Entrepreneurship

Chapter 5 IDENTIFYING ENTREPRENEURIAL OPPORTUNITY

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Chapter Outline
• 5.1 Entrepreneurial Opportunity
• 5.2 Researching Potential Business Opportunities
• 5.3 Competitive Analysis
Figure 5.1

Chris Johnson, CEO and founder of California-based company Rapid Brands, invented the Rapid Ramen Cooker and has since
grown his offerings to a line of successful products. (credit: photo provided by Rapid Brands Inc.)
Learning Objectives
• 5.1 Entrepreneurial Opportunity
• Define entrepreneurial opportunity
• Discuss Joseph Shumpeter’s theories of opportunity
• Identify key drivers of opportunity
Figure 5.2

Schumpeter believed that entrepreneurs create value in an economy. (credit: Joseph Alois Schumpeter, ca. 1910: HUGB
S276.90 p (2), olvwork369436. Harvard University Archives)
Figure 5.3

(a) Spanx, a new product that was created to solve an everyday problem, was invented by (b) Entrepreneur Sara Blakely (far
right). (credit (a): “Spanx” by Mike Mozart/Flickr, CC BY 2.0; credit (b): “Ed Bastian and Sara Blakely at the Fast Company
Innovation Festival” by Nan Palmero/Flickr, CC B 2.0)
Feature Box
Entrepreneur in Action: How Spanx Founder Developed Resilience
and Persistence
• Was Blakely’s idea a demand or a supply idea?
• What industry information would Blakely need as she was researching
this idea?
Discussion Questions
1. Explain the difference between an idea and an entrepreneurial
opportunity. Why is it important to recognize if your idea is truly an
entrepreneurial opportunity or only an idea?
2. Is now a good time to start a business? Why or why not?
Learning Objectives
• 5.2 Researching Potential Business Opportunities
• Describe opportunity screening
• Identify common sources of research data
• Explain how to research and verify business opportunities
• Identify industry and consumer sources of opportunities
Figure 5.4

When these criteria are met, an idea is recognized

as an opportunity. (attribution: Copyright Rice
University, OpenStax, under CC BY 4.0 license)
Feature Box
Work It Out: T-Shirt Startup
• What would be the theme?
• How much would you charge?
• Where would you sell the shirts?
• What are the expected sales of the business?
• What are the resources needed to get started?
Figure 5.5

SpaceX operations are centered in these headquarters. (credit: “Iridium-4 Mission (25557986177)” by Official SpaceX
Photos/Wikimedia Commons, CC0 1.0)
Feature Box
Entrepreneur in Action: Elon Musk’s SpaceX
• What short-term and long-term considerations are necessary in the
project?
• As the concept will take twenty years of satellite development, how
can technological changes be incorporated into the development of
the idea?
• Given the description of an entrepreneurial opportunity, does this
idea fit that definition?
Feature Box
Are You Ready?: Getting a License or Permit to Start a Business
• Select a business in a regulated industry and research what would be
needed to start the venture in a specific locale.
Ten Reasons for Small Business Failure
Reason Description
Low sales Entrepreneurs may have overestimated sales, assuming they could take sales away
from established competitors.

Lack of experience Running a business is hard, and a new business can be especially challenging, as it is
difficult to prepare adequately for the unexpected.

Insufficient capital When calculating how much money you will need to start your new business venture,
be sure to account for the time it will take before your business breaks
even and be sure also to allow for some contingency funds for when the unexpected
happens.

Poor location For some types of businesses, location is critical. Of course, location may be less
important for a home-based business and not at all important for an Internet business.

Table 5.1
Understanding some of the factors that lead to business failure can help you be aware of those as you research your idea and
opportunity.
Ten Reasons for Small Business Failure (continued)
Reason Description

Poor inventory Too much inventory results in the business becoming cash-strapped and unable to buy
management advertising or other important goods and services.

Overinvestment in Especially when starting a business, it is usually less expensive to lease or purchase
fixed assets used equipment, thereby saving cash for meeting operational expenses.

Poor credit Start your venture small and limit the amount of money you need to borrow. Work
arrangement with your banker from the beginning by sharing your business plan and vision for the
management business with the banker and, most important, show that you are proactive in planning
for when you will need to borrow money.

Personal use of The owner should pay him/herself a minimal salary and not dip into business funds. If
business funds the business has done well, the owner will earn additional funds at the end of the year.

Table 5.1
Understanding some of the factors that lead to business failure can help you be aware of those as you research your idea and
opportunity.
Ten Reasons for Small Business Failure (continued)
Reason Description
Unexpected growth Surprisingly, some businesses fail because the business owner cannot manage growth.
Growing a new venture, especially if the growth is at a higher rate than expected, can
create surprising challenges. For example, if creating a product, you need to consider
the capacity of the factory where you are producing the product. If you are at 100
percent capacity and your orders increase, you will need to think about what actions
can support this increase in demand. If you cannot meet the demand, you will have
unhappy customers and negative publicity that will reflect negatively on your
leadership and managerial skills. Your lack of planning for this surge in sales may open
opportunities for someone else to start a competing business.

Competition Many small business owners underestimate their competition. Remember, if there is
money to be made, there will be competition! Larger competitors can beat you every
day of the week on price, so find another way to challenge competitors.

Table 5.1
Understanding some of the factors that lead to business failure can help you be aware of those as you research your idea and
opportunity.
Feature Box
What Can You Do?: Why Small Businesses Fail
• Given the preceding reasons for small business failure, what can be
done to head off such failure?
• Why is it necessary to assemble a team of professional advisors to
address financial, personnel, legal, accounting, and other business
issues?
• Why is it vital to identify suppliers and personnel to be able to provide
a product or service?
• What factors are important when considering whether a product
should be manufactured internally or outsourced to a third party?
Figure 5.6

Bee Love products are part of a social entrepreneurship venture. Founder Palms Barber researched the opportunity carefully
and has found success. (credit: “Bee Love” by Alisha McCarthy/Flickr, CC BY 4.0)
Figure 5.7
This graph compares average annual
hours worked by country. It does not
distinguish between full-time and part-
time employment. (attribution: Copyright
Rice University, OpenStax, under CC BY
4.0 license)
Figure 5.8

These tiny homes cost as little as $10,000 to build and come complete with one or two bedrooms, a small kitchen, and bath.
(credit: photo provided by Veterans Community Project)
Feature Box
Entrepreneur in Action: Vestergaard
• Apply the concepts of supply and demand in describing LifeStraw
from the perspective of an entrepreneurial opportunity.
• What are three drivers that support the creation of LifeStraw?
Discussion Questions
3. If you were thinking about starting a clothing store for teens and
young women in your hometown, what census information do you
think would be useful to you?
4. What new patterns or behaviors have you noticed within your
society or the country’s society?
5. What unused resources are present in your own life that could be
translated into a shared economy idea for a new venture?
6. What spin-off ideas can you think of that support a gig economy?
For example, what services or products might gig employees value
or gig employers value?
Learning Objectives
• 5.3 Competitive Analysis
• Understand the elements of a competitive analysis
• Describe tools you can use to refine and focus your planning (three circles,
SWOT, PEST)
• Recognize social media’s role in saving time and money on research
• Understand how a business model helps determine the feasibility of an
opportunity
Competitive Analysis Grid for Sid’s Cycle Shop in Branson, Missouri
Key Characteristics Sid’s Cycle City Cycle SpokeMasters Target
Strengths Product knowledge, Repair service High quality, Price, hours (open
repair service top brands seven days per week
and online)
Weaknesses Limited selection Poor customer Pricing, no entry- Low-end quality, no
service level products repair facilities
Product quality level Low-middle Middle-high High-end Entry-level
Price point Middle Middle-high High price Lowest price
Location of the Suburban strip-mall Outskirts of town on Downtown side Branson Mall
business on busy highway route 280 street
Promotion Weekly ad in local Advertising in local Sponsors major bike Advertises online
newspaper, some paper during race in area, and in Sunday
radio and season, Internet, social newspaper
Internet/social Internet/social media (seasonally),
media media Internet)

Table 5.2
This competitive analysis grid captures some of the main aspects of competitors within a given market.
Figure 5.9

A SWOT analysis can be used to

identify the strengths,
weaknesses, opportunities, and
threats of a potential
entrepreneurial opportunity.
(attribution: Copyright Rice
University, OpenStax, under CC
BY 4.0 license)
Feature Box
Work It Out: Using SWOT Analysis to Evaluate Entrepreneurial
Opportunity
• If you were starting a new business venture, what strengths would
you be able to leverage to help your business be successful?
• Provide some examples of personal or professional weaknesses an
entrepreneur might face when starting a new business.
• Discuss three occurring events such as new laws and regulations,
changes in consumer tastes and preferences, or developing new
technologies that could provide business opportunity for a new
business venture.
Figure 5.10

A PEST analysis can help identify opportunities and threats that can be used in a SWOT analysis. (attribution: Copyright Rice
University, OpenStax, under CC BY 4.0 license)
Figure 5.11

The three circles competitive analysis helps

to identify where there is overlap and where
there may be a gap in the market that a new
venture could fill. The overlaps identify
points of parity, the areas where competitors
offer the same value with the important
identification of the areas of unmet customer
needs and how unique your competitive
advantage is within the industry. (attribution:
Copyright Rice University, OpenStax, under
CC BY 4.0 license)
Figure 5.12

A business model has four components: the offering, customers, infrastructure, and financial viability. (attribution: Copyright
Rice University, OpenStax, under CC BY 4.0 license)
Feature Box
Are You Ready?: Writing a Customer Value Proposition
• Start with a headline-style statement that describes how your offering
benefits the customer.
• Provide a few sentences or a brief paragraph that explains the offering
in more detail. Be sure to make clear what the offering is, who the
customer is, and why you are offering it.
• Consider including a bulleted list or checklist highlighting 3–5 features
of the product or benefits the customer will receive.
• If possible, add a graphic that engages interest or reinforces the idea.
Feature Box
Work It Out: Researching Target Markets with Census Data
Include the target market’s:
• Disposable income. You might ask whether the target market has
sufficient disposable income to purchase this product.
• Demographics
• Psychographics (the combination of buying personality behaviors and
demographics)
• How you as the entrepreneur could reach this target market.
Discussion Questions
7. What are some of the reasons for business failures? If you were
starting a business, what are some actions you could take to
increase your potential for success?
8. Many entrepreneurs like Chris Johnson, who invented the ramen
noodle cooker and Palms Barber had ordinary problems they were
trying to solve. What are some examples of ordinary problems you
could solve if you could invent a product?
9. How do social enterprises like Bee Love help the community? What
problem was Palms Barber trying to solve? What problems did the
company end up solving?
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