naah.’• ‘Can’t’ (said with a shake of the head and an air

of finality).• ‘That’s the dumbest thing I’ve ever heard.’• ‘Yeah, but if you did that . . .’ (poses an extreme

or unlikely disaster case).• ‘We already tried that – years ago.’• ‘We’ve done all right so far; why do we need

that?’• ‘I don’t see anything wrong with the way we’re

doing it now.’• ‘That doesn’t sound too practical.’• ‘We’ve never done anything like that before.’

• ‘Let’s get back to reality.’• ‘We’ve got deadlines to meet – we don’t have

time to consider that.’• ‘It’s not in the budget.’• ‘Are you kidding?’• ‘Let’s not go off on a tangent.’• ‘Where do you get these weird ideas?’

How to develop your creativity?

• Lateral thinking – purposefully generate new ideas

• Vertical thinking – following logical steps• Think outside the box – challenge

assumptions• Recognise relationships • Go with the flow• Use your brains Albert Einstein statue

in his birthplace in Ulm, Germany

Lateral and vertical

thinking

breaking out of the

concept prisons of old

ideas

Thinking outside the box

• Understand the problem • Play a child • Play an external observer • Disassemble the problem • Reframe • Imagine the opposite

Recognising relationships

• Seeing new and different relationships among objects, processes, materials, technologies and people

• Look for different or unorthodox relationships among the elements and people around you

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Using your brains

The right brain hemisphere helps understand analogies, imagine things and synthesise information. The left brain hemisphere helps analyse, verbalise and use rational approaches to problem solving.

Ways to develop left- and right hemisphere skills

People are inherently creative• Idea creativity• Material creativity• Organisation creativity• Relationship creativity• Event creativity• Inner creativity• Spontaneous creativity

Creating the right setting for creativity

• Trustful management • Open channels of communication • Considerable contact and communication with

outsiders• Variety of personality types• Willingness to accept change• Enjoyment in experimenting with new ideas• Little fear of negative consequences • The use of techniques that encourage ideas• Sufficient financial, managerial, human, and

time resources

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Innovation and the entrepreneur

Inventive

process

Entrepre-neurial process

• Innovation is the combination of an inventive process and an entrepreneurial process to create new economic value for defined stakeholders’ –Kevin Hindle

The innovation process

• The process by which entrepreneurs convert opportunities (ideas) into marketable solutions.

• The means by which entrepreneurs become catalysts for change.

• Most innovations result from a conscious, purposeful search for new opportunities

Disruptive technologies

Cristensen’s theory of disruptive technologies

• A lower performance or less expensive product that starts at the bottom of the market ultimately displaces the market incumbents.

Four basic types of innovation•Totally new product, service or processInvention

•New use or different application of existing product, service or processExtension

•Creative replication of an existing conceptDuplication

•Combination of existing concepts and factors into a new formulation or useSynthesis

Innovation in action

New Zealand's Gibbs Aquada was designed from the ground up to perform well on land and

in water.

Major misconceptions about innovation

• Innovation is planned and predictable.• Technical specification must be thoroughly

prepared.• Innovation relies on dreams and blue sky ideas.• Bigger projects will develop better innovations.• Technology is the driving force of success.

Follow these principles to learn innovation

• Be action oriented• Make the product, process or

service simple and understandable

• Make the product, process or service customer-based

• Start small

• Aim high• Try/test/revise• Learn from failures• Follow a milestone schedule• Reward heroic activity• Work, work, work

Is climate change so irreversible that entrepreneurs cannot tackle it?

• Entrepreneurs have already created solutions:– protecting against chemical and

nuclear accidents– stemming the spread of disease– stopping disasters and pandemics.

• Do we believe that runaway climate change might defy entrepreneurs’ history of positive innovation?

Innovations that caused global warming and innovations that could save us

Key concepts

(close your books)1. What is the difference between

‘creativity’ and ‘innovation’?2. How many of the ‘principles of

innovation’ can you recall?(There are 10 in all.)

?

Key concepts• Opportunity identification

– Variety of sources, including disruptive technologies• Creativity

– Varying aptitude, but can be developed– Four phases and a range of techniques

• Innovation– Four types and ten principles– Concepts include cradle-to-cradle and social innovation