The Real World

Great companies are built using ideas and entrepreneurial creativity Yet while the metaphor of a carpenter or mason at work is useful, in real­ity the process is more like the collision of particles in the process of a nuclear reaction, or like the spawning of hurricanes over the ocean. Ideas interact with real-world conditions and entrepreneurial vision at a point in time. The product of this interaction is an opportunity around which a new venture can be created. Small businesses sometimes lose sight of this entrepreneurial chemistry and stay small in an attempt to control their environment. In reality, the business environment in which an entrepreneur launches his or her venture is usually fixed and cannot be altered significantly.

Spawners and Drivers of Opportunities

In a free enterprise system, opportunities are spawned when there are changing circumstances, chaos, confusion, inconsistencies, lags or leads, knowledge and information gaps, and a variety of other vacuums in an industry or market.

Changes in the business environment and, therefore, anticipation of these changes are so critical in entrepreneurship that constant vigilance for changes is a valuable habit. It is thus that an entrepreneur with cred­ibility, creativity, and decisiveness can seize an opportunity while oth­ers study it.

Opportunities are situational. Some conditions under which oppor­tunities are spawned are entirely idiosyncratic, while at other times they are generalizable and can be applied to other industries, products, or services. In this way, cross-association can trigger in the entrepreneur­ial mind the crude recognition of existing or impending opportunities. It is often assumed that a marketplace dominated by large, multibillion-dollar players is impenetrable by smaller, entrepreneurial companies. After all, how can you possibly compete with entrenched, resource-rich, established companies? The opposite can be true for several reasons. It can take years or more for a large company to change its strategy, and even longer to implement it—often ten years or more to change the cul­ture enough to operate differently. For a new or small company, ten or more years is forever. When Cellular One was launched in Boston, giant NYNEX was the sole competitor. From all estimates NYNEX built twice as many towers (at $400,000 each) and spent two to three times as much on advertising and marketing, in addition to having a larger head count. Yet Cellular One grew from scratch to $100 million in sales in five years and won three times as many customers as NYNEX. What made this substantial difference? It was an entrepreneurial management team at Cellular One.

Some of the most exciting opportunities have actually come from fields the conventional wisdom said are the domain of big business: tech­nological innovation. The performance of smaller firms in technologi­cal innovation is remarkable—95 percent of the radical innovations since World War II have come from new and small firms, not the giants. In fact, another study from the National Science Foundation found that smaller firms generated twenty-four times as many innovations per research and development dollar versus firms with ten thousand or more employees.2

There are many exciting opportunities in plain vanilla businesses that might never get the attention of venture capital investors. The rev­olution in microcomputers, management information systems (MIS), and computer networking had a profound impact on a number of busi­nesses that had changed little in decades. The used-auto-wreck and used-auto-parts business is one good example. The team at Pintendre Auto, Inc., saw a new opportunity in this field by applying the latest computer and information technology to a traditional business that had relied on crude, manual methods to track inventory and find parts for customers.3 In just three years, they built a business with $16 million in sales.

Technology and regulatory changes have profoundly altered and will continue to revise the way we conceive of opportunities. Cable televi­sion with its hundreds of channels came of age in the 1990s and brought with it new opportunities in the sale and distribution of goods from infomercials to shopping networks to pay-per-view. The Internet has created an even more diverse set of opportunities in sales and distribu­tion, most notably Amazon.com, Priceline, and eBay.

Consider the following examples of vacuums in which opportunities are spawned:

Deregulation of telecommunications and the airlines led to the for­mation of tens of thousands of new firms in the 1980s, including Cel­lular One (now Cingular) and Federal Express.

Microcomputer hardware in the early 1980s far outpaced the devel­opment of software. The industry, however, was highly dependent on software, leading to aggressive efforts by IBM, Apple, and oth­ers to encourage software entrepreneurs to close this gap. The les­sons learned from this experienced translated to the PDA industry, which is expected to grow to $17 billion by 2007. Thousands of soft­ware products have been developed, and PDA hardware is rapidly evolving to integrate with cellular hardware and technology.

Many opportunities exist in fragmented, traditional industries that may have a craft or mom-and-pop character and where there is lit­tle appreciation or know-how in marketing and finance. Such possi­bilities can range from fishing lodges, inns, and hotels (Holiday Inn Express) to cleaners/laundries (Zoots), hardware stores (Home Depot), pharmacies (CVS), waste management plants (Waste Man-agment Corp.), flower shops (Kabloom), preschool education (KinderCare), and auto repairs (Jiffy Lube). But no industry faces more challenges than music. There is a proliferation of channels through which consumers access music. New carriers are coming to market DVD Audio and Super Audio CD and, in the longer term, flash memory. Control software (DRM, encryption, compression, etc.) and access technologies (broadband Internet, mobile comput­ing) are a threat to old thinkers and an opportunity to entrepreneurs. The value chain is being violently disrupted. Consider the possibili­ties (probabilities!): virtual record labels, online radio, digital down­loads, file sharing, and subscription services are just a few of the growing new business models.

In our service-dominated economy (where 70 percent of businesses are service businesses, versus 30 percent just twenty-five years ago), customer service, rather than the product itself, can be the critical success factor. The Carlson Marketing Group's4 annual brand sur­vey found that brand loyalty has decreased by 25 percent in 2003. Yet the same survey found that those organizations that provided a good experience for their customers over various channels had loy­alty levels 33 percent higher than the norm. Can you think of your last "wow" experience with exceptional customer service?

Sometimes existing competitors cannot, or will not, increase capac­ity as the market is moving. For example, in the late 1970s, some steel firms had a ninety-week delivery lag, with the price to be deter­mined, and foreign competitors certainly took notice. The tremen­dous shift to offshore manufacturing of labor-intensive and transportation-intensive products (such as computer-related and microprocessor-drive consumer products) in Asia, Eastern Europe, and Mexico is another excellent example.

• In a wide variety of industries, entrepreneurs sometimes find that they are the only ones who can perform. Such fields as consulting, software design, financial services, process engineering, and techni­cal and medical products and services abound with examples of know-how monopolies. Sometimes a management team is simply the best in an industry and irreplaceable in the near term, just as is seen with great coaches with winning records.

Exhibit 1.3 summarizes the major types of discontinuities, asym­metries, and changes that can result in high-potential opportunities. Creating such changes, by technical innovation (PCs, wireless tele­communications, Internet servers, software), influencing and creating the new rules of the game (airlines, telecommunications, financial ser­vices and banking, medical products), and anticipating the various impacts of such changes is central to the opportunity recognition process.

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