In late 2010, an entrepreneur, inventor, and lifelong tinkerer was busy in his Southern California garage working on his latest idea – a modular gardening system.
He had an annoying problem, though. He kept missing delivery people and other visitors because he couldn’t hear the doorbell from his garage.
So, he searched for a product that could send a push notification to his phone when someone rang. Not finding such a solution, he cobbled together a Wi-Fi doorbell.
He was interested in the convenience of the device. But it was his wife who sold him on the security appeal of a video doorbell that would notify your phone and allow you to communicate with whoever is at the door, from anywhere you happen to be. “This is like caller ID for the front door,” she said.
“It was so obvious to me,” the inventor, Jamie Siminoff, said. “Why wouldn’t your doorbell go to your phone, and why can’t you see and talk to who’s there from your phone? To this day, it doesn’t seem like an invention to me because it was so damn obvious.”[1]
Siminoff would launch a company around the idea. By 2013, Doorbot was generating $1 million in annual sales, but costs were mounting and the venture was close to going under.
That’s when Siminoff pitched his company to the investors on the ABC television series Shark Tank. He was seeking $700,000. All the sharks save Kevin O’Leary passed on the deal. But Siminoff rejected O’Leary’s terms.
However, the publicity from the show significantly spiked sales, and the company eventually rebranded as Ring and attracted investments from Richard Branson, Shaquille O’Neal, and a few venture capital firms.
In 2018, Ring was acquired by Amazon in a deal estimated to be valued at over $1.2 billion.
To be fair, the sharks may well have seen the potential value of the product but still rejected the deal because of valuation or capitalization concerns. Clearly, though, Siminoff had a problem-solving product, and saw an opportunity to disrupt the home security market.
Ring was also not his first venture. Siminoff is a serial entrepreneur who has had varying levels of success with previous businesses.
But stories such as Siminoff’s raise a common question that continues to drive entrepreneurship research:
Why do some people see opportunity where others do not?
A group of researchers from universities in Sweden and Finland conducted a comprehensive literature review of entrepreneurial opportunity recognition research. They used bibliographic analysis and synthesis of previous contributions to identify six prominent factors that influence opportunity recognition.[2]
These factors are: prior knowledge, social capital, cognition and personality, environmental conditions, alertness, and systematic search.
Let’s take a closer look at these six factors.
Prior knowledge
Basically, we acquire prior knowledge through education and accumulated experience. But our prior knowledge also affects how we attend to, interpret, and organize new information.
The George et al. analysis indicated several research propositions regarding the influence of prior knowledge on opportunity recognition.
Lack of certain knowledge and skills can hinder the ability to recognize opportunity. Also, specific types of prior knowledge – coupled with the cognitive capacity to value that knowledge – can make people more likely to recognize certain types of opportunities. Additionally, specific types of prior knowledge – applied to appropriate situations – enable us to recognize and exploit opportunities.[3]
Economics professor Scott Shane proposed three major dimensions of prior knowledge that affect entrepreneurial discovery: prior knowledge of markets, prior knowledge of ways to serve markets, and prior knowledge of customer problems.[4]
Knowledge has been defined as a high-value form of information that – when combined with experience, context, interpretation, and reflection – can be readily applied to decision-making and action.[5]
How much did prior knowledge influence Jamie Siminoff’s recognition of the market potential of a better doorbell? Likely quite a bit.
A lifetime of tinkering, his entrepreneurship concentration at Babson College (where he won the college’s business planning contest), and his experience with previous ventures such as PhoneTag and Unsubscribe.com all probably shaped and sharpened his opportunity recognition ability.
But we don’t all need similar types of prior knowledge to recognize opportunity.
If you sat down and did a comprehensive knowledge and skills inventory of yourself, you’d probably be surprised at the range and depth of prior knowledge you have acquired.
Social capital
Social capital refers to our personal relationships and networks.
Social capital gives us access to information and resources that might otherwise be scarce. Social capital makes it possible to for us to use human capital and mobilize resources when needed to respond to opportunity. Also, we all experience various life course transitions, and these transitions frequently reveal problems that must be solved. We often use our personal network to address these problems, and solving these problems reveals opportunities.[6]
One study examined three direct sources of opportunity-related information: mentors, informal industry networks, and participation in professional forums. Unsurprisingly, all three had direct, positive effects on opportunity recognition.[7]
We build our social capital both by aligning ourselves with like-minded people, and by establishing and maintaining a diverse network of relationships that spans varied domains of knowledge and experience.
Our social capital enables us to recognize opportunities that we might not otherwise see, but also presents opportunities to us that we might not have otherwise encountered.
Cognition and personality
A great deal of research pertaining to opportunity recognition has focused on individual characteristics.
Some of the attributes that are most often discussed include creativity, self-efficacy, risk tolerance, need for achievement, need for independence, and locus of control.[8]
Self-efficacy refers to our belief in our ability to take the necessary action to deal with specific situations that we might encounter. Self-efficacy is what motivates us to set and achieve higher goals.[9]
People who are willing to take risks are better prepared to see the big picture of the opportunities around them. People who aren’t afraid of failure – and are therefore not surprised by success – tend to embrace new ventures. Optimistic people who try to see the positive aspects of any new situation are better able to recognize opportunity. Other qualities essential to opportunity recognition include curiosity, imagination, and open-mindedness.[10]
Cognitive biases also prevent many people from recognizing opportunity.
If you haven’t already, download my free 20-page guide on priming your mind for serendipity, where I address redefining failure, understanding control, and challenging your biases.
The influence of specific personality traits on opportunity recognition has been controversial. Some successful entrepreneurs are known for their kindness and generosity, while others are regarded as borderline psychopaths.
But we can all train ourselves to improve the cognitive processes that affect opportunity recognition.
Environment
Broad economic, social, political, geographic, and cultural factors can have an affect on opportunity identification. So can rapid technological changes.[11]
But environmental conditions have both positive and negative effects on opportunity recognition.
Changes in environmental conditions are often the catalyst that spurs people to action. But environments that suppress innovation can have a chilling effect on opportunity recognition and entrepreneurship.
We all exist within – and react to – our given environment. We can take a macro and micro view of the conditions under which we operate.
For example, we can’t control government policy, but we can control how we react to it, and whether policy change presents opportunity for us.
And at the micro level, we have a high level of control
We can control who we choose to surround ourselves with, where we choose to go, how we approach our work, and where we choose to work (well, sometimes).
In Jamie Siminoff’s case, he told his wife “I’m going into the garage. I’m going to hire two people, two interns, and I’m just going to build (stuff).”[12]
That micro-level environmental change led to something big.
How can you change your environment to foster opportunity recognition?
Alertness
Economist Israel Kirzner defined entrepreneurial alertness in two ways: the ability to notice opportunities that have been previously overlooked, and as a motivated tendency to visualize the future.[13]
In the case of entrepreneurs, the act of noticing typically involves identifying novel solutions to current customer or market needs, while the act of visualizing usually involves imagining products and services that do not currently exist.
Some people seem to possess specific cognitive or personality traits that make them innately more alert to opportunity.
But entrepreneurs, wantrepreneurs – and really anyone – can increase their alertness through training and practice.
People can learn to focus their attention on changes or trends in demographics, markets, and technology. They can also learn to see how these changes might be connected, and to discover emergent patterns.[14]
Our vision, however, does not have to be entrepreneurial. And our domain does not have to be an industry or market. Regardless of our vision and our domain, we can learn to focus on relevant factors and to see valuable connections between changes that affect those factors.
Systematic search
Systematic search refers to opportunity discovery as a result of actively looking for it within a known information domain. This type of search activity helps us gather valuable information that fits our prior knowledge.[15]
It has been proposed that by engaging in a constrained, systematic search of select information channels, entrepreneurs can maximize their opportunity discovery effort.[16]
There is some academic quibbling about whether opportunity is recognized by being alert, or whether it is discovered by searching for it.
But for purposes of serendipity stimulation in our lives, we don’t need to split hairs. Exactly how the opportunity is exposed after a serendipitous encounter probably doesn’t matter that much to us, as long as we identify it as a valid opportunity.
And some researchers do, in fact, take a multidimensional view that allows for the coincidence of deliberate search and serendipitous discovery.[17]
Jamie Siminoff is someone who never stops looking for new ideas. He also remains alert by continually assessing new technologies.[18]
But he’s also keenly aware of the impact of chance and serendipity.
“We did amazing at Ring from all angles,” Siminoff said. “But you can’t understate how much luck was involved.”[19]
Using your knowledge of the six factors
If you have read this entire post, you have probably already increased your ability to recognize opportunity.
You have expanded your level of alertness. You have increased your knowledge. And you have demonstrated that you are systematically searching, both for things that will help you better recognize opportunity, and for opportunity itself.
Take inventory of your accumulated knowledge and skills, expand your personal network, challenge your biases, ask yourself how you will react to change and improve your environment when possible, practice noticing and visualizing, and systematically seek the type of opportunity that you hope to find.
Your awareness of how these factors influence opportunity recognition will significantly improve your ability to identify and exploit opportunity.
