How is What is an Opportunity a Valuable Research Question?

24 April 2007 at 2:06 pm 2 comments

| Chihmao Hsieh |

In introducing the April 2007 Special Issue of Small Business Economics, guest editors Jeffery McMullen and Lawrence Plummer, and Zoltan Acs ask “What is an Entrepreneurial Opportunity?” First, the abstract:

The nature and source of entrepreneurial opportunity are important issues for understanding how markets function and come into being. In addition to describing the forum held on the topic and summarizing the contributions of the articles that appear in the special issue, this article shares a number of lessons learned during the workshop and the editorial process. We explore three of the most important reasons for confusion about the opportunity construct: (1) the “objectivity” of opportunity, (2) the perceived importance of one particular individual in determining the direction of the social world and (3) what distinguishes the sub-class of “entrepreneurial” opportunity from the broader category of opportunity in general. Finally, we offer some directions for future research by illuminating important issues that emerged from the workshop but that remain largely unanswered by the papers of this special issue.

Needless to say, the authors courageously untangle some fundamental concepts (i.e. different types of ‘objectivity’ as it might relate to the notion of opportunity). Yet a sentence in the article’s second paragraph gave me pause: “…without a clear understanding of the nature of opportunity, formulating logically consistent prescriptions for both policy and practice is problematic because any theoretical basis of empirical results would be incomplete” (p. 273).

My take is that the problem and incompleteness have less to do with any kind of unclear understanding, and more to do with recent explosion of the use of the term as it closely aligns with one oft-cited definition. Namely, Scott Shane and colleagues define an (entrepreneurial) opportunity as a “situation in which a person can create a new means-ends framework for recombining resources that the entrepreneur believes will yield a profit” (2003: p. 18, emphasis in original) and furthermore in such a way that explicitly-speaking, “entrepreneurial opportunities are not always profitable” (same page).

If entrepreneurial opportunities are not always profitable, and all its discovery takes is mere belief (i.e. some crazed fool who has no understanding of economics believes [incorrectly] that he has discovered a profitable set of choices, and therefore has indeed “discovered an opportunity”), then what is the point of prescribing for discovery?

It appears that the point of prescribing for the discovery of that type of opportunity is that it would help to explain behavior of all prospective entrepreneurs (i.e. firm founding and choice to become self-employed, including those such choices that ultimately end in failure). Unfortunately, that particular concept of opportunity doesn’t get us much closer to prescribing the types of decisions and choices (or individual traits) likely leading to value creation, contingent on different and general types of conditions.

In order to do that, shouldn’t a more restrictive definition of opportunity be considered? How about one that relates opportunity to “a set of decisions and choices that if selected will yield a profit”? Is the cost of advancing entrepreneurship research reduced if we use one type of definition (or class) of opportunity for matters of building positive theory, and another type of definition (or class) for matters of building normative theory?

Entry filed under: Entrepreneurship, Former Guest Bloggers.

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2 Comments Add your own

  • 1. David Hoopes  |  24 April 2007 at 8:58 pm

    I think there is gross over-emphasis on opportunity and related issues “where do ideas come from.” The deciding factor in entrepreneurial success is not the novelty of the idea. It is the quality of execution. At the HBS Entrepreneurship Conference a few years ago I likened it to doctoral dissertations. Great ideas are wonderful. But, more times than not, success (measured almost any way) depends largely on implementation. If you look at business plans, there is no shortage of great ideas. However, the effort put in basic marketing and operations is usually neglible. Thus, lots of people have good ideas for food and atmosphere at restaurants. Most go out of business because they have no idea how to cost a plate of food, order fresh produce, and keep labor and food costs under control.

  • 2. REW  |  25 April 2007 at 10:48 am

    The definition of opportunity in theoretical discussion and empirical analysis of entrepreneurship is the metaphorical equivalent of niche in theoretical and empirical research in ecology. (Not the flaccid, tired subfield of org theory labeled population ecology, but the biological science.) As Chihmao Hsieh notes in his post, Shane and Venkataraman see the entrepreneur and the opportunity as inextricably linked. And, as David Hoopes says, opportunities can be seen as exploited ideas visible on the competitive landscape. This logic parallels the modern definition of the ecological niche, following from Evelyn Hutchinson’s seminal idea from a 1957 conference on quantitative biology. Modern definitions of the niche look eerily like the entrepreneur-opportunity nexus; the niche is defined by the organism that successfully inhabits it, how it behaves, and the resources it uses. The physical and behavioral separation of a new niche from competition (along Hutchinson’s n-dimensions: organism characteristics, biotic and abiotic resource profiles, behaviors, etc.) is the metaphor for competitive isolation of the entrepreneur in the (figurative) competitive landscape.

    We may get bogged down in whether either or both of the concepts connected by this metaphor are tautological or merely selecting on the dependent variable of success, but we shouldn’t. The ecologists have been 25 years ahead of us in dealing with their side of the metaphor. We can learn a great deal from their theoretical and empirical modeling

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