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清华大学经济管理学院高级培训中心
Entrepreneurial Opportunity
Zhiyang Liu
上海财经大学刘志阳讲义
Essential feature of entrepreneurial opportunity
Generating process of entrepreneurial opportunity
content Identification method of entrepreneurial opportunity
Test entrepreneurial opportunity
Screening method of entrepreneurial opportunity
上海财经大学刘志阳讲义
The invention of jeans
The knee part of pants particularly easily to worn out, whereas in the mining area, a lot of people abandon the canvas, Levi's cleaned these old tents and collected to make pants, then sold to workers, and the sales is very good.
Case study
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Levi’s took the problem as an opportunity, finally
realize the dream of getting rich, this is because he
has an optimistic, cheerful positive mental attitude.
All success, all wealth, began in mind.
--Famous success master Nabo Lun Hill
The interpretation of the success
上海财经大学刘志阳讲义
The interpretation of the entrepreneurship
Why Levi’s instead of others generated the idea of new
product? How to transform the idea to entrepreneurial
opportunity?
Two key factors:
(1)Better access to information—Information can help to
develop new ideas
Influencing factors: knowledge? entrepreneurial alertness ?
Family?
(2)Developing information better-- information can become
a business opportunity
Idea Creativity Entrepreneurial
opportunity
上海财经大学刘志阳讲义
Idea
Opportunity
Attractive
Availability, timeliness,
durability
Creativity
Can it be done?
Can I do it?
Is it worth doing?
Do I want to do it?
Convenience of information
acquisition
(Entrepreneurial intention,
alertness, cognitive ability,
resources endowment, prior
knowledge)
Ability to develop information
(Creativity, learning ability)
Resources analysis,
Motivation confirmation
1、Generating process of entrepreneurial opportunity
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Entrepreneurial motivation
Cognitive ability
Alertness
Resource endowment
(Social network)
Learning ability
Creativity
Convenience of
information
acquisition
Ability to develop
information
Enhance the
ability to identify
opportunity with
potential value Priori knowledge
上海财经大学刘志阳讲义
1、Priori knowledge
Previous experience in specific industries can help
entrepreneurs to identify opportunities. This is called
“Corridor Principle”. It refers that once a entrepreneur
establish an enterprise, he began a journey. In this journey,
the "corridor" to entrepreneurial opportunities will become
visible. This principle also provides insights that someone
involved in one industry will find the new opportunity within
this industry more easily than those observe this industry
from outside.
上海财经大学刘志阳讲义
2、Cognitive factors
Opportunity identification may be an innate skill
or a cognitive process.
Most entrepreneurs think they are more alert
than others
To a large extent, alert is a kind of learned skills;
Who has more knowledge in some area tends to
be more alert to the opportunity in this field than
others.
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3、Social network
The depth and breadth of personal relationship
network affects the opportunity identification.
Strong ties and weak ties
Strong ties help to strengthen the maintenance
entrepreneurial opportunity, weak ties helps
individual to identify the destructive
entrepreneurial opportunity.
上海财经大学刘志阳讲义
4、Creativity
Opportunity identification is a process to create, is
the repeated creative thought process. On the
basis of hearing many interesting things, you can
easily see creativity in the formation of products,
services, and business process.
For an individual, creative process can be divided
into five stages, respectively are preparation,
incubation, insight, evaluation, and elaboration.
上海财经大学刘志阳讲义
2、Feature of entrepreneurial opportunity
Entrepreneurial opportunity(or business opportunity) is
attractive, more durable, and timely space of a business, is a
possibility to meet the unmet needs effectively. It finally
reflected in can create value for customers /clients or
increase the value of a product or service.
Austrian economists think the fundament
difference between entrepreneurial
opportunity and business opportunity is
the profit/value creation potential.
Entrepreneurial opportunity has the
potential to create excess economic
profits, but business opportunity can only
improve existing profit levels.
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Attractive, represent a future state of customer
desire.
Availability, attached to the product/service which
can create/increase value for buyer or end-user.
Timeliness, must seize the opportunity.
Durability, must be in a continuously zooming
window of opportunity.
上海财经大学刘志阳讲义
Window of opportunity model
O A, incubation stage
A C, window of opportunity
After C, market becomes mature, window of opportunity is closed
O C, little people realizes it is a good market opportunity.
上海财经大学刘志阳讲义
E-stamps and Stamps.com are two start-up Internet
companies, they allows customers to buy stamps in
the Internet and print it at home.
But both of them failed. Since the idea failed to
create enough value for the buyer..
Case study
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Inside the restaurant, the guests can experience the pleasure of eating dark, enjoy the special food (mainly package, the lowest price 168 yuan), can also enjoy the creative "dark drama“ prepared by the restaurant for the guests. In addition to this, the founder adds more features to the restaurant, such as providing wedding banquet and conference services, etc.
But some customers said: It is not convenient to have dinner in darkness.
Question: can you tell me the dark restaurant can
be creative entrepreneurial opportunities? The
reason?
Evaluate the business model
Darkness restaurant
上海财经大学刘志阳讲义
3、Identification method of entrepreneurial
opportunity
In essence, successful entrepreneurs are people
who identify entrepreneurial opportunity, and transform
it into successful enterprise.
Opportunity identification is a combination of art and
science. Entrepreneurs must rely on intuition, makes it
become an art; also must rely on purposeful action and
analytical skills, makes it become a science.
上海财经大学刘志阳讲义
3.1 Generating method of idea
市场细分工具
(Focus Groups)
头脑风暴法
(Brainstorming)
强迫关系法
(Forced Relationship)
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市场细分 (STP)
Segment a large market into several
small market, and customer in each
small market has similar demand,
buying mentality, consumption pattern,
means of purchase. Then enterprises
can select targeted customer base, to
understand the status of competitors,
and make the corresponding
management strategy he tactics to
achieve the goal of enterprise.
STP: 市场细分(market segmentation)
目标市场(market targeting)
市场定位(market positioning)
sweet
cold hot
salty
上海财经大学刘志阳讲义
Market segmentation in clothing industry
application
Suit Ancillary
products
casual
clothing
Chinese-
wear
sportswear Work
clothes
Old man
Young and
middle-aged
man
Boy
Girl
Young and
middle-aged
woman
Old woman
industry
上海财经大学刘志阳讲义
Brainstorm
Group discussion there is no clear limit
theme, beneficial to stimulate new ideas.
Principle:
(1)Don’t comment any opinion
(2)Encourage arbitrary
(3)Hope to have a lot of ideas
(4)Encourage to combine and improve others’ ideas
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Forced Relationship
Paper and soap ?
Book and tea leaf ?
上海财经大学刘志阳讲义
Example
Format Relationship/Combination
Design/Type
Adjective
Like-paper soap Like-soap paper
Slice Help to clean and dry in travel
Noun
Paper soap
Stiff paper impregnated with soap,
which is used to clean appearance Adverb
Soap coated
paper Soap wet paper
towels Soap clean paper
Soap customized into a book In the process of spreading and
dipping Goods used to clean wallpaper
上海财经大学刘志阳讲义
3.2 The method to increase creativity
Entrepreneurial opportunity is the
interactive process between
entrepreneur and external environment
(the source of opportunity).
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Environmental
change Economy
Social demography
Technology
Political & institutional
industrial structure
Characteristics of
entrepreneurs previous experience
cognitive factors
Social network
Creativity
•Gap and defects in
product, service, material
and organizational ways
•Find the possibility to
improve/create the
relationship between
objective and means
New product, new
service, new
material and new
organizational ways
上海财经大学刘志阳讲义
(1)Observe the trend
The first way is to observe the trend and study how do they create opportunity for entrepreneur. The trend related economy, social, technology, political and institutional, industrial structure are most important.
Two ways to master these trends:
(1)Carefully study and observe these trends.
(2)Buy customized forecasts and market
analysis from independent research company.
上海财经大学刘志阳讲义
Find entrepreneurial opportunity from the change
——Opportunities never favor people without preparation
Famous management gurus Peter drucker defined
entrepreneur as those who can "looking for changes, and
positively response, treat it as an opportunity,then make full
use of it ".
Sometimes, identify opportunities can through more simple
ways, such as intuition, chance, etc. They often can cause
business ideas
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The process of identifying opportunity is rarely
considered. At the beginning, someone just aims to
solve a practical problem. But in the process of
problem solving, he realizes the solution will have a
bigger market appeal.
The founder of “Common instutions” said,“every
problem is a chance to be skillfully hide。”
(2)Solve the problem
上海财经大学刘志阳讲义
(3)function analysis method A:combine a variety of functions
“Southeast freeca” which is launced in March
2000, combines the function of traditional car,
tourist bus and SUV.
上海财经大学刘志阳讲义
B:Increase some new funcitions
Toshiba Carrier air conditioning can discharge
"anion".
A porcelain lamp can be developed into voice, touch and time control lamp after added induction system, and the price changes from 27 to 98,but average cost is only 7.
After adding a loose-leaf notebook and ball-point pen, the telephone set sold well.
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C: Try to subtract some functions
IKEA sells furniture components instead of complete furniture. And sales reaches 1.7 billion dollars.
上海财经大学刘志阳讲义
D:Change the original function
Culture rubbish comes from the
refurbishment of Statue of Liberty
上海财经大学刘志阳讲义
Hourglass becomes the calculagraph of
public telephone.
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Opportunity may knock only once, but
temptation leans on the
doorbell.
上海财经大学刘志阳讲义
Type of entrepreneurial opportunity
According to the source entrepreneurial
opportunity:
Problem-opportunity
Trend-opportunity
Cinbination-opportunity
上海财经大学刘志阳讲义
4、Screening method of entrepreneurial opportunity
Market assessment criteria
Profit-seeking assessment criteria
TIMMONS screening method of
entrepreneurial opportunity
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4.1 Market assessment criteria
1、Market positioning:
A good entrepreneurial opportunity must have
specific market positioning, focuses on meet these
customers’ needs and bring customers value-added
effect.
When assessing the entrepreneurial opportunities,
we can check whether the market positioning, the
customer demand analysis is clear ? Whether
customer contact channel is smooth? etc. Then to
determine the market value of entrepreneurial
opportunity may create.
Differentiation can create blue ocean
上海财经大学刘志阳讲义
2、Market structure:
Do five forces analysis for the selected market,
including entry barriers, bargaining power of
suppliers, bargaining power of customers, threat
of substitute products and existing competition.
Through this analysis, we can know the position
of new enterprise in the market and the possible
reactions of competitors.
Low cost to overcome the entry barriers
上海财经大学刘志阳讲义
3、Market size:
The size and growth rate of market is also the
important factors affect the success of new
enterprise. Generally, if the market size is large,
entry barriers are relatively if you want to enter a
mature market, though the market size is large,
the profit margin is very small due to market
saturation.
Conversely, in a growing market, usually is a full
of business opportunities market, as long as the
timing of enter is right, must have profit space.
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4、Market penetration:
The strength of the market penetration means
the speed of new product to be accepted by the
consumers and the acceptant depth of degree.
Smart entrepreneurs choose the right time to
enter the market, that is the market demand is
about to grow sharply, and you are ready to wait
for the order.
上海财经大学刘志阳讲义
5、Marker share:
From the expected market share objective of the
entrepreneurial opportunity, we can see the future
market competitiveness of the start-up company
>20%, can become the market leader
<5%, has low market competitiveness, may affect the
future listed value of the enterprise
Especially in the high-tech industry which has the feature
of winner-take-all, new enterprise must have high market
share if they want to be invested.
上海财经大学刘志阳讲义
6、Cost structure of the product:
Cost of the product structure, also can reflect the
prospects of a new enterprise. For example,
from the proportion of material and labor costs,
the proportion of variable cost and fixed cost, we
can judged the ability to create additional value
and future possible profit space.
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4.2 Profit-seeking assessment criteria
1、Reasonable after-tax profit:
>15%, an attractive entrepreneurial opportunity
<5%, not good entrepreneurial opportunity
上海财经大学刘志阳讲义
2、The time required to achieve break-even:
Generally,
<2 years, reasonable;
>3 years, not good entrepreneurial opportunity
Exceptionally,
Some entrepreneurial opportunities do need go through
a long time. By these upfront investment, it can create
entry barriers and ensure sustained profitability.
上海财经大学刘志阳讲义
3、Return on investment:
Generally,
>25%, good
<15%,bad
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4、 Capital demand:
Investors will welcome entrepreneurial opportunity
whose capital demand is low.
Generally, the more knowledge intensive entrepreneurial
opportunities, the lower the demand for capital, and
return on investment will be higher. So at the beginning,
do not raise too much money. The best way to create
capital is e surplus accumulation. And lower capital, will
help improve the EPS, and also can improve the future
listed price.
上海财经大学刘志阳讲义
5、 Gross profit rate:
If the of entrepreneurial opportunity has high gross profit
margin, then the risk is relatively low, also it is easier to
achieve break-even.
Generally,
>40%,good;
<20%, bad.
The gross profit rate of software industry is often very
high.
上海财经大学刘志阳讲义
6、 Strategic value:
Whether a new enterprise can create strategic value in
the market is also an important evaluation index.
Strategic value is closely related to the industrial network
scale, benefit mechanism, degree of competition. And
the added value effect entrepreneurial opportunities
create for the industry value chain is also closely related
to the business strategy and business model.
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7、The vigor of capital market :
Generally, new enterprises are easily to create
value-added effect in active capital markets, so
the vigor of capital market is also an external
environment index to evaluate entrepreneurial
opportunities.
上海财经大学刘志阳讲义
8、 Exit mechanism and strategy:
All investment aims to recycle, so exit
mechanism and strategy is an important index to
evaluate entrepreneurial opportunities.
The value of enterprise should be decided by
trade market, and the trading mechanism will
affect the elasticity of exit mechanism. Since the
difficulty of exit is generally higher than enter, so
an attractive entrepreneurial opportunity should
have a good exit mechanism and strategy.
上海财经大学刘志阳讲义
4.3 Timmons screening method of entrepreneurial opportunity
Divided into eight categories, 40 indexs. 1. Industry and market
2. Economic factors
3. Conditions of the return
4. Competitive advantage
5. Management team
6. Fatal defects
7. Entrepreneur's personal standards
8. Strategic differences between ideal and reality
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Standard Highest potential Lowest potential
(一)Industry and market
1 Market
(1)Demand Decided Uncertain
(2)Consumer Can accept ,willing to pay Not easy to be accepted
(3)Return to customer <1 year >3 years
(4)Value added High Low
(5)Product life cycle Long Short
2 Market structure Emerging industry or
imperfectly competitive
industries
Perfect competition, highly
concentrated or maturity &
recession industry
3 Market size Big, sales can reach $10
millions to $10 billions
Uncertain or sales $<10
millions
4 Market growth rate 30%-50%, or even higher Very low or <10%
5 Market capacity Production capacity of existing
vendors is almost completely
saturated.
Not enough capacity
6 Expected market share Can be leader in this market in
5 years, >20%
<5%
7 Cost structure Has cost advantage Declining cost
上海财经大学刘志阳讲义
Standard Highest potential Lowest potential
(二)Economic factors
8 Time to achieve break-even 1.5-2 years >4 years
9 Time for positive cash flow Breakeven point will not increase
gradually
>4 years
10 Return on investment >25% <15-20%
11 Capital requirement
Low, can obtain finance High
12 Internal rate of return potential Annual growth rate of sales >25% <15%
13 Free cash flow characteristics Accounts for sales >20-30% <10%
(1)Growth of sales 中等到高(15%-20 %) <10%
(2)Asset intensity Low proportion to sales High
(3)Spontaneous flow of capital Operating funds is not much, demand
is gradually increasing
High
(4)R&D/capital expenditure Low High
(5)Gross profit rate Lasting,>40% <20%
(6)After-tax profits Lasting,>10% Low
上海财经大学刘志阳讲义
Standard Highest potential Lowest potential
(三)Conditions of the return
14 Value-added potential High strategic value Low
15 Exit mechanism and strategy Exist good ones Undefined
16 Capital market environment Beneficial,good flow Adverse, credit crunch
(四)Competitive advantage
17 Fixed and variable costs Low High
18To control the cost, price and distribution Strong Weak
19 Entry barriers
(1)Ownership protection High Low
(2)competitor response time Slow Fast
(3)Advantage of laws and contracts Has Not has
(4)Relationship & network Good Limited
(5)Key personnel Outstanding team(Level A) Level B or C
(五)Management team
20 Entrepreneurial Team Combination of good managers Weak/individual entrepreneurs
21 Industry and technology experience Reached the highest level in the
industry.
Undeveloped
22 Integrity High Suspicious
23 Cognitive honesty Know lack of what Don’t want to know
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Standard Highest potential Lowest potential
(六)Fatal defects
24 Fatal defects Not exist More than one
(七)Entrepreneur's personal standards
25Match with goal Match well Not match well
26 good/bad aspects Can succeed under limited risk Linear
27 Opportunity costs Entrepreneurs can bear loss of salary Meet the status quo
28 vision not just to make money Just to make money
29 Risk/return permit degrees Calculate the risk Risk aversion or gambling
30 Stress tolerance Behave well under stress Collapse under stress
(八)Strategic differences between ideal and reality
31 Match degree Match well Not match well
32 Team Best Level B
33 Service management Have a good service concept Think it unimportant
34 Timing Go with the stream Upstream
35 Technology Breakthrough technology, no competition
Many substitutes or competitors
36 Flexibility Good adaptability Slowly, stubborn
37 Business oriented Always looking for new opportunities
Regardless of the environment and
business chance
38 Pricing Same with market leader Exists competitors sell cheaply
39 Distribution channel Can acquire, or already has Unknown, or can’t acquire
40 Fault-tolerant space Allow to fail Intolerance, rigid strategy
上海财经大学刘志阳讲义
Please screen the entrepreneurial
opportunity rapidly according to the solar
compression dustbin
How to test the opportunity?
上海财经大学刘志阳讲义
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上海财经大学刘志阳讲义
Can these indexes adapt to China?
Three most important factors:
(1)Entrepreneurial experience;
(2)Work experience,only people has more than 10
years work experience can identify all kinds of
business behaviors and get the ability to forecast
and capture business
(3)Management experience, prior knowledge
structure of entrepreneur is very important when
identifying and evaluating opportunity.
上海财经大学刘志阳讲义
Avoid and protect against fatal defects of entrepreneurial opportunity
Why exists fatal defects?
• Technology and products are not mature
• Concept deviation, opportunity transient
• Low entry barriers, the competitors are
more and stronger
• Large investment and high cost, profit time
is long, slow turnover
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Common mistakes made by entrepreneurs
Develop customer demand from products,
instead of developing products from
customer demand
IBM requires Seagate not to change the size of drive
Estimate the time to achieve breakeven and
spending mistakenly
NVCA research showed:
If innovation opportunity window shorter than 3 years, the
failure rate is 80% or above. If it is longer than 7 years,
the success rate of innovation enterprise is as high as
80% above.
上海财经大学刘志阳讲义
Case
In 1991, a young engineers developed the "Web" (World
Wide Web, WWW), Microsoft did not cause enough
attention, Bill Gates said: "in 1993 saw the product,
imagine all the company's advertising will attach your own
Web site, I think it must be crazy"
Netscape (Netscape) was founded in 1994, launch a web
browser. Gates woke up in 1995, he took the risk of having
lawsuit with netscape and meet the U.S. justice
department antitrust lawsuit to launch add Internet explorer
in Windows95,and provide their own "Microsoft Network”.
Comment: Choose to do business in the growing industry
has high profit margins, the chance of success is much
bigger than in a narrow industry.
上海财经大学刘志阳讲义
Technology
strategy
Market
strategy
New entrants:
promote new
markets
Incumbent:
Block the destructive
strategies of new
entrants
New entrants: push
low-end damage
Incumbent: set up
branches to
innovate Incumbent:
have no choice but to
promote the
maintenance
innovation
New
technology
Secondary
market
Mainstream
market
Christensen: "vision: the industry predicted using theory of change the future",
the commercial press, 2006
Old
technology
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Test entrepreneurial opportunity
Interest and
attractiveness of
target market
Sustainable
advantage
Team
Mission, and
personal
aspirations
and tend to
take risks
Ability to perform critical success factors
Social
network
Macroscopic
Microcosmic
Market Industry
Market
attractiveness
Industry
attractiveness
清华大学经济管理学院高级培训中心