Finding an entrepreneurial opportunity and persisting until your business becomes successful is not easy and involves risk. But whether you start a new venture because you came up with an idea to solve an everyday problem, or whether you are deliberately searching for an opportunity because you want to start your own business, doing the research beforehand will help mitigate risk and determine the venture’s likelihood of success.

What is entrepreneurial opportunity?

Aspiring entrepreneurs can come up with ideas all day long, but not every idea is necessarily a good idea. For an idea to be worth pursuing, we must first determine whether the idea translates into an entrepreneurial opportunity. Entrepreneurial opportunity is the point at which identifiable consumer demand meets the feasibility of satisfying the requested product or service. In the field of entrepreneurship, specific criteria need to be met to move from an idea into an opportunity. It begins with developing the right mindset—a mindset where the aspiring entrepreneur sharpens their senses to consumer needs and wants, and conducts research to determine whether the idea can become a successful new venture.

In some cases, opportunities are found through a deliberate search, especially when developing new technologies. In other instances, opportunities emerge serendipitously, through chance. But in most cases, an entrepreneurial opportunity comes about from recognizing a problem and making a deliberate attempt to solve that problem.

Theories of Opportunity

In the twentieth century, economist Joseph Schumpeter stated that entrepreneurs create value “by exploiting a new invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products, by reorganizing an industry” or similar means.

According to Schumpeter, entrepreneurial innovation is the disruptive force that creates and sustains economic growth, though in the process, it can also destroy established companies, reshape industries, and disrupt employment. He termed this force creative destruction. Schumpeter described business processes, including the concept of downsizing, as designed to increase company efficiency. The dynamics of businesses advances the economy and improves our lifestyle, but the changes (sometimes through technology) can make other industries or products obsolete.

He identified these methods for finding new business opportunities:

• Develop a new market for an existing product.
• Find a new supply of resources that would enable the entrepreneur to produce the product for less money.
• Use existing technology to produce an old product in a new way.
• Use an existing technology to produce a new product.
• Finally, use new technology to produce a new product.

We can understand theories of opportunity as related to supply or demand, or as approaches to innovations in the use of technology. The first situation is a demand opportunity, whereas the remaining situations are supply situations. The final three incorporate technological innovations. Supply and demand are economic terms relating to the production of goods.

• Supply is the amount of a product or service produced. Demand is the consumer or user desire for the outputs, the products, or services produced. We can use the ideas from Schumpeter to identify new opportunities. Our focus is on identifying where the current or future supply and the current or future demand are not being met or are not aligned, or where technological innovation can solve a problem.

Identifying Opportunity

A good place to begin your entrepreneurial quest is to read as much as you can, especially with new technology developments, even outside the field you work in. Remember that as technologies start to emerge, we often do not yet understand their commercial potential.

Identifying consumer needs may be as simple as listening to customer comments such as “I wish my virtual orders could be delivered more quickly.” or “I can never seem to find a comfortable pillow that helps me sleep better.” You can also observe customer behavior to gather new ideas. If you are already in business, customer feedback can be a simple form of market research.

Drivers of Opportunity

Some recent drivers for change in the entrepreneurial space include new funding options, technological advancements, globalization, and industry-specific economics.

• Increased access to capital through social media sources like crowdsourcing is having a significant impact on entrepreneurship in that it enables underserved people and communities—such as women, veterans, African Americans, and Native Americans, who otherwise might not be able to start and own a business—to become entrepreneurs.
• Technological advancements continue to provide new opportunities, ranging from drones to artificial intelligence, advancements in medical care, and access to learning about new technology.
• Increased globalization drives entrepreneurship by allowing importing and exporting to flourish. Globalization also helps spread ideas for new products and services to a world market instead of a local or regional market. Combined with the Internet and computer technology, even small businesses can compete and sell their products around the globe.
• Economic factors could include a strong economy that fuels other businesses. For example, growth in the housing market fuels growth for many housing-related products and services, ranging from interior decorating to landscaping as well as furniture, appliances, and moving services.

How do you screen for opportunities?

In order to discover how reasonable your business idea is, you need to research many aspects of the concept. Opportunity screening is the process by which entrepreneurs evaluate innovative product ideas, strategies, and marketing trends. Focusing on the viability of financial resources, the skills of the entrepreneurial team, and the competition, this screening helps determine the potential for success in pursuing the idea and can help refine planning.

Common Sources of Research Data

As you embark on researching whether your idea is viable, a good place to start is with the sources recommended by the US Small Business Administration.

• For example, US Census data provides insight into the population in your market area, such as the metropolitan statistical area data, as well as statistics on the economy and trade. For most entrepreneurs, research will also include asking potential customers, specifically your target customers, questions about products they like and don’t like, how a product or service could be improved, how the customer buying experience could be improved, and even where customers might go to purchase products and services instead of your business.

You will likely begin with secondary research—that is, data that are already available through some published source. There may be articles, research reports, or reliable Internet sources where you can research information about your industry, products, and customers. Secondary research has the advantage of being quickly available. However, secondary research often is not specific enough to provide all the details you need to know about your idea.

•  For example, secondary research (this is research that has been developed from primary sources that is almost as useful as primary, direct research) might report how often consumers purchase shampoo, where they purchase shampoo, and what brands of shampoo they purchase. But if you want to understand the details of how people shampoo—for example, whether they shampoo then repeat, use a separate conditioner, or use a combination shampoo/conditioner product—then you would want to conduct primary research. 

Primary research is needed when secondary research does not address the questions you want to explore while investigating your business idea. Primary research gathers data that do not yet exist. The information is specific to the business, product, or consumer. Some of the methods used to gather primary research data include developing a survey questionnaire, using secret shoppers, or using focus groups. Survey questionnaires can be simple, such as a customer comment card included on a receipt, or extensive, including dozens of detailed questions.

Researching and Verifying the Entrepreneurial Opportunity

Whether you start your own business, buy an existing business, or purchase a franchise, researching the industry, your target market, and examining the economic and funding options are all part of performing due diligence. Due diligence is the process of taking reasonable steps to verify that your decisions are based on well-researched and accurate information. It means thoroughly researching potential pursuits, asking detailed questions, and verifying information.

• Different industries have different meanings for due diligence. For example, in the legal industry, due diligence involves understanding the terms of a transaction and contract. In business finance, due diligence refers to raising capital or the work involved in merger and acquisition transactions. In the entrepreneurship field, research is necessary to verify whether the idea is really an opportunity, considering the entire process of starting the venture and funding the venture.
• One of the more common questions entrepreneurs must ask is whether now is a good time to start a business. This question of timing is addressed in the investigation to determine whether the idea is merely interesting or fits the criteria of being an entrepreneurial opportunity.
• An idea can move to a recognized opportunity when the following criteria are met:
  • Significant market demand: Significant market demand means that the idea has value by providing a solution to a problem that the target market is willing to purchase. This value can result from a new product or service that fills an unmet need, a lower price, improved benefits, or greater financial or emotional value. This value can also result from capitalizing on “nonconsumption.”
  • Significant market structure and size: Significant market structure and size involve growth potential and drivers of demand for the product or service. Barriers to entry are manageable, meaning that entering the industry or creating a new industry is not exceptionally difficult. If the industry already exists, there must be room within the industry for your venture to gain market share by providing a value that creates a competitive advantage.
  • Significant margins and resources to support the venture’s success: Significant margins and resources involve the potential for achieving profit margins at a high-enough level that the work of starting the venture (including the entrepreneur’s time and energy) is worth the risks involved. If the operating costs are too high and the profit margin is too low, it is important to analyze whether the idea is truly feasible. Significant margins also include the capital requirements—how much money is needed to start the venture—as well as the technical requirements, the complexity of the distribution system, and similar resources.

A good starting point in your opportunity screening research is to begin learning about the demographics of the market you are targeting (your target market). Demographics are statistical factors of a population, such as race, age, and gender.

• The government collects census data demographics, which can provide a snapshot of the population in your city or town. Census data include the total population, a breakdown of the population by age, gender, race, and income, and some other useful data.
• After analyzing demographic data, the entrepreneur can then develop and conduct some basic research, which could range from observing customers to shopping at potential competitors. Entrepreneurs can also uncover business opportunities by asking questions of, and listening to, their customers, if they are working within the industry or looking for new entrepreneurial opportunities with a similar target market. Sometimes an easy and inexpensive customer survey can uncover problems and opportunities. Entrepreneurs can also gather information using their social media accounts and customer sales records.

What should you do if your idea does not fit these criteria—significant market demand, market structure and size, and margins and resources—and your passion to develop the idea into an opportunity and new venture is still strong? This is also part of the entrepreneurial process. You, as the lead entrepreneur, are charged with the task of identifying the obstacles to turning your idea into an opportunity and what actions are necessary to overcome these. This could mean adjusting the idea, adding new features, or even removing some features. Adding new features should focus on increasing the value or benefit offered by the product or service, or creating a tighter alignment with the needs of the target market. Removing features could decrease the production costs or even the complexity in using the product.

Industry Sources of Opportunity

Your research process should include learning everything you can about the industry you plan to enter. This will help you to identify opportunities. The industry analysis contains important information including a brief description of the industry and its characteristics, the competitive landscape, along with products, operations, and technology.

• Industry sources reveal knowledge about a specific industry from the perspective of identifying unmet needs or areas for improvement within that industry.
• Almost every industry is worth investigating from the perspective of identifying unused resources or extra resources that could be restructured for what are known as a shared economy or a gig economy.
  • A shared economy considers that there are times when an asset is not in use.
  • A gig economy is an open or fluid market system with temporary positions made up of independent short-term workers.

Consumer Sources of Opportunity

Consumer sources of opportunities relate to changes in our society, such as new habits or behaviors brought about by exposure to new information.

What is competitive analysis?

Conducting a competitive analysis helps you focus your idea and identify your unique selling proposition and competitive advantage.

A competitive analysis should provide the entrepreneur with information about how competitors market their business and ways to penetrate the market by entry through product or service gaps in areas that your competitors do not serve or do not serve well. More importantly, competitive analysis helps the entrepreneur develop a competitive edge that will help create a sustainable revenue stream.

Competitive Analysis Grid

The competitive analysis grid should identify your competitors and include an assessment of the key characteristics of the competitive landscape in your industry, including competitive strengths and weaknesses and key success factors.

Here’s what it looks like:

Competitive Analysis Grid

Key Characteristics	Your Comany	Competitor A	Competitor B
Strengths
Weaknesses
Product Quality Level
Price Point
Location
Promotion

As you complete an analysis for your venture’s competitors, identify what contributes to the competitor’s success. In other words, why do people purchase from the company? Some possible reasons include no nearby competitors, lower prices than competitors, a wider variety of products, offering services not offered elsewhere, or branding and marketing that appeals to the target market. Your analysis should inform you of a combination of key success factors within the industry (what it takes to be successful in the industry) and of what your competitors are not offering that is valued by your target market.

SWOT Analysis

Another frequently used tool is a SWOT analysis (strengths, weaknesses, opportunities, and threats), which focuses on analyzing your venture’s potential and builds on the knowledge gained from the competitive analysis grid and the three circles.

• You will need to identify the strengths your venture will need to support the competitive advantage identified through the competitive analysis tools. The weaknesses can be identified based on your current and foreseeable expectations. 
• For a new venture, the opportunities and threats sections are based on current factors in the external environment that come from your research. 
• In this context, opportunities are facts, changes, or situations within the external environment that could be favorably leveraged for the venture’s success.

Here’s what it looks like:

Another tool that can be used to analyze opportunities and threats is called PEST analysis (political, economic, societal, technology). In this analysis, we identify issues in each of these categories.

Here’s what it looks like:

Three Circles Tool

Another tool that can be used in competitive analysis is the three circles tool. The goal is to identify competitors’ strengths and competitive advantages with any overlaps among competitors. Then, you would identify values or features not offered by competitors. This gap in value or offered services helps to identify your unique selling proposition and thereby your competitive advantage.

Here’s what it looks like:

The unique selling proposition is important to the marketing plan and is often used as a slogan. It should also align with the value communicated by the product or company brand. These concepts are different from your venture’s competitive advantage; the competitive advantage describes your venture’s unique benefit, which supports growth of the venture, whereas the unique selling proposition describes the product or service itself, rather than the venture. Although these concepts are different, there should be alignment between the concepts.The competitive advantage results from the analysis of the strengths and unique aspects of a venture, an analysis of the industry, including competitor’s advantages, customer needs, and what the venture provides within this competitive landscape. The unique selling proposition should support the competitive advantage, just as the competitive advantage needs to support the unique selling proposition.