Stanford Graduate School of Busines

Identifying Venture Opportunities

Discovery Phase

Where to start looking for an idea

What the entrepreneur knows best: prior employment, work experience built around an
industry or field, educational background, life experience, travel, retail experiences
(looking for better solutions).

Idea searching phase: spending time with other entrepreneurs and reach out to
innovative thinkers outside of one’s personal network.
The likelihood of discovering ideas and opportunities will increase dramatically by
interacting with other creative minds.

Team creation and execution: proper execution

- Forming the right team of people to carry out the idea
Successful teams work well together an are responsive and adaptive to the changing
needs of the opportunity.
- Ensuring passion and commitment to the idea and the building aspect of the idea.
Passion facilitates the articulation of the message and business strategy behind the idea,
which makes attracting employees and investors a less daunting task. It is important that
passion meets market opportunity.

Thinking about opportunity space around an idea

One o the primary objectives of any entrepreneur should be to find an idea in an attractive
and fast growing opportunity space, which requires a thorough understanding of the
industry and a willingness to be flexible.

Envision trends and identify early changes from which opportunities arise
Four primary categories of changes/trends that influence future business development.
1. macroeconomic and industry trends. Slow long term changes in economy.
2. social and demographic trends: changes in preferences that create demand for things
where demand has not existed before. Initiated by changes in population groups, life
spans, family composition, disposable incomes. Ex. Wholefoods
3. Technology changes and trends: People can do things that they couldn’t do before.
Innovation and discoveries are captured through economies of scale, scope and network
effects.
A. Applying existing technology to new applications and markets. There are no major
breakthroughs in technology, only slight modifications of existing technology. Ex.
Ebay/Tesla
B. New Technology and New Markets – Brave New World. Entrepreneurs enable
technology to open up new markets. Ex. Cisco Systems router technology, Intel and
microprocessors.
4. Government and Regulatory Changes
They alter the market and competitive landscape, impacting the demand for and supply of
products and services, opening up doors that had previously been closed to businesses.

Other types of new opportunities

1. Developing specialized technology. Create to merge approach: identify a hole in the
product line and create one to merge the gap.
2. Novel business models. Entrepreneurs with novel business models come up with new
ways of providing products and services; establish new standards and norms; and redefine
how companies can operate within established industries. Ex. Costco.
3. Follow the leader. This approach refers to the pursuit of an incremental opportunity by
imitating what other company is doing with some modifications. This approach is worthy if
an entrepreneur can offer a product or offer a service in a “faster, better, and cheaper”
way.
4. Combination: Entrepreneurial ventures that result from the combination of different
forces. Ex. Google

What makes an idea an opportunity? VIABILITY

-The customer, the product and competition

A viable idea addresses a specific unmet customer need or problem.
In addition to having a basic understanding of who the target consumer is, it is critical that
the entrepreneur can articulate what the value proposition is to the customer.
A compelling value proposition is based on real value, as opposed to perceived value
(customer), and is differentiated and sustainable.

-The industry and the marketplace (Growth potential)

Chances for success are much greater in large and growing markets that are favorable to
the entrance of new firms and start-ups and that will attract new (not just existing)
customers.
Overall market structure: the ideal marketplaces that are most amenable to the entrance
of new firms tend to be large and growing, emerging or early on in their lifecycles, and
fragmented and imperfect.

-The Timing: the window of opportunity (momentum of trend/time)

- Risk and Reward Framework

Entrepreneurs must be vigilant and constantly searching for ways to mitigate the major
risks in the venture, which broadly relate to
market opportunity,
product/service offering,
management team.
Search for opportunities where the primary risk is only in one of these categories.