Entrepreneurship is typically defined as the pursuit of opportunities. But what is an opportunity?
Let’s answer this question by trying to construct one. As a basic minimum we need three things: (1) a product or service, (2) one or more agents who consume it, and (3) one or more agents who produce it. But just the simple collection of such agents and artifacts is not enough; the essence of the opportunity lies in the relationships among them. Behind each relationship lies a distinct pattern of interaction, for example exchanging money for the product or exchanging labor for money. In other words, an opportunity is a set of interactions, a social structure.
Friendship is also a social structure. It requires at least two people. But the simple collection of them does not produce friendship; it is their distinct pattern of interaction that does so.
As social structures, opportunities and friendship are emergent phenomena, i.e. they amount to more than the sum of their parts. It is the interaction of these parts that give rise to the structure in question.
Given this, what does it mean to identify, recognize, discover, research, or even create an opportunity? Well, these terms make no sense when applied to friendship, so why should they make sense for opportunities? In a forward looking sense, the relationships that constitute an opportunity or a friendship do not exist; they can be imagined and aspired to. An opportunity or a friendship arises – if at all, that is – only when those relationships are fired up and sustained.
We do not plan our friendships. We take small steps to interact and, if there is a mutual spark, keep the interactions going. Over time, these sustained interactions become friendship.
Let’s revisit the opening definition of entrepreneurship. Entrepreneurship is the taking of many first steps, some of which may give rise to opportunities.
Entrepreneurship is exciting: it makes life dynamic and, when used to harness inventions and new technologies, changes both its daily nature and quality. But in becoming an entrepreneur one is humbled by the impossibility of knowing whether the business idea at hand is the “right one”. It just does not have the aura of inevitability that one senses in the stylized retrospective accounts of others’ successes. It is one thing to explain the past, but another to anticipate and embrace the future. So, what is one to do? On the one hand, going forward is fraught with irreducible doubt about the chosen path. On the other hand, turning away is marred by counterfactual regret; what if … The balance perhaps lies in taking manageable steps forward, while staying alert to the evolving signals about the market feasibility and economic viability of the pursued opportunity. Judging the merits of the opportunity is not a one-time exercise, but a continuous process.
In a recent study, I examined what happens to people – nascent entrepreneurs – who set out to pursue their business ideas. The data came from the Panel Study of Entrepreneurial Dynamics (PSED), the largest and most representative study of this most elusive part of the entrepreneurial process. The results show that the entrepreneur’s confidence in the opportunity at hand occupies centre stage in the process: where confidence is strong a viable venture is more likely to emerge; where it is undermined entrepreneurs are more likely to call it quits. More importantly, factors that are typically perceived as instrumental for entrepreneurial success, such as prior experience and proper planning, matter inasmuch as they help the entrepreneur learn about the opportunity at hand. Active exploration of the merits of the opportunity can provide a basis for more informed judgment and timely termination of venturing efforts with poor prospects. In this sense, planning can be an important learning tool for the nascent entrepreneur.
Even the most skilled and knowledgeable individuals can run after “bad” ideas; it is just that they may be able to realize the futility of their efforts more quickly and efficiently. Arguably, every idea deserves a chance when first articulated and this is what makes entrepreneurship both exciting and difficult to manage as a rational decision process. That many ideas would ultimately fail should be considered an instrumental feature of the process. As A.G. Lafley, former CEO of Proctor & Gamble, says, “the key is to fail early, fail cheaply, and don’t make the same mistake twice”. In other words, we need to recognize and celebrate both the successes and the well intentioned failures.