How do entrepreneurs identify attractive business opportunities?

September 6, 2017 Richard Justenhoven

business opportunities

The role of ability and creativity

Entrepreneurial opportunity recognition is one of the core elements in entrepreneurship as it is in this initial stage that entrepreneurs seek to identify and select new ideas to develop and build up into new businesses.

But what are the cognitive mechanisms behind that process? How important are general mental abilities and what role does creativity play?

Former research has mainly focused on either one of these constructs. Having good mental abilities enables entrepreneurs to process important information, such as new technologies or changes in the environment and society. Thus, they can use this knowledge to adapt market offers to the needs of customers. However, being creative also plays an essential role. It leads to innovative and unusual business ideas.

Zorica Zagorac-Uremovic from the University of Liechtenstein suggests that it needs convergent as well as divergent abilities to effectively recognize and develop entrepreneurial opportunities. In the context of her dissertation, she conducted an exploratory multiple case-study analysis, using qualitative and quantitative methods. She collected data from 32 entrepreneurs in and around the German-speaking region of Liechtenstein, Switzerland, Austria and Germany.

In a first step, she interviewed the entrepreneurs to find out what their thinking processes were like when they were in the stage of opportunity recognition. Did they process a lot of data? What was the technological status at that time? How did they get to extraordinary business ideas?

Furthermore, the entrepreneurs participated in two of our tests: sparks, to measure creativity and scales verbal, to measure their verbal reasoning abilities. Also, three independent business experts rated their business ideas with regard to several criteria that are central in the process of opportunity recognition such as ‘Market Newness’, ‘Customer Usefulness’ and ‘Profit Potential’.
So what were the results of the study? First of all it shows that mental abilities seem to be important to create useful products and services. In order to do so, it is necessary to analyse hard facts, such as technological feasibility, problems with current solutions and the market size. Moreover, mental abilities show a relationship with the market growth of specific ideas; to be successful with a new business model for example, it is necessary to analyse the state of the potential market including current trends (such as on-demand economy and digitalization) and how it is likely to develop in future.

But not only mental abilities are central to develop useful products. Creativity showed relations to it as well. Generating many ideas enables to identify and choose the most appropriate business opportunity. It also seems to be fundamental when it comes to generating new ideas. Additionally, those who scored higher in creativity were more likely to develop completely new products instead of participating in niche markets or adapt existing products.

In conclusion, the quantitative results confirm that both mental abilities and creativity play central roles in the process of opportunity recognition. Yet, the results need to be interpreted with caution as most of them were not significant, probably due to a small sample size.

The results from the retrospective interviews suggest that convergent thinking dominated the overall process but divergent thinking helped to facilitate flexibility, in the sense that after a period of analysis, divergent thinking enabled cognitive shifts, which helped new ideas to emerge. The entrepreneurs often stated that former education and work place experience have influenced them to stay in a more structured and methodological thinking states. Especially, when it comes to products and services in the high-tech area, convergent thinking was crucial to understand the required technology.

In an upcoming study Zagorac-Uremovic hopes to get deeper insight into the thinking processes by giving out scenarios to the participants and letting them “think loudly”. In this methodological approach, the participants are asked to share every single thought when working on a task. She anticipates that this will help her to understand how the systems of convergent and divergent thinking are working together or take turns.

We will keep you updated about further developments!

References:
Zagorac-Uremovic, Z., & Marxt, C. (2017). Divergent and Convergent Thinking in Different Entrepreneurial Opportunity Contexts. Paper presented at the ISPIM Innovation Conference 2017, Vienna, Austria.

Zagorac-Uremovic, Z., Palmer, C., & Marxt, C. (2017). The Joint of Effects of Divergent and Convergent Thinking on Entrepreneurial Opportunity Recognition: Findings from Exploratory Case Studies. Paper presented at the Australian Centre for Entrepreneurship and Research Exchange 2017, Melbourne, Australia.

 

 

About the Author

Richard Justenhoven is the product development director within Aon's Assessment Solutions. A leading organizational psychologist, Richard is an acknowledged expert in the design, implementation and evaluation of online assessments and a sought after speaker about such topics.

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