Opportunity Recognition for Entrepreneurial Development

Opportunity Recognition for Entrepreneurial Development

In basic terms, when it comes to entrepreneurship, the relevance of opportunity recognition cannot be overstated. Indeed, this remains the very fist step in the entrepreneurial process. Amongst other things, this text concerns itself with prior knowledge and experience, active search and alertness and network ties and the role they play in opportunity recognition.

Opportunity Recognition: An overview

Opportunity recognition is defined by Longenecker et al., (2011) as "identification of potential new products or services that may lead to promising businesses." According to Baron and Shane (2007), "….opportunity recognition has long been a central concept in the field of entrepreneurship." This is more so the case given that the same is regarded one of the most vital steps of the entrepreneurial process. It is only after an entrepreneur has recognized a particular opportunity in the marketplace that he or she can be able to act on the same. In most cases, it is the desire for profits that motivates entrepreneurs to exploit the opportunities existing in the marketplace. Opportunity recognition is however influenced by a number of factors. These factors which are highlighted in detail in the section below include but they are not limited to network ties, the level of alertness and active search as well as prior knowledge and experience.

Factors Influencing Opportunity Recognition

Entrepreneurial alertness according to Longenecker et al., (2011) can be defined as "readiness to act on existing, but unnoticed, business opportunities." This view in the opinion of the authors effectively means that entrepreneurs are not the actual originators of business ideas. Instead, they tend to source most of their ideas from the marketplace based on their being alert to the various unexploited business opportunities available. For instance, if there exists a specific opportunity for the introduction of a particular product in a certain market, only those entrepreneurs who are the first to identify and ready to exploit such an opportunity benefit. As Baron and Shane (2007) note, previous studies have indicated that the most successful entrepreneurs tend to be active seekers of information. In one particular study, it was found out that successful entrepreneurs were more likely than not to utilize unique sources of information like specialized publications in their search for opportunities as opposed to the other more public sources of information such as newspapers and magazines (Baron and Shane 2007). In their own words, the Baron and Shane (2007) are of the opinion that in a way, "these and other findings indicate that actively searching for information is an important factor in the recognition of many opportunities by entrepreneurs…"

When it comes to network ties, it can be noted that the same also has a significant impact when it comes to opportunity recognition. As Patzelt and Brenner note (2008), "social networks provide channels for the flow of private information." It hence follows that an entrepreneur who happens to be outside the "channel" misses out on crucial information in relation to the available opportunities in the market. Networks in this case can include those the entrepreneur associates with closely such as his family members, business partners or even close friends. When a network in this case is made up of people who are particularly close to the entrepreneur, such a network can be said to be strong. On the other hand, an entrepreneur's network could also include competitors, suppliers etc. Though there exists some exceptions, the ties exhibited in the second instance are often weak. In a way, the most viable business opportunities often have significant returns on investment. Examples in this case include undervalued resources, inefficiencies in the industry etc. Network ties aid in both the screening as well as distribution of information. It can also be noted that when network ties extend to providers of resources, entrepreneurs have their ability to capitalize on opportunities enhanced significantly. However, of key importance to opportunity recognition in this case is the nature of the network ties. In basic terms, entrepreneurs stand to gain more from available opportunities when the ties under consideration are strong. Such ties in this case may be characterized by amongst other things mutual confiding, shared history, frequent interaction etc.