Wickham (2006) argues that entrepreneurship is essentially a style of management in which a manager is willing to venture: to create change and to pursue opportunity rather than just to maintain the status quo and conserve resources” (p. 17).
Opportunity, refers to “a situation in which a person can exploit a new business idea that has the potential to generate profit” (Shane, 2003), an opportunity occurs when idea or product is successful in the market and generates profit. According to Wickham (2006) “the good entrepreneur is constantly searching for new opportunities. In effect, this means that they are never really satisfied with the way things are at any moment in time”. The concept of that idea or product having newness and economic potential is outlined again by Baron (2004) who states “an opportunity involves the potential to create something new that has the potential to generate economic value”.
What is an Opportunity Gap?
An opportunity gap is the gap between what is available on the market at present and the potential to introduce new or significantly improved products or services Opportunity gaps represent the potential to serve customers better than they are currently being served (Wickham, 2006)
An ENTREPRENEURIAL OPPORTUNITY is
“the possibility to do things
both differently from and better than
how they are being done at the moment”.
“a way of doing something differently and better”
(Wickham, 2006, p. 236)
‘Created’ and ‘discovered’ refer to the method in which the opportunity was found. Entrepreneurs do not simply adapt to change – they often instigate it. One effective way that Sarasvathy, Venkataraman, Dew and Velamuri (2002) differentiate between creation & discovery is through the ‘domain of application’. This refers to the level of knowledge in the market, when supply and demand for the product is known then the opportunity is founded through the allocative process or opportunity recognition, when only one variable is of no doubt then the opportunity has been discovered, and when neither supply or demand is known, the opportunity has been created. Opportunities are independent of entrepreneurs – they exist regardless of whether or not they are discovered.
The phrase “Opportunities are created, not discovered.” refers to the exploitation of a previously untapped market, or a current market which is not being completely penetrated. The phrase suggests that these market opportunities arise from a single method and that they are created by the entrepreneur rather than discovered. We will also look into a third, allocative view, identified by Bachanan and Vanberg (1991) and again by Sarasvathy, Venkataraman, Dew and Velamuri (2002) in the work titled ‘Three Views of Entrepreneurial Opportunity’. While many academics such as Ronstadt, Ardichvili and Buenstorf argue that entrepreneurial opportunities are created, others such as Kirzner, Gӧrling and Rehn all disagree, stating that the entrepreneurial opportunities are discovered. This blog will propose that the entrepreneurial process regarding opportunity exploitation is not restricted to one view, whether it be the creationist view, discovery view or the allocative view, but in fact argue that opportunities arise from all three circumstances. Overall, while looking into detail at the key differences outlined by Sarasvathy, Venkataraman, Dew and Velamuri (2002), we will demonstrate using examples that each of the three views exists and occur in the world of entrepreneurship.
The creationist theory of entrepreneurial opportunities, although the youngest of the three, is favored by academic economists such as Bhowmick, as well as Ronstadt, Ardichvili and Buenstorf. Some say that opportunities are socially constructed and are retrospectively recognized. The theory finds its roots back in philosophy. In the case of the opportunity creation theory the philosophical background lies with James and Dewy and the philosophy of pragmatism. This theory suggests that ignorance is the key to create an opportunity, and is boomed where the supply and demand of the product or service does not yet exist. Therefore, at least one of the needs has to be ‘created’ and produced by the entrepreneur (Sarasvathy, Venkataraman, Dew and Velamuri, 2002). In doing so, the entrepreneur will create a new market opportunity. As Buchanan and Vanberg (1991) illustrate, the key idea of this view is that the end product is not ignored or imposed, and that the market opportunity emerges through interactive human activities. For a market opportunity to be considered as opportunity creation, the business venture would have to be completely new, with no prior knowledge available for the entrepreneur making the future of the market unknowable. This is what Knight called true uncertainty. While the level of risk involved in market creation is high, the economic rewards in terms of profits are much greater than in a venture associated with less risk. Creative process is enhanced when entrepreneurs are placed in a high uncertainty environment (Sarasvathy, Venkataraman, Dew and Velamuri, 2002). There are several worldwide examples of the creative process, including the internet company Netscape, as well as General Electric, U-Haul, AES Corporation and the MIR space resort distinguished by Sarasvathy, Venkataraman, Dew and Velamuri (2002). The entrepreneurial opportunity that became the architect of Netscape consisted of a new idea, belief and action. The idea was of a user-friendly web browser. The belief was that even though the supply of, and especially the demand for the idea that was Netscape was unknown, a market would be created and the idea could be commercialized. Finally the entrepreneurial action of Marc Anderson and Jim Clark brought the idea and belief to life. Anderson and Clark’s belief, that while the market situation for Netscape was of true uncertainty; that a demand for the commercialized product could be built meant that this opportunity was not recognized, nor discovered, but in fact it was created. Due to this example being an actual event rather that theoretical occurrence, it proves that opportunities are created. However, contrary to the suggestion in the statement, “Opportunities are created, not discovered.”, that only one process can occur, this does not prove that opportunities can not be discovered.
The method of opportunity discovery revolves around the idea that only one market variable is known, whether it is the supply of, or demand for the product or service. Therefore the market is pre existent, but is unknown in advance. Alvarez (2007) describes this type of entrepreneurial opportunity as an opportunity “just waiting to be discovered and exploited by unusually alert individuals”. Kirzner (1997) and Shane (2003) explain that these opportunities can be found by discovering unsatisfied needs and wants in the economy. Therefore opportunity discovery occurs when the entrepreneur realizes an existing market which is currently unknown or unsatisfied. The entrepreneur discovers or finds the market potential. As discussed by Gӧrling and Rehn, not all opportunity discoveries are done so with that intent in mind, a number of opportunity discoveries can be attributed to accidental discovery, i.e. the opportunity is stumbled upon by the entrepreneur, or through accidental incidents, where someone does not discover the opportunity but instead has it thrust upon them. Gӧrling and Rehn (2008) illustrate this using the example of Elvis Presley’s and Kurt Cobain’s death, where someone made a business out of an unexpected human incident. While opportunity discovery includes the accidental opportunities described by Gӧrling and Rehn, the majority of opportunity discoveries are those in which an individual searches for a solution. An example of this is often visible in the medical field, where new diseases are being cured by new treatments. The cure to a disease always has a level of demand, however the cure may not always be available, therefore demand exists but the supply needs to be discovered. Once the cure is discovered the market opportunity can be satisfied. This is similar to the market opportunities available in the world of computers. Computer users may demand new software for various reasons, faster RAM speed, or a faster internet connection. The demand is obvious, but to realize and truly discover the market, the problem of supply must be rectified. In this case new editions of computer software are released, such as Microsoft Word 2007, new hardware devices that increase a computers RAM are produced, and the conversion from dial up internet to DSL are all discovered and used to answer the problem of supply, and satisfy consumer demand. The discovery of the answers to the issue of supply, both in the world of computers and diseases, were not stumbled upon, nor were they thrust upon an individual, they were purposely sort after by the entrepreneurial body in an effort to discover, realise and satisfy the presence of a gap in the economy. This indicates that it is possible that entrepreneurial opportunities are not just created, but they can also “be discovered and exploited by unusually alert individuals” Alvarez (2007).
The third method of entrepreneurial opportunity realization is widely known as opportunity recognition. However, this view has also been called an allocative process by academics such as Dantec (2008) and Sarasvathy (2002). Vesper (1980) introduced this view of opportunity recognition, insisting on the “permanent active sought of viable opportunity which precedes a business venture” (Dantec, 2008). As with the creation and discovery views, allocative theory has its origins in philosophy, this time in the equilibrium based calculus of Marshall, Walras and many others. The allocative process occurs when both market forces are known, that is when supply and demand can be calculated or measured to a degree of accuracy. Due to this, opportunity recognition involves the least amount of risk for the entrepreneur when compared to the discovery method or the creation process. Baron (2004) describes opportunity recognition as the perception of complex patterns by an entrepreneur allowing him or her, to interpret the environmental stimuli in a way that it can be used to create economic value. Baron characterized this as the active cognitive process. Lindmark (2006) on the other hand, suggests that in opportunity recognition supply and demand exist quite obviously, indicating the complex patterns expressed by Baron do not apply. Clear occurrences of the allocative theory in action are in the form of franchising.
While many of the economists explicitly support the creationist theory, such as Ardichvili, Bhowmick, Buenstorf, and Ronstadt, it is impossible to deny the existence of entrepreneurial opportunities being identified through the discovery and allocative processes. This is particularly shown in the works of Sarasvathy, Venkataraman, Dew and Velamuri. As with any argument there is another view point, Kirzner, Shane, and Gӧrling and Rehn, all believe in the opportunity discovery theory, while Dantec, Lindmark, and Vesper argue the opportunity recognition side of the debate. This blog also demonstrates how their views are not completely accurate either. It suggests and explains that entrepreneurial opportunity occurs in all three forms, recognition, discovery and creation. While it may be argued that seizing an opportunity through the creation process is more entrepreneurial than the opportunities presented by discovery and recognition, due to the level of risk involved in successfully implementing a business venture via market creation, it still does not exclude the actuality of the existence of discovery and recognition.
The Interpretive / Social Constructionist position is an additional theory which argues that reality is constantly shaped through interaction with actions of individuals with the society. A good entrepreneur is constantly searching for new opportunities. In effect, this means that they are never really satisfied with the way things are at any moment in time. In the end, we can say that the term opportunity identification can be both created or discovered.
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