Chapter 2 – Opportunity Recognition and Design Thinking
Entrepreneurs see ways to put resources and information together in new combinations. They not only see the system as it is, but as it might be. They have a knack for looking at the usual and seeing the unusual, at the ordinary and seeing the extraordinary. Consequently, they can spot opportunities that turn the commonplace into the unique and unexpected. – Mitton (1989, p. 12)
In my opinion, all previous advances in the various lines of invention will appear totally insignificant when compared with those which the present century will witness. I almost wish that I might live my life over again to see the wonders which are at the threshold. – Charles H. Duell, Commissioner, U.S. Office of Patents, 1898-1901 (who has been incorrectly quoted as having said “Everything that can be invented has been invented”)
The significant problems we face cannot be solved at the same level of thinking we were at when we created them. – Albert Einstein
I think there is a world market for maybe five computers. – Thomas Watson, Chairman of IBM, 1943
After completing this chapter you will be able to
- Discuss opportunity recognition concepts and methods as developed and/or advocated by leading thinkers like Drucker, Mitchell, Schumpeter, and Vesper
- Describe what design thinking is
- Apply design thinking to develop and assess new venture ideas
This chapter introduces a sample of perspectives and tools designed to help individuals recognize potential business opportunities. The concept of design thinking is also examined in some detail.
The objective is to help you improve your ability to apply inspiration, ideation, and implementation as part of the design thinking process.
The following is a discussion of entrepreneurship theorists and practitioners who have developed the concept of opportunity recognition. While the tools introduced in the next sections can be applied for a variety of purposes, they are particularly useful for recognizing new venture opportunities.
Opportunity recognition is
the active, cognitive process (or processes) through which individuals conclude that they have identified the potential to create something new that has the potential to generate economic value and that is not currently being exploited or developed, and is viewed as desirable in the society in which it occurs (i.e. its development is consistent with existing legal and moral conditions). (Baron, 2004b, p. 52)
Because opportunity recognition is a cognitive process, according to Baron (2004b), people can learn to be more effective at recognizing opportunities by changing the way they think about opportunities and how to recognize them.
Systematic innovation involves “monitoring seven sources for innovative opportunity” (Drucker, 1985, p. 35). The first four are internally focused within the business or industry, in that they may be visible to those involved in that organization or sector. The last three involve changes outside the business or industry.
- Internally Focused
- The unexpected (unexpected success, failure, or outside events)
- The incongruity between reality as it actually is and reality as it is assumed to be or as it ought to be
- Innovation based on process need
- Changes in industry structure or market structure that catch everyone unawares
- Externally Focused
- Demographics (population changes)
- Changes in perception, mood, and meaning
- New knowledge, both scientific and nonscientific
One of the components of Mitchell’s (2000) New Venture TemplateTM asks whether the venture being examined represents a new combination. To determine this, he suggests considering two categories of entrepreneurial discovery: scientific discovery and circumstance.
- Scientific Discovery
- Physical/technological insight
- New and valuable way
- Circumstantial Discovery
- Specific knowledge of time, place, or circumstance
- When and what you know
The second set of variables to consider are the market imperfections that can create profit opportunities: excess demand and excess supply. This gives rise to the following four types of entrepreneurial discovery.
- Invention I
- Uses science to exploit excess demand (a market imperfection)
- Becomes an opportunity to discover and apply the laws of nature to satisfy excess demand
- Inventions in one industry have ripple effects in others
- Example: invention of airplane
- Circumstances reveal opportunity to exploit excess demand (a market imperfection)
- Not necessarily science-oriented
- Example: airline industry = need for food service for passengers
- Invention II
- Uses science to exploit excess supply (a market imperfection)
- Example: Second most abundant element on earth after oxygen = silicon microchips
- Circumstances reveals opportunity to exploit excess supply (a market imperfection)
- Example: Producer’s capacities to lower prices = Wal-Mart
Schumpeter’s (1934) five kinds of new combinations (see page 13) can occur within each of the four kinds of entrepreneurial discovery (Mitchell, 2000):
- New or improved good/service
- Distinction between true advances and promotional differences
- New method of production
- Example: assembly line method to automobile production, robotics, agricultural processing
- Opening of a new market
- Global context: Culture, laws, local buyer preferences, business practices, customs, communication, transportation all set up new distribution channels
- Example: Honda created a new market for smaller modestly powered motorbikes
- Conquest of a new source of supply of raw materials
- Enhance availability of products by providing at lower cost
- Enhance availability by making more available without compromising quality
- Reorganization of an industry
Murphy (2011) claimed that there was a single-dimensional logic that oversimplified the approach taken to understand entrepreneurial discovery. He was bothered by the notion that entrepreneurs either deliberately searched for entrepreneurial opportunities or they serendipitously discovered them. Murphy’s (2011) multidimensional model of entrepreneurial discovery suggests that opportunities may be identified (a) through a purposeful search; (b) because others provide the opportunity to the entrepreneur; (c) through prior knowledge, entrepreneurial alertness, and means other than a purposeful search; and, (d) through a combination of lucky happenstance and deliberate searching for opportunities.
According to experimentation research, entrepreneurial creativity is not correlated with IQ (people with high IQs can be unsuccessful in business and those with lower IQs can be successful as an entrepreneur). Research has also shown that those who practice idea generation techniques can become more creative. The best ideas sometimes come later in the idea-generation process—often in the days and weeks following the application of the idea-generating processes (Vesper, 1996).
Vesper (1996) identified several ways in which entrepreneurs found ideas:
- Prior job
- Chance event
- Answering discovery questions
Although would-be entrepreneurs usually don’t discover ideas by a deliberate searching strategy (except when pursuing acquisitions of ongoing firms), it is nevertheless possible to impute to their discoveries some implicit searching patterns. (Vesper, 1996, p. 60)
Vesper (1996) categorized discovery questions as follows:
- Search questions, which might prompt venture ideas by placing one’s mind into a mode where the subconscious will work to push ideas into the conscious mind
- What is bothering me and what might relieve that bother?
- How could this be made or done differently that it is now?
- What else might I like to have?
- How can I fall the family tradition?
- Questions based on encounters with a potential customer request, someone else’s idea, or another event
- Can I play some role in providing this product or service to a broader market?
- Could there be a way to do this better for the customer?
- Questions based on evaluative reactions to ideas
- Could I do this job on my own instead of as an employee?
- If people elsewhere went for this idea, might they want it here too?
Vesper (1996) also highlighted several mental blocks to departure. He suggested that generating innovative ideas involved two tasks: to depart from what is usual or customary and to apply an effective way to direct this departure. The mental blocks in the way of departure include the following:
- Perceptual blocks
- difficulty viewing things from different perspectives
- seeing only what you expect to see or think what others expect you to see
- Emotional blocks
- intolerance of ambiguity
- preference for judging rather than seeking ideas
- tunnel vision
- insufficient patience
- Cultural blocks
- a belief that reason and logic are superior to feeling, intuition, and other such approaches
- thinking that tradition is preferable to change
- disdain for fantasy, reflection, idea playfulness, humor
- Imagination blocks
- fear of subconscious thinking
- inhibition about some areas of imagination
- Environmental blocks
- distrust of others who might be able to help
- discouraging responses from other people
- Intellectual blocks
- lack of information
- incorrect information
- weak technical skills in areas such as financial analysis
- Expressive blocks
- poor writing skills
- inability to construct prototypes
Understanding these mental blocks to departure is a first step in figuring out how to cope with them. Some tactics for departure include the following (Vesper, 1996):
- Trying different ways of looking at and thinking about venture opportunities
- Trying to continually generate ideas about opportunities and how to exploit them
- Seeking clues from business and personal contacts, trade shows, technology licensing offices, and other sources
- Not being discouraged by others’ negative views because many successful innovations were first thought to be impossible to make
- Generating possible solutions to obstacles before stating negative views about them
- Using idea generating tricks like
- Considering multiple consequences of possible future events or changes
- Rearranging, reversing, expanding, shrinking, combining, or altering ideas
- Developing scenarios
Design thinking is a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success – Tim Brown, president and CEO (IDEO, 2015, para. 5)
The Hasso Plattner Institute of Design at Stanford University, called the d.school (http://dschool.stanford.edu/), is an acknowledged leader at promoting design thinking. You can download the Bootcamp Bootleg manual from the d.school website at https://dschool.stanford.edu/resources/the-bootcamp-bootleg. The following description of design thinking is from the IDEO website:
Design thinking is a deeply human process that taps into abilities we all have but get overlooked by more conventional problem-solving practices. It relies on our ability to be intuitive, to recognize patterns, to construct ideas that are emotionally meaningful as well as functional, and to express ourselves through means beyond words or symbols. Nobody wants to run an organization on feeling, intuition, and inspiration, but an over-reliance on the rational and the analytical can be just as risky. Design thinking provides an integrated third way.
The design thinking process is best thought of as a system of overlapping spaces rather than a sequence of orderly steps. There are three spaces to keep in mind: inspiration, ideation, and implementation. Inspiration is the problem or opportunity that motivates the search for solutions. Ideation is the process of generating, developing, and testing ideas. Implementation is the path that leads from the project stage into people’s lives (IDEO, 2015, para. 7-8).