New Business VenturesNew Business Ventures

Session #3: Opportunity Session #3: Opportunity RecognitionRecognition

BALAGOPAL VISSAINSEAD

1, Ayer Rajah AvenueSingapore 138676

---Office: (65) 67995382

Hand phone: (65) 94244573Email: balagopal.vissa@insead.edu

These notes are intended to support class discussions. They should not be considered a comprehensive set of issues to be dealt with.

Frog & Rosbif Key takeaways…..

Creating a new venture from scratch is a process – what you do and how you do it are more crucial than your personality or cultural background

Opportunities are like diamonds in the rough – need to be polished thru hard work

Luck matters a great deal – but on the other hand, fortune favors the prepared!!

It always takes longer than you think – so persistence pays

Today’s session – How do entrepreneurs pursue opportunity

Discuss the Opportunity Assessment Sheet exercise & Readings

Lecture on what is generalizable Invited Speaker:

Darran Nathan Chief Strategy Officer (Project Proteus) How his team is pursuing an opportunity in

reconfigurable computing His personal journey as an entrepreneur

Sample of Business Concepts using “Reconfigurable Computing”

Business Concept Count

1. Accelerate drug development thru’ better information sharing

1

2. Scalable system for architects / designers / gaming 2

3. Weather forecasting and climate modeling 2

4. Military applications e.g. simulating nuclear detonations

1

5. Handheld “music box” that plays all types of music files

1

6. System Integration / “Middleware” for large international banks / companies

3

What’s the difference between an idea and a business opportunity?

An attractive business opportunity consists of

A great business concept Large potential market Technically feasible product Protectable IPR

Pursuing Opportunity is a subjective process

Three sources of subjectivity Perception Ability Motivation

Perceiving Opportunity analogous to signal detectionInterpretation of a noisy signal is dependent on stocks of prior knowledge

Success Failure

ActCorrect Decision Type I error

Don’t Act

Type II errorCorrect Decision

Ultimate outcome

Decision to act on the opportunity

Avoiding Type I & II errors requires….

Immersion in operational details which

Accrues slowly (albeit reliably) through prior experience or

Can be acquired rapidly (albeit less reliably) through vicarious learning

“Self Knowledge” is equally important …

Do you have the needed abilities (e.g. social networks, team building skills etc.) to execute?

Are you truly motivated to pursue this activity?

So, is it a good opportunity for you?

Perception

Motivation

Ability

Seriously pursue an opportunity when:

You perceive it

and

Have the ability to exploit it – or get a partner who does –

and

Are motivated to pursue it

Points to Ponder…

An idea or invention is not a business opportunity

Pursuing opportunity is a subjective process – lookout for type I or II errors

Always ask the question – Why is this a great opportunity for me?

As an entrepreneur - how do you deal with an uncertain future?

Type of Uncertainty

Risk Uncertainty Knightian Uncertainty

The distribution of

the future

The future has a known distribution

The future has an unknown distribution

The future has no distribution – it is unknowable

Type of probability

A priori Statistical Unclassifiable instances

Example Urn contains five green balls and five red balls. Drawing a red ball wins $50

Urn contains unknown number of balls. Drawing a red ball wins $50

Urn may or may not contain any balls – even the existence of the urn may be in doubt

Methods to deal with

uncertainty

Analysis Estimation Effectuation

What’s Knight got to do with it?

Sou

rce:

Dew

& S

ara

svath

y(2

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3)

Contrasting effectual Vs predictive reasoning

Predictive Reasoning

The goal to be attained is well understood and clear

Focus your attention on the best / most creative means to attain the goal

Effectual Reasoning

The goal to be attained is not clear

Focus attention on the means at your disposal. Ask the question: What possible goals can I achieve with these means

Difference in underlying logic

Predictive Reasoning

To the extent that we

can predict the future,

we can control it.

Effectual Reasoning

To the extent that we

can control the future,

we don’t need topredict it.

Effectual Reasoning – core principals

Leverage contingencies (as opposed to executing a pre-determined plan)

Build parternerships (as opposed to competitor analysis)

Focus on affordable loss (as opposed to expected return)

source: Sarasvathy (2001)

Effectual reasoning – the process Lives and breathes execution

A coherent story binds people together and makes sense of their actions

The set of means and their effects get reconfigured till some effects coalesce into a clear goal

Key Takeaways

Pursuing opportunity entails dealing with an uncertain future

Two different ‘rational’ ways of dealing with uncertainty – Predictive and Effectual

Effectual thinking likely requires more creativity than predictive thinking

Preview of next session(Session #4 & #5) – ACG case

Venture design choices concerning Business Model design Market Entry

Immerse yourself in the operational details and link above choices to the P&L of ACG