The Opportunity

The opportunity is a chance to engage in trades with customers that satisfy their desires while generating returns that enable you to continue to operate and to build your business over time. Many different conditions in society can create opportunities for new goods and services. As a prospective entrepreneur, the key questions are as follows:

• What are the conditions that have created a marketplace opportunity for my idea?
• Why do people want and need something new at this point in time?
• What are the factors that have opened up the opportunity?
• Will the opportunity be enduring, or is it a window that is open today but likely to close tomorrow?
• If you perceive an unmet need, can you deliver what the customer wants while generating durable margins and profits?

Sustainability considerations push this analysis further, asking how you can meet the market need with the smallest ecological footprint possible. Ideally, this need is met through material and energy choices that enhance natural systems; such systems include healthy human bodies and communities as well as environmental systems. Sustainability considerations include reducing negative impact as well as working to improve the larger system outcomes whenever and wherever financially possible. Let us examine the different pieces separately before we try to put them all together. The Walden Paddlers case in Chapter 4 "Entrepreneurship and Sustainability Innovation Analysis", Section 4.5 "Adaptive Collaboration through Value-Added Networks", provides a company example to apply these concepts in their entirety.

Opportunity conditions arise from a variety of sources. At a broad societal level, they are present as the result of forces such as shifting demographics, changes in knowledge and understanding due to scientific advances, a rebalancing or imbalance of political winds, or changing attitudes and norms that give rise to new needs. These macroforces constantly open up new opportunities for entrepreneurs. Demographic changes will dictate the expansion or contraction of market segments. For example, aging populations in industrialized countries need different products and services to meet their daily requirements, particularly if the trend to stay in their homes continues. Younger populations in emerging economies want products to meet a very different set of material needs and interests. Features for cell phones, advanced laptop computer designs, gaming software, and other entertainment delivery technologies are higher priorities to this demographic group.

Related to sustainability concerns, certain demographic shifts and pollution challenges create opportunities. With 50 percent of the world’s population for the first time in history living in urban areas, city air quality improvement methods present opportunities. Furthermore, toxicological science tells us that industrial chemicals ingested by breathing polluted air, drinking unclean water, and eating microscopically contaminated food pass through the placenta into growing fetuses. We did not have this information ten years ago, but monitoring and detection technologies have improved significantly over a short time frame and such new information creates opportunities. When you combine enhanced public focus on health and wellness, advanced water treatment methods, clean combustion technologies, renewable “clean” energy sources, conversion of used packaging into new asset streams, benign chemical compounds for industrial processes, and local and sustainability grown organic food, you begin to see the wide range of opportunities that exist due to macrotrends.

When we speak of an opportunity, we mean the chance to satisfy a specific need for a customer. The customer has a problem that needs an answer or a solution. The opportunity first presents itself when the entrepreneur sees a way to innovatively solve that problem better than existing choices do and at a comparable price. Assuming there are many buyers who have the same problem and would purchase the solution offered, the opportunity becomes a true business and market opportunity. When opportunities are of a sufficient scale (in other words, enough customers can be attracted quickly), and revenues will cover your costs and promise in the near term to offer excess revenue after initial start-up investment expenditures are repaid, then you have a legitimate economic opportunity in the marketplace.

It is important to understand that ideas for businesses are not always actual opportunities; unless suppliers are available and customers can be identified and tapped, the ideas may not develop into opportunities. Furthermore, an opportunity has multiple dimensions that must be considered including its duration, the size of the targeted market segment, pricing options that enable you to cover expenses, and so forth. These dimensions must be explored and analyzed as rigorously as possible. While business plans can serve multiple purposes, the first and most important reason for writing a business plan is to test whether an idea is truly an economically promising market opportunity.

The Entrepreneur

The opportunity and the entrepreneur must be intertwined in a way that optimizes the probability for success. People often become entrepreneurs when they see an opportunity. They are compelled to start a venture to find out whether they can convert that opportunity into an ongoing business. That means that, ideally, the entrepreneur’s life experience, education, skills, work exposure, and network of contacts align well with the opportunity.

However, before we talk about alignment, which is our ultimate destination, we look at the entrepreneur. Consider the individual entrepreneur as a distinct analytic category by considering the following questions:

• Who is this person?
• What does this person bring to the table?
• What education, skills, and expertise does this person possess?

Like the opportunity, the entrepreneur can be broken down into components. This analysis is essential to understanding the entrepreneur’s commitment and motivations. Analysis of the entrepreneur also indicates the appropriateness of the individual’s capacities to execute on a given business plan. The components are as follows:

• Values. What motivates the individual? What does he or she care enough about to devote the time required to create a new venture?
• Education. What training has the individual received, what level of formal education, and how relevant is it to the tasks the venture requires to successfully launch?
• Work experience. Formal education may be less relevant than work experience. What prior jobs has the individual held, and what responsibilities did he have? How did he perform in those positions? What has he learned?
• Life experience. What exposure to life’s diversity has the individual had that might strengthen (or weaken) her competencies for building a viable business?
• Networks. What relationships does the individual bring to the venture? Have her prior experiences enabled her to be familiar and comfortable with a diverse mix of people and institutions so that she is able to call upon relevant outside resources that might assist with the venture’s execution?

If any one category could claim dominance in shaping the outcome of an innovative venture, it is that of the entrepreneur. This is because investors invest in people first and foremost. A good business plan, an interesting product idea, and a promising opportunity are all positive, but in the end it is the ability of the entrepreneur to attract a team, get a product out, and sell it to customers that counts. While management teams must be recruited relatively quickly, typically there is an individual who initially drives the process through his or her ability to mobilize resources and sometimes through sheer force of will, hard work, and determination to succeed. In challenging times it is the entrepreneur’s vision and leadership abilities that can carry the day.

Ultimately, led by the entrepreneur, a team forms. As the business grows, the team becomes the key factor. The entrepreneur’s skills, education, capabilities, and weaknesses must be augmented and complemented by the competencies of the team members he or she brings to the project. The following are important questions to ask:

• Does the team as a unit have the background, skills, and understanding of the opportunity to overcome obstacles?
• Can the team act as a collaborative unit with strong decision-making ability under fluid conditions?
• Can the team deal with conflict and disagreement as a normal and healthy aspect of working through complex decisions under ambiguity?

If a business has been established and the team has not yet been formed, these questions will be useful to help you understand what configuration of people might compose an effective team to carry the business through its early evolutionary stages.

Resources

Successful entrepreneurial processes require entrepreneurs and teams to mobilize a wide array of resources quickly and efficiently. All innovative and entrepreneurial ventures combine specific resources such as capital, talent and know-how (e.g., accountants, lawyers), equipment, and production facilities. Breaking down a venture’s required resources into components can clarify what is needed and when it is needed. Although resource needs change during the early growth stages of a venture, at each stage the entrepreneur should be clear about the priority resources that enable or inhibit moving to the next stage of growth. What kinds of resources are needed? The following list provides guidance:

• Capital. What financial resources, in what form (e.g., equity, debt, family loans, angel capital, venture capital), are needed at the first stage? This requires an understanding of cash flow needs, break-even time frames, and other details. Back-of-the-envelope estimates must be converted to pro forma income statements to understand financial needs.
• Know-how. Record keeping and accounting and legal process and advice are essential resources that must be considered at the start of every venture. New ventures require legal incorporation, financial record keeping, and rudimentary systems. Resources to provide for these expenses must be built into the budget.
• Facilities, equipment, and transport. Does the venture need office space, production facilities, special equipment, or transportation? At the early stage of analysis, ownership of these resources does not need to be determined. The resource requirement, however, must be identified. Arrangements for leasing or owning, vendor negotiations, truck or rail transport, or temporary rental solutions are all decision options depending on the product or service provided. However, to start and launch the venture, the resources must be articulated and preliminary costs attached to them.

The Product/Service Concept

What are you selling? New ventures offer solutions to people’s problems. This concept requires you to not only examine the item or service description but understand what your initial customers see themselves buying. A customer has a need to be met. He or she is hungry and needs food. Food solves the problem. Another customer faces the problem of transferring money electronically and needs an efficient solution, a service that satisfies the need. Automatic teller machines are developed and services are offered. Other buyers want electricity from a renewable energy source; their problem is that they want their monthly payments to encourage clean energy development, not fossil fuel–based electricity. In any of these situations, in any entrepreneurial innovation circumstance in fact, as the entrepreneur you must ask the following questions:

• What is the solution for which you want someone to pay?
• Is it a service or product, or some combination?
• To whom are you selling it? Is the buyer the actual user? Who makes the purchase decision?
• What is the customer’s problem and how does your service or product address it?

Understanding what you are selling is not as obvious as it might sound. When you sell an electric vehicle you are not just selling transportation. The buyer is buying a package of attributes that might include cutting-edge technology, lower operating costs, and perhaps the satisfaction of being part of a solution to health, environmental, and energy security problems.

Entry Strategy

Another category to examine carefully at the outset of a venture is market entry strategy. Your goal is to create something where nothing previously existed. Mobilizing resources, analyzing your opportunity, producing your first products for sale—none of these proves the viability of your business. Only by selling to customers and collecting the payments, expanding from those earliest buyers to a broader customer base, and scaling up to sufficient revenue streams to break even and then profit do you prove the enduring viability of the enterprise. Even then, a one-product operation is not a successful business; it is too vulnerable. A successful entrepreneur should consider additional products or services. Living through the early stages of a venture educates you about the customer and market and can point you to new opportunities you were unable to see previously. Your product concept at the end of year two may be, and often is, different from your original vision and intent.

The process of entrepreneurship melds these pieces together in processes that unfold over weeks and months, and eventually years, if the business successful. Breaking down the process into categories and components helps you understand the pieces and how they fit together. What we find in retrospect with successful launches is a cohesive fit among the parts. The entrepreneur’s skills and education match what the start-up needs. The opportunity can be optimally explored with the team and resources that are identified and mobilized. The resources must be brought to bear to launch the venture with an entry strategy that delivers the product or service that solves customers’ problem. Disparities among these core elements are signs of trouble. If your product launch requires engineering and information technology expertise and your team has no one with that knowledge, your team does not “fit” with the product. If you launch the product and have insufficient funds to sustain operations, perhaps you did not adequately calculate the capital resources required to reach the break-even point. Each category must be analyzed and thoroughly understood and all puzzle pieces joined to create the integrated picture required for financial success. In Chapter 4 "Entrepreneurship and Sustainability Innovation Analysis", Section 4.2 "Systems Thinking", we will look at the core elements of sustainability innovation.