Where Einstein Meets Edison

Eyes Wide Open: When Do New Entrepreneurial Opportunities Emerge?

Eyes Wide Open: When Do New Entrepreneurial Opportunities Emerge?

Oct 19, 2010

It’s hard to go to a social event anywhere on campus at MIT without finding several students who want to start their own company. Yet many would-be entrepreneurs never actually start their firm because they lack a breakthrough idea. Others do manage to put together an entrepreneurial team, but in the end, they fail to convince investors (or the 100K jury) of the potential of their business plan. In a previous article (“The Four Forces of Entrepreneurial Opportunities”), I proposed a model in order to understand why entrepreneurial opportunities exist. In this article, I use this model in order to predict the emergence of new opportunities.

Imagine a world where at all times, every person or organization could easily purchase a product or service that is perfectly fitted to her current needs, that has the best possible design and features, and at the lowest possible cost, simply by using the most appropriate technology. This is not the world we live in. In fact, there are good reasons why this cannot be the world we live in: the world is not only extremely diverse and complex, but it is also constantly changing, making it extremely difficult—if not impossible—to ever reach a stable equilibrium. Is this a tragic but necessary consequence of our expulsion from the Garden of Eden? Perhaps it is for some, but not for all. This constant imperfection and complexity, continuously amplified by change, constitutes a firm ground on which entrepreneurs can build their success. In fact, keeping in mind each of the Four Forces of Entrepreneurial Opportunities could potentially help uncover promising business ideas.

Technological Evolution

The emergence of new scientific knowledge and of a new technology can provide lucrative business opportunities. Not only can new technologies make incumbent business models obsolete, but they can also lead to radically new products and services targeting needs that could not be addressed in the past. Many authors have noted that universities are not only the locus of more and more patenting, but that they are also the source of ever more fast-growing companies (Etzkowitz and Leydesdorff 2000; Shane 2004). The emergence of new technological “platforms” (Gawer and Cusumano 2002), such as the smart phone, provides important opportunities for entrepreneurs to invent new products and services around the new platform.

Organizational Environment

Shift in the organizational environment can also present major opportunities. Researchers have found that a window of opportunity appears for entrepreneurs at a certain time of the industry life-cycle. This prime moment for entry into the industry comes after the pioneers have done the hard work of proving that a need exists, but before the different stakeholders agree on what the best way to meet this need is (Christensen, Suarez, and Utterback 1998). In several industries, companies might actively encourage or even finance entrepreneurs who try to innovate using their technology. The legendary role of the Intel Architecture Lab in fostering the emergence of a variety of innovative complementing companies in the 1990’s –around the USB standard for instance— remains a case in point (Gawer and Cusumano 2002).

Demand Characteristics

Shifts in demand are a third major source of entrepreneurial opportunities. Trends in the food service industry such as products that are “low fat,”“organic,” or “fair trade” create opportunities for new types of restaurants and retailers. Consumers’ adoption of a new technology can also present an opportunity to invent new ways to supply existing needs on the new medium. For instance, the switch from VHS to DVD technology opened the door for specialized rental companies, like Netflix, to focus their efforts on DVD rentals for early adopters before Blockbuster entered the DVD market (Shih, Kaufman, and Spinola 2007). The same type of opportunity emerged as the use of internet became more ubiquitous: new companies – such as Amazon.com – could be built to serve existing needs on the web. MIT Sloan Professor Eric von Hippel has argued that the emergence of innovative communities of users (for instance in extreme sports) provides opportunities for suppliers of product design toolkits (Von Hippel 2005).

Institutional Context

Laws, regulations, and policies are not constant. In changing, they can generate important business opportunities. For instance, in accordance with its 1979 Employee Retirement Income Security Act, the US Department of Labor allowed pensions to invest in venture capital. This change led to a sharp increase in the funds available for venture capital (Kortum and Lerner 2000), which, in turn, provided a major opportunity for entrepreneurs in the VC industry. Laws and regulations that make alcohol and tobacco consumption more costly and socially marginalized have been a source of opportunities for entrepreneurs selling addiction treatments. Similarly, the current push in many countries to tax pollution in order to support green energies is often aimed at encouraging entrepreneurship in this area.

Entrepreneurial opportunities do not emerge randomly. On the contrary, their emergence is at least partly predictable. Shifts in technologies, demand, organizational population, and policies are major sources of entrepreneurial opportunities that might be worth monitoring. For those at MIT and beyond who are looking for a promising business idea, it is not enough to keep one’s eyes wide open: it is essential to look at the right place.

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References

Christensen, Clayton M., Fernando F. Suarez, and James M. Utterback. 1998. Strategies for Survival in Fast-Changing Industries. Management Science 44, no. 12-Part-2 (December 1): S207-220.

Etzkowitz, Henry, and Loet Leydesdorff. 2000. The dynamics of innovation: from National Systems and “Mode 2” to a Triple Helix of university-industry-government relations. Research Policy 29, no. 2 (February): 109-123.

Gawer, A., and M. A. Cusumano. 2002. Platform leadership: How Intel, Microsoft, and Cisco drive industry innovation. Harvard Business School Press.

Kortum, S., and J. Lerner. 2000. Assessing the Contribution of Venture Capital to Innovation. RAND Journal of Economics 31, no. 4: 674-692.

Shane, S. A. 2004. Academic Entrepreneurship: University Spinoffs and Wealth Creation. Edward Elgar Publishing.

Shih, W., S. Kaufman, and D. Spinola. 2007. Netflix. Harvard Business School case study: 9–607.

Von Hippel, Eric A. 2005. Democratizing Innovation. SSRN eLibrary (April).

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