Opportunity recognition

Author: Marius Kahlert, UTwente


3. Opportunity recognition

Opportunity recognition is a key component of the start-up creation process. Bygrave and Hofer (1991) state that it is an essential characteristic of entrepreneurs to perceive an opportunity.

In his research, Baron (2006) assesses the process of pattern recognition of the individual to identify new business opportunities. He suggests that opportunity recognition is based on the entrepreneur's cognitive framework which is acquired through experience. This cognitive framework allows the individual to perceive connections between seemingly unrelated events and trends in the external world. Baron (2006) calls this process "connecting the dots". In this regard, opportunity recognition is based on three important factors: (1) the active search for an opportunity, (2) the alertness to perceive an opportunity and (3) prior knowledge of and experience in an industry. This pattern recognition proceeds on the basis of either exemplar models or prototypes or both. Exemplar models involve the comparison of a newly encountered stimulus with examples of concepts which are already present in memory. Prototypes include the comparison of new trends or events with existing prototypes (defined as the idealized representation of a typical member of a certain category).

This process of opportunity recognition is repetitive, since entrepreneurs might not recognize all the aspects of an opportunity but rather perceive some and proceed with those. Through the acquisition of knowledge and experience entrepreneurs can learn to be more successful in recognizing patterns and connecting the dots of developments in the external environment.

Sources: Baron, R. A. (2006). Opportunity Recognition as Pattern Recognition: How Entrepreneurs “Connect the Dots” to Identify New Business Opportunities. Academy of Management Perspectives, 20, 104-119.

Bygrave, W., & Hofer, C. (1991). Theorizing about entrepreneurship. Entrepreneurship Theory and Practice, 16(2), 13‐22.