I’ve written a lot about opportunity identification in my books Product Design and Development, Innovation Tournaments, and The Innovation Tournament Handbook. The topic is also covered fairly extensively in the course OIDD 614 Innovation Management. Consider this chapter a quick summary of the big ideas in the context of identifying entrepreneurial opportunities.
Often the Opportunity Finds You
On my weekly podcast I have interviewed about 500 founders. For about half of these founders, the opportunity found them; they did not go looking for an opportunity. For example, consider Flava Naturals, founded by Alan Frost. Here is how he describes the origin story.
“I told you we should eat more chocolate!” I looked up from my coffee and there was my wife holding out the New York Times, and looking very happy. She’d just read an article about a Columbia University study that linked chocolate to enhanced memory. (…) But I was a biotech exec accustomed to how the media could exaggerate the importance of findings in small studies. I love chocolate too, but was skeptical, to say the least. So I dug deeper. Sure enough I found dozens of placebo-controlled studies that demonstrated meaningful benefits of cocoa flavanols on brain, heart and skin function. There was a catch though, and a pretty big one. The best results seemed to require consumption of 500-1,000mg of cocoa flavanols a day — that’s 5-10 average dark chocolate bars! (…) So began my quest to develop a decadent chocolate with the naturally preserved flavanols proven so healthy. And a business was born.”Alan Frost, Founder and CEO Flava Naturals
Another common pattern is that entrepreneurs experience a pain point themselves and then set out to create a solution to address their own needs, and hopefully those of a larger market. Tammy Sun founded Carrot fertility services when she found that her employer did not cover fertility benefits as part of her health insurance, and that there were no enterprise solutions for managing fertility services for employees. She then set out to found a company to meet that need.
A third pattern, probably least common, is that an individual or team seeks out an entrepreneurial opportunity but has no particular problem area in mind. For example, Alan Cook founded, grew, and sold a first business in the pet care space, an opportunity born out of frustration with conventional litter boxes for cats. After a brief sabbatical, he sought to start another company, but this time was agnostic about the specific problem area. With the help of members of his previous team, he generated and considered about one hundred distinct opportunities, from pre-packaged spices to reconfigurable furniture, before focusing on another pet care product, this time for dogs. He pursued that opportunity not because he experienced a need himself — Alan doesn’t even have pets — but rather because he felt his prior experience gave him an unfair advantage, always a good thing for an entrepreneur.
A Personal Innovation Tournament
If you are motivated primarily by purpose, then the opportunity obviously matters a lot — after all you are setting out to do something specific in society. In that case, the entrepreneurial opportunity had better be aligned with that purpose. However if your goal is fun or financial return, does the selection of opportunity even matter very much? Put another way, is there not an opportunity to be financially successful or to have fun in pretty much any area of the economy? Sure, to some extent, you as an entrepreneur can probably find a viable opportunity almost anywhere you look. However, you will likely spend at least five years of your life pursuing a new venture. You might as well be quite deliberate about which opportunity you pursue. In my opinion, a good rule of thumb is that when considering taking the entrepreneurial leap, you should generate and evaluate at least ten different opportunities.
The process of identifying or generating a large set of opportunities and then selecting one or a few to pursue further is an innovation tournament. This tournament need not involve a large group of people. In fact, you can run that tournament by yourself.
There are two parts to an innovation tournament — (a) generating the initial candidates and (b) selecting the exceptional few. Let’s start with the end in mind and consider selection criteria. Then, I’ll give some guidelines for generating opportunities.
The motives and selection criteria for a new venture depend on you and your co-founders, if any. You might want to do something in Brazil or be involved in the skiing industry. Make a list. Be very specific about the desirable attributes of your future business. This list is usually quite personal. For instance, when I started MakerStock, one of my selection criteria for this new business — after having made and sold scooters for 20 years — was that our product would not be intrinsically dangerous, as are wheeled vehicles. In my old age I prefer not to think about customers getting injured with my product. You will have your own set of hopes, fears, and desires.
In addition to any idiosyncratic preferences you may feel, the following questions are always important:
- Would you be excited, passionate, and proud to tell others, including your family, what your venture does?
- Is there enough TAM that you can create an enterprise of significant value? (See the chapter on market sizing.)
- Do you have a credible thesis for how you might offer value relative to existing companies (e.g., superior solution, strong brand, network effect)? (See the chapter on alpha assets and sustainable advantage.)
- Are your skills, credentials, and/or prior experience particularly relevant to success?
- How much capital will be required to pursue this opportunity? Is this capital requirement aligned with your vision for the type of business you hope to create, say a closely held lifestyle business versus a venture-backed company that goes public?
After considering these questions and your personal preferences, explicitly articulate your selection criteria so you can use them to evaluate the opportunities you are considering.
Here is a template (as a Google sheet) to use in evaluating opportunities.
Guidelines for Generating Opportunities
The process of generating opportunities usually plays out over weeks, months, or even years. Start a list. Accumulate ideas as they arise from whatever source. In addition to passive accumulation of ideas, you’ll benefit from focused, deliberate efforts to generate opportunities. Here are some guidelines, techniques, and heuristics for generating more and better ideas.
Push versus pull. Two distinct approaches to innovation are push and pull. With push, you start with a solution — say blockchain technology — and go looking for a market need. With pull, you start with a pain point experienced by consumers or businesses and you devise a solution. As a general rule you should take the pull approach. Identify a problem that potential customers have and then develop a solution that solves it better than existing options. The push approach can work on occasion, say when you start with a fundamental innovation in materials science that has the potential to be broadly useful. However, the push approach has proven to be much more risky than when you start with a pain point that is clear and obvious.
Second-best ideas. Learn from other entrepreneurs and ask them for ideas. Most successful entrepreneurs have dozens of ideas. They are working on their best idea, but you should ask them what is their second-best idea. Many will happily give you ideas and maybe even help you get started.
Imitate but better. find successful ventures in a field that interests you and improve on their offerings by adding new features or benefits, reducing costs or risks, targeting new segments or markets or creating a unique brand identity. Hundreds of interestiong new ventures are listed by AngelList, WeFunder, StartEngine. YCombinator. Crunchbase, and other organizations. Existing start-ups are a treasure trove of information on what has been tried, what is working, and what approaches have failed. You will not usually want to go head to head with an exact replica of an existing company for two reasons. First, differentiation is a good thing allowing multiple companies to flourish by serving different segments. Second, there’s no particular reason to believe a start-up a few months ahead of you has taken the best approach.
Scour social media. Use social media platforms like Reddit, Quora, and Twitter to find out what customers are talking about, what problems they have and what solutions they are looking for. Monitor trends, hashtags, influencers and feedback. Journalists, bloggers, and conference organizers are in the business of sensing. While their insights are available to everyone, not everyone is viewing those insights through an entrepreneurial lens.
Careful of gold rushes. On-line forums and media outlets will occasionally exhibit fad-like behavior and herding. For instance, as I write this, these forums are crowded with excitement about large language models, chat bots, and artificial intelligence. Unquestionably opportunities abound. However, you can not typically observe the number of rivals entering a new market, and some markets are gold rushes, with too much competition. You may be better served by a quieter niche.
Import from another geographic region. Innovations are often geographically isolated, particularly if introduced by smaller firms. You can sense opportunities by identifying outstanding products or services in a distant region and then considering how you might adapt them to a different place.Translating the innovation from one geographic region to another can be a source of innovation.
Consider lead user innovation. identify users who have a high need for your product or service and are ahead of the market in terms of innovation. Observe how they use your product or service and what modifications they make to it. Incorporate their feedback and suggestions into your product development.Firms have ample incentive to innovate. Innovation, after all, can result in new sources of cash. But lead users and independent inventors may have even greater incentives. Lead users are people or firms that have advanced needs for products or services that are not being met by other companies. They must either tolerate their unmet needs or innovate themselves to address them.
Poke around universities. Major research universities are wellsprings of opportunities and have produced such successes as Google (Stanford), Genzyme (MIT) and many others. Some of the opportunities spring from faculty-led research, particularly in the life sciences. Others are created by the legions of bright young students who enroll to chart new directions in their lives and careers.
Learn from Others
Here are several interviews I’ve done with founders that have particularly interesting origin stories. Sample the ones that interest you. Most interviews are about 25 minutes long and the origin story is usually in the first third of the interview.
Coravin (Greg Lambrect) – wine dispensing
Eat Just (Josh Tetrick) – alternative protein
Rebellyous Foods (Christie Legally) – alternative protein
Frutero (Mike Weber and Vedant Saboo) – ice cream
Flava Naturals (Alan Frost) – nutraceuticals
Carrot (Tammy Sun) – fertility services
The Infatuation (Chris Stang and Andrew Steinthal) – restaurant guide
Ulrich, Eppinger, Wang. Product Design and Development. Chapter “Opportunity Identification.” 2020. McGraw-Hill.
Terwiesch and Ulrich. Innovation Tournaments. Chapter Opportunity Identification. Harvard Business Press. 2009.
Terwiesch and Ulrich. The Innovation Tournament Handbook. 2023. Wharton School Publishing.