The Continued Misuse of the “Opportunity” Construct

I’ve been sharply critical of the “opportunity discovery” perspective in entrepreneurship studies (e.g., here, here, and here). A post by Thomas Eisenmann on today’s Harvard Business Review’s Blog Network reminded me of these criticisms. The post elaborates on Howard Stevenson’s famous definition, entrepreneurship as “the pursuit of opportunity beyond resources controlled.” There are many problems with this definition, some discussed in an earlier post by Per. Much of the research literature, including not only my stuff but also important contributions from Sharon Alvarez and Jay Barney, Saras Sarasvathy, Per Davidsson, and others challenges the idea the profit opportunities exist, objectively, waiting to be discovered. Entrepreneurs don’t pursue “opportunities,” they pursue goals, plans, ideas, or visions, which require real resources to pursue, and which may or may not be realized.

Actually the HBS working definition of opportunities, as elaborated by Eisenmann, sounds much like the subjectively perceived goals I have in mind:

“Opportunity” implies an offering that is novel in one or more of four ways. The opportunity may entail: 1) pioneering a truly innovative product; 2) devising a new business model; 3) creating a better or cheaper version of an existing product; or 4) targeting an existing product to new sets of customers. These opportunity types are not mutually exclusive. For example, a new venture might employ a new business model for an innovative product. Likewise, the list above is not the collectively exhaustive set of opportunities available to organizations. Many profit improvement opportunities are not novel–and thus are not entrepreneurial–for example, raising a product’s price or, once a firm has a scalable sales strategy, hiring more reps.

These are just Schumpeter’s examples of innovation. They describe the entrepreneur’s plans, not anything in the objective environment. They certainly have little to do with the notion of opportunity emphasized by Israel Kirzner and adopted by Scott Shane.

Fine, you say, this is just a terminological quibble. When the HBS entrepreneurship group says “opportunities,” they mean business plans. But this is an awkward and confusing usage, one that lends itself easily to misunderstanding. Consider dictionary definitions of “opportunity.” Merriam-Webster gives us

  1. a favorable juncture of circumstances (the halt provided an opportunity for rest and refreshment)
  2. a good chance for advancement or progress

Or, if you prefer the Oxford English Dictionary, try this:

  1. a time or set of circumstances that makes it possible to do something (increased opportunities for export; the night drive gave us the opportunity of spotting rhinos)
  2. a chance for employment or promotion (career opportunities in our New York headquarters)

These definitions clearly describe outside circumstances, objective and external to the actor, not the actor’s personal, subjective beliefs. But the only reasonable meaning of entrepreneurial opportunities refers to the latter. In plain English, opportunities are not at all like “opportunities” as used by HBS.

Isn’t it time we dump the “opportunity” construct altogether?

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One Response to The Continued Misuse of the “Opportunity” Construct

  1. Lalit Manral says:

    I have employed the US long-distance telecom services data to identify a few stylized facts on entrepreneurial activity (de novo entry) and provide a demand-side [theoretical] explanation of de novo entry in my dataset. When you talk of entry, especially de novo entry, you probably enter the domain of what is called entrepreneurship. That is how I got interested in this field. However, as I wrote my de novo entry paper I was confused about one issue: what is the difference between entry opportunity and entrepreneurial opportunity? Is it substantial? Do policy makers need to understand the same?

    I read a few papers on entrepreneurial opportunity and came away with a slight understanding that this concept probably delves into the individual characteristic in a particular setting. While entry opportunity is generated by structural conditions (technology, demand, policy), one probably needs to understand the micro-conditions to identify the variation in entrepreneurial opportunities across the settings. However, if you control for the structural conditions, do individual-level variables explain much in terms entrepreneurial activity in an economy? The concept of entrepreneurial opportunity probably explains firm-level outcomes in terms of (say) who among a set of potential entrants would actually enter and be successful in the short-run. For example, the opportunity to start a telecom services firm in New York City vis-à-vis Kansas City is determined by the demand conditions (market-size, average individual consumption, etc.) after controlling for the supply-side conditions (e.g., fixed costs of operation, sunk costs of entry, etc.) and policy conditions (e.g., FCC approval, etc.) that determine the market structure. What is the role of the concept of entrepreneurial opportunity in the above example and why does it matter? It probably explains why Harry an ex-telecom executive would be more successful in launching a start-up than Larry an ex-oil executive?

    I do find the concept of entrepreneurial opportunity interesting from the point of view of predicting firm level outcomes. What can Entrepreneurial Opportunity explain that entry opportunity cannot? Entry is a strategic firm behavior and hence a large part of firm-level phenomenon explained by entrepreneurial opportunity is already explained by entry opportunity. What remains unexplained by entry opportunity is the role of individual (entrepreneur) in determining firm-level strategic behavior (entry).

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