Identifying Entrepreneurial Opportunities: Cognition and Categorization in Nascent Entrepreneurs

Abstract

Scholars, practitioners, and policy-makers share a common interest in understanding entrepreneurship. However, while research on entrepreneurship has burgeoned in recent years, our understanding of how people identify opportunities – a critical first step in the entrepreneurial process – remains relatively limited (Shane, 2012). Indeed, extant research lacks consensus about the basic nature and definition of opportunities, rendering the literature on opportunity identification both theoretically fragmented and empirically underdeveloped.

To address this problem, my dissertation uses an exploratory sequential mixed method design (Creswell, 2013) to develop a detailed understanding of the opportunity identification process. In the first phase of research, I conducted interviews with nascent entrepreneurs in an inductive, qualitative study. These interviews yielded two important findings. First, entrepreneurs tend to view opportunities as new technology-market combinations. This view is consistent with previous research suggesting that opportunities emerge when entrepreneurs perceive ‘matches’ between new means of supply and markets where those means of supply can be introduced (Gregoire & Shepherd, 2012). Second, my interviewees described three cognitive processes through which such opportunities are identified: analogistic thinking, recombination, and distinction-making. Of these, distinction-making was the most prevalent process reported, and it appears to be closely related to opportunity identification among both nascent entrepreneurs and managers in existing firms.

In the second phase of research, I theorized that distinction-making – the process of creating and refining new categories of information, objects and events – facilitates opportunity identification by enabling people to identify potential ‘fit’ between technologies and markets. I conducted a series of three experimental studies to more closely examine the relationship between distinction-making and opportunity identification. Results indicate that distinction-making is positively related to the number of opportunities people identify for generating new technologies, as well as the number of opportunities they identify for applying existing technologies to new markets. Distinction-making is also positively related to the innovativeness of those opportunities, where innovativeness is judged by other relevant actors in the entrepreneurial process. Moreover, the data indicate that distinction-making facilitates opportunity identification by enabling higher levels of domain-specific information processing in the domain in which the opportunities lie.