Opportunity recognition and development

The recognition of an opportunity and its initial development can be seen as an element of the first phases of commercialization process (See e.g., Jolly 1997; Feldman 1994; Gbadegeshin 2019).

Entrepreneurs must discover new opportunities before they can proceed to creation of new products, processes, or markets (Shane 2000). A successful opportunity development process always precedes the creation of a successful business. It includes the recognition of an opportunity, it’s evaluation and further development (Ardichvili et al. 2003). It starts from perceiving a potential business opportunity from unmet market needs considering the required resources and leads to implementing the idea to a successful business (Shrestha 2015).

After identifying the opportunities entrepreneurs must select, organize, and adopt strategies to develop the identified opportunities (De Bruin & Ferrante 2011). Shrestha (2015) describes business opportunities as creative plans that entrepreneurs need to convert into commercial reality where customer needs are met by selling products and services. Gruber et al. (2008) state that for

entrepreneurs it is important to “look before leaping”, which refers to making comprehensive research before making any significant moves, because the consequences of not recognizing the most favorable market opportunity can be crucial. It is an iterative cyclical process that is most likely conducted several times during different stages of development, and it can lead to further adjustments or recognition of additional opportunities (Ardichvili et al. 2003). Nowadays digitalization has facilitated access to information and for instance big data can be used to gain new business insights (Thomas & Leiponen 2016). However, due to easy availability electing and analyzing the information carefully is crucial (Gbadegeshin 2019). Ardichvili et al. (2003) describe opportunity recognition as a multistage process in which entrepreneurs have proactive roles and both situational and individual differences influence the process. In addition, opportunity development involves the entrepreneur’s creative work that transforms the initial idea into something feasible, which emphasizes the ‘development’ part besides mere ‘recognition’.

Entrepreneurs recognize opportunities related to the information that they already have (Shane 2000). Shrestha (2015) states that entrepreneurs use cognitive skills of opportunity recognition more intuitively than systematically. Opportunity recognition is a result of alertness and intuitive estimation supported by entrepreneur’s own experiences and knowledge. Correspondingly, Ardichvili and Cardozo (2000) discuss that entrepreneurial opportunities are discovered more through recognition than intentional search. They elaborate that the requirements for successful opportunity discovery are a mixture of entrepreneurial awareness, prior knowledge of customer problems and markets, and access to extended social networks. Prior knowledge can exist because of work experience, personal non-work-related experiences and events, or education relevant to the markets. Individual differences affect the opportunities that people recognize and how their entrepreneurial efforts are organized (Shane 2000).

However, the capability to recognize and develop business opportunities can be cultivated. According to Shrestha (2015) different sources and methods can be used to acquire information to recognize business opportunities. Methods can be simple as conversations with friends, relatives and potential customers or conducting visits and observing successful products, services, markets, and business

organizations. Furthermore, Gruber et al. (2008) discuss about multiple opportunity recognition.

According to scholars experienced serial entrepreneurs have learned through earlier entrepreneurship experience to create a choice set out of alternative market opportunities before deciding which one to pursue in their venture creation. Having several options to choose from allows to select the most favorable market opportunity.

Thursby (2016) suggests using common analysis frameworks for evaluating possible market opportunities such as the Five Forces-analysis, PEST-analysis, and SWOT-analysis. Porter’s (1979) Five Forces analyses five forces that affect the competitiveness in an industry: (1) the power of suppliers, (2) the power of buyers, (3) threat of entry, (4) threat of substitutes and (5) rivalry among existing firms. PEST-analysis covers political, economic, social, and technological factors affecting the target market. SWOT is an analysis of the company’s internal strengths and weaknesses and external opportunities and threats. For the sake of demarcation, the models are not described here in detail.

Opportunity recognition and development process and the expansion of opportunities is significantly influenced by the composition of one’s entrepreneurial knowledge. According to de Bruin and Ferrante (2011) entrepreneurial knowledge consists of context-dependent localized knowledge i.e.,

‘tacit knowledge’ and more general education and training i.e., ‘codified knowledge’. Dekkers (2018) defines tacit knowledge as intuitive and unarticulated, and codified knowledge as systematic recording of information in manuals, procedures and such which is accessible by practically anyone.

Especially localized tacit knowledge is vital in the identification and exploitation of opportunities.

Entrepreneurs have a limited number of opportunities available within their area of influence and the number of available strategies and options to leverage from the recognized opportunity depends on the amount of tacit and codified knowledge that the entrepreneur possesses (de Bruin & Ferrante 2011).

Moreover, the network in which one is has an important role in the recognition process. It serves as a source of information about current activities and developments in the market. Position within the network affects the quality and quantity of available information and how soon it will be reachable.

This affects which opportunities can be identified and evaluated (Groen et al. 2015). This is connected to the network theory of internationalization which is further discussed in Chapter 2.3.2. Furthermore, a recent study by Faroque et al. (2021) suggests that if the market environment is relatively stable both exploring new networks and exploiting existing networks can provide new international opportunities. The scholars also argue that using both strategies in a changing market environment instead will result in failure, and managers from older firms can benefit from exploiting their existing networks but younger firms must explore new network relationships.

Consequently, the quality of the entrepreneurial knowledge is central. Codified knowledge is more transferable across individuals than tacit unless the tacit knowledge can be processed and codified as well (de Bruin & Ferrante 2011). Tacit knowledge cannot be communicated, understood, or used without the knowing subject to be present, but transferring codified information does not require the knowing subject to participate (Dekkers 2018). Also, higher amount of codified knowledge compared to tacit knowledge indicates better solutions, e.g., path breaking vs. incremental strategies. Thus, the quantity and quality of entrepreneurial knowledge affect centrally the achievable end results and the networks containing the knowledge partially explain differing levels of growth between regions and economies (de Bruin & Ferrante 2011).

Research by Gruber et al. (2008) concerning opportunity recognition in emerging technology firms states that a team that possesses a mixture of experience from several fields can identify a larger number of opportunities compared to a team with experience from only one field such as marketing, technology, or entrepreneurship. In addition, experienced entrepreneurs impact the market search behavior of the team members. It is therefore important to include people with sufficient level of knowledge from several fields and to activate them in an exploratory search. A recent study by Roelandt et al. (2021) also suggests that in high technology firms the board of directors has potential to contribute with their knowledge to opportunity development. However, the research states that the board members are less willing to contribute when the board is bigger in size, board tenure is shorter, or the venture performs well.

The above discussion implies that the potential of opportunity recognition and development regarding e.g., the scope of the recognition and transferability of knowledge is largely dependent on the amount, quality, and versatility of team’s knowledge. The faster the competitive environment and the technology changes the faster specific tacit knowledge gained through experience ages. On the other hand, knowledge gained through training and formal education ages at a much slower rate (de Bruin & Ferrante 2011). This is relevant regarding the empirical research of the thesis, because one of the idiosyncrasies of high technology is rapid product life cycle as mentioned in Chapter 2.1.1. (e.g., Viardot 2004; Steenhuis & de Bruijn 2006). Furthermore, one of the challenges of commercialization nowadays is increasing pace of change in technology, digitalization, government policies and customers’ needs (Gbadegeshin 2019). Emphasis should be laid on having a team with versatile experience and knowledge from all required fields, having a strong position in a network and developing the internal process of transferring tacit knowledge to codified knowledge. This is connected to the commercialization process via its external and internal dimensions (Pellikka 2014) and the bridges between the stages of the commercialization process (e.g., Jolly 1997) which will be discussed next.