1. Observing Trends
2. Solving a Problem
3. Finding Gaps in the Marketplace
1. Observing Trends
The first approach to identifying opportunities is to observe trends and study how they create opportunities for entrepreneurs to pursue. The most important trends to follow are economic trends, social trends, technological advances, and political action and regulatory changes. As an entrepreneur or potential entrepreneur, it’s important to remain aware of changes in these areas.
When looking at environmental trends to discern new business ideas, there are two caveats to keep in mind. First, it’s important to distinguish between trends and fads. New businesses typically do not have the resources to ramp up fast enough to take advantage of a fad. Second, even though we discuss each trend individually, they are interconnected and should be considered simultaneously when brainstorming new business ideas. For example, one reason that smartphones are so popular is because they benefit from several trends converging at the same time, including an increasingly mobile population (social trend), the continual miniaturization of electronics (technological trend), and their ability to help users better manage their money via online banking and comparison shopping (economic trend). If any of these trends weren’t present, smartphones wouldn’t be as successful as they are and wouldn’t hold as much continuing promise to be even more successful as is the case.
• Economic Forces: Understanding economic trends is helpful in determining areas that are ripe for new business ideas as well as areas to avoid. When the economy is strong, people have more money to spend and are willing to buy discretionary products and services that enhance their lives.
• Social Forces: An understanding of the impact of social forces on trends and how they affect new product, service, and business ideas is a fundamental piece of the opportunity recognition puzzle. Often, the reason that a product or service exists has more to do with satisfying a social need than the more transparent need the product fills. The proliferation of fast-food restaurants, for example, isn’t primarily because of people’s love of fast food but rather because of the fact that people are busy and often don’t have time to cook their own meals. Similarly, social networking sites like Facebook and Twitter aren’t popular because they can be used to post information and photos on a Web site. They’re popular because they allow people to connect and communicate with each other, which is a natural human tendency.
• Technological Advances: Advances in technology frequently dovetail with economic and social changes to create opportunities. For example,
there are many overlaps between an increased focus on health and wellness and technology. Airstrip Technologies, a recent start-up, enables doctors to monitor critical patient information remotely on a smartphone or computer. The company’s founding was motivated by a desire on the part of doctors to stay in closer contact with their critical care patients while away from the hospital and while those patients are receiving treatment in locations outside a hospital. Advances in wireless technologies made the system possible. In most cases the technology isn’t the key to recognizing business opportunities. Instead, the key is to recognize how technologies can be used and harnessed to help satisfy basic or changing needs. It’s always been difficult for doctors to leave the bedsides of critically ill patients, for example. Now, as a result of the advent of smartphones and wireless networks, a company like Airstrip Technologies can develop products to help doctors remotely monitor their patients’ conditions.
Technological advances also provide opportunities to help people perform everyday tasks in better or more convenient ways. For example, OpenTable.com is a Web site that allows users to make restaurant reservations online and now covers most of the United States. If you’re planning a trip to San Diego, for example, you can access OpenTable.com, select the area of the city you’ll be visiting, and view descriptions, reviews, customer ratings, and in most cases the menus of the restaurants in the area. You can then make a reservation at the restaurant and print a map and the directions to it. The basic tasks that OpenTable.com helps people perform have always been done—looking for a restaurant, comparing prices and menus, soliciting advice from people who are familiar with competing restaurants, and getting directions. What OpenTable.com does is help people perform these tasks in a more convenient and expedient manner.
• Political Action and Regulatory Changes: Political and regulatory changes also provide the basis for opportunities. For example, new laws create opportunities for entrepreneurs to start firms to help companies, individuals and governmental agencies comply with these laws. For example, the No Child Left Behind Act of 2002, which is based on the notion of outcome-based education, requires states to develop criterion-based assessments in basic skills to be periodically given to all students in certain grades. Shortly after the act was passed, Kim and Jay Kleeman, two high school teachers, started Shakespeare Squared, a company that produces materials to help schools comply with the act.
2. Solving a Problem
The second approach to identifying opportunities is to recognize problems and find ways to solve them. These problems can be recognized by observing the challenges that people encounter in their daily lives and through more simple means, such as intuition, serendipity, or chance. There are many problems that have yet to be solved.
Some business ideas are gleaned by recognizing problems that are associated with emerging trends. For example, SafetyWeb, the focus of the “You Be the VC 4.1” feature, has created a Web-based service that helps parents protect their children’s online reputation, privacy, and safety. The social trend toward more online activity by children resulted in the need for this service. Similarly, the proliferation of smartphones enables people to stay better connected but results in problems when people aren’t able to access electricity to recharge their phones for a period of time. Several companies, including Iogear and Solio, now make solar rechargers for smartphones.
3. Finding gaps in the marketplace
Gaps in the marketplace are the third source of business ideas. There are many examples of products that consumers need or want that aren’t available in a particular location or aren’t available at all. Part of the problem is created by large retailers, like Walmart and Costco, which compete primarily on price and offer the most popular items targeted toward mainstream consumers. While this approach allows the large retailers to achieve economies of scale, it leaves gaps in the marketplace. This is the reason that clothing boutiques and specialty shops exist. These businesses are willing to carry merchandise that doesn’t sell in large enough quantities for Walmart and Costco to carry.
Product gaps in the marketplace represent potentially viable business opportunities. For example, in 2000, Tish Cirovolo realized that there were no guitars on the market made specifically for women. To fill this gap, she started Daisy Rock guitars, a company that makes guitars just for women. Daisy Rock guitars are stylish, come in feminine colors, and incorporate design features that accommodate a woman’s smaller hand and build. In a related manner, Southpaw Guitars located in Houston, Texas, carries only guitars that are designed and produced for left-handed players. Another company that is filling a gap in the marketplace is ModCloth, the subject of Case 11.1. ModCloth sells vintage and vintage-inspired clothing for 18- to 32-year-old women, which is a surprisingly large market. The company just raised $19.8 million in Series B funding. A start-up in a completely different industry is GreenJob Spider. GreenJob Spider fills a gap in the online recruiting industry by supporting a job site for employers and prospective employees in “green” industries such as solar, wind, recycling, green buildings, and LED lighting.
Reference: Entrepreneurship, Successfully Launching New Ventures