Chapter 4 - Opportunity Recognition Flashcards
Baron definition of a VIABLE BUSINESS OPPORTUNITY
A perceived means of generating economic value that has not been previously explored, that meets the desires of others and is not currently being exploited
Define Cognitive approach
The cognitive approach are knowledge structures that entrepreneurs use to make assessments, judgements or decisions involving opportunity evaluation, venture creation and growth
Define cognitive biases
These are mental simplifications made by entrepreneurs that helped them to connect information, to identify opportunities, and to deal with hurdles when starting and growing firm but which can interfere with ability to be impartial, Unprejudiced, or objective when interpreting reality
Define Heuristics
This refers to simplifying strategies that entrepreneurs use to manage information and reduce uncertainty in decision making
Le Roux Decision making shortcuts
Risk perception- the subjective assessment of the chance of the occurrence of risk or about the extent, magnitude and timing of its effects .
Overconfidence - this creates a state of mind where entrepreneurs underestimate possible dimensions of potential outcomes because they overestimate their ability to deal with those when they come
Planning Fallacy - The tendency to believe that one can achieve more in a given period of time than is really capable. An error in planning.
Law of small numbers - this refers to a judge mental bias where a small sample of information is used to predict an outcome of a larger population
Illusion of control - when an entrepreneur of overestimates his or her ability to control events that are not actually within his/her control.
Venture Capitalists Evaluation Criteria for new ventures
Bishop and Nixon new venture criteria:
- Potential growth in market
- Demonstrated market acceptance
- The likelihood of a 10x return on asserts on next 5-10 years
- The entrepreneurs ability to react well to risk
Investors will look at;
- Experience and a good management team
- Proprietary product/service of superior quality
- Marketability
- Personal commitment and involvement of entrepreneur
- Entrepreneurs’ openness and honesty
- Knowledge and experience
- Realistic financials
- Exit plan
- Return on Investments (ROI)
- Intellectual property
Opportunity Assessment and Screening
- SUCCESSFUL CHARACTERISTICS
- FEASIBILITY
- MARKETABILITY
- THE ENTREPRENEUR & ENTREPRENEURIAL TEAM
- RESOURCES
The characteristics of successful p/s ideas ( Ryan, Rogers and Shoemaker)
- It should or convince to fulfill a need/want
- Should have either mass market or niche market appeal
- must render income and profit
- should be replenished/ repurchased by customers on the regular
- should co exist with existing buyer attitudes and beliefs
- Should be so simple that the buyer will daily understand it
- Trial version should be made available
- p/a should be readily available
Feasibility test of p/s
The technical requirements for producing a p/s should be identified and evaluated as well as technical skills of entrepreneur and his venture team
THE ENTREPRENEUR & ENTREPRENEURIAL TEAM
Personality and personal preferences
Skills
Traits and Attributes
Relevant experience
Synergy
Exit plans - alternative business opportunities should be evaluated
RESOURCES
ACCESSIBILITY - where, how and when they can be acquired
OPTIMIZING RESOURCES - eliminating unnecessary expenditures
SUSTAINABLE ADVANTAGE - when the entrepreneur is able to to retain an initial competitive advantage for a long period of time. Ex Nandos
TYPE AND NATURE OF THE INDUSTRY - availability of resources, the size of investment needed, competition
Capital Requirements - should be established to implement ideas or opportunities
Marketability Test
Customers - who are they? Where are they situated? What are their dominant characteristics?
Competitors - How many are there operating in your area? Will p/s provide a competitive advantage? How will prices be set ?
Suppliers - will specific suppliers be needed? Do present suppliers have exclusive contracts?
Marketing of a p/s - Will the p/s need special selling skills ? How much will be spent on selling or advertising? What distribution channels will be used - wholesale, retail, direct agents or mail
