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Opportunity Recognition as the Detection of Meaningful Patterns: Evidence from Comparisons of Novice and Experienced Entrepreneurs

  • Robert A. Baron

    ()

    (Lally School of Management and Technology, Rensselaer Polytechnic Institute, Troy, New York 12180)

  • Michael D. Ensley

    ()

    (Lally School of Management and Technology, Rensselaer Polytechnic Institute, Troy, New York 12180)

Registered author(s):

    It is suggested that the recognition of new business opportunities often involves pattern recognition--the cognitive process through which individuals identify meaningful patterns in complex arrays of events or trends. Basic research on pattern recognition indicates that cognitive frameworks acquired through experience (e.g., prototypes) play a central role in this process. Such frameworks provide individuals with a basis for noticing connections between seemingly independent events or trends (e.g., advances in technology, shifts in markets, changes in government policies, etc.), and for detecting meaningful patterns in these connections. We propose that ideas for new products or services often emerge from the perception of such patterns. New business opportunities are identified when entrepreneurs, using relevant cognitive frameworks, "connect the dots" between seemingly unrelated events or trends and then detect patterns in these connections suggestive of new products or services. To obtain evidence on these proposals, we compared the "business opportunity" prototypes of novice (first-time) and repeat (experienced) entrepreneurs--their cognitive representations of the essential nature of opportunities. As predicted, the prototypes of experienced entrepreneurs were more clearly defined, richer in content, and more concerned with factors and conditions related to actually starting and running a new venture (e.g., generation of positive cash flow) than the prototypes of novice entrepreneurs. These findings offer support for the view that pattern recognition is a key component of opportunity recognition.

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    File URL: http://dx.doi.org/10.1287/mnsc.1060.0538
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 52 (2006)
    Issue (Month): 9 (September)
    Pages: 1331-1344

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    Handle: RePEc:inm:ormnsc:v:52:y:2006:i:9:p:1331-1344
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    1. Pierre Azoulay & Scott Shane, 2001. "Entrepreneurs, Contracts, and the Failure of Young Firms," Management Science, INFORMS, vol. 47(3), pages 337-358, March.
    2. Sternberg, Robert J., 2004. "Successful intelligence as a basis for entrepreneurship," Journal of Business Venturing, Elsevier, vol. 19(2), pages 189-201, March.
    3. Estrada, Carlos A. & Isen, Alice M. & Young, Mark J., 1997. "Positive Affect Facilitates Integration of Information and Decreases Anchoring in Reasoning among Physicians," Organizational Behavior and Human Decision Processes, Elsevier, vol. 72(1), pages 117-135, October.
    4. Kaish, Stanley & Gilad, Benjamin, 1991. "Characteristics of opportunities search of entrepreneurs versus executives: Sources, interests, general alertness," Journal of Business Venturing, Elsevier, vol. 6(1), pages 45-61, January.
    5. Scott Shane, 2001. "Technological Opportunities and New Firm Creation," Management Science, INFORMS, vol. 47(2), pages 205-220, February.
    6. Wright, Mike & Robbie, Ken & Ennew, Christine, 1997. "Venture capitalists and serial entrepreneurs," Journal of Business Venturing, Elsevier, vol. 12(3), pages 227-249, May.
    7. Gaglio, Connie Marie & Katz, Jerome A, 2001. "The Psychological Basis of Opportunity Identification: Entrepreneurial Alertness," Small Business Economics, Springer, vol. 16(2), pages 95-111, March.
    8. Ardichvili, Alexander & Cardozo, Richard & Ray, Sourav, 2003. "A theory of entrepreneurial opportunity identification and development," Journal of Business Venturing, Elsevier, vol. 18(1), pages 105-123, January.
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