FEATURE PAPER

How Do Emotions Impact the Opportunity Recognition Process?

The following paper was written by Malavika Sundararajan from North Carolina Central University. It was presented at the 2009 Small Business Institute Conference.

Abrstract

To understand if emotions help entrepreneurs recognize better opportunities, we extend the entrepreneurship literature by incorporating current psychology and neuroscience theories regarding emotions to understand how four types of emotional responses interact with entrepreneurial cognitive factors to impact the Opportunity Recognition (OR) process. The OR process itself is said to be comprised of stages like preparation, incubation, evaluation, insight, and elaboration. Among these stages the creation of ventures only follows a successful recognition of an opportunity (evaluation) and decision to develop the opportunity (elaboration). Using arguments derived from the entrepreneurship literature, cognitive psychology, and emotions research, this paper specifically depicts the role of emotions and its interaction with self-efficacy, prior knowledge and experience in the above two main stages of the OR process. We conclude with a model and associated propositions that show how the four types of emotional responses impact the two identified OR stages.

Introduction

In order to create a new venture the opportunity has to be discovered and the entrepreneur has to make a choice whether to exploit it or not (Shane and Venkatraman, 2000). While the entrepreneurial process begins with intent to start a new business (Krueger and Brazeal, 1994; Krueger, 1993), and later depends on organizing skills, it is stated, that the crux of the entrepreneurial process is the entrepreneur's opportunity recognition ability and decision-making orientation, and that it is these factors that differentiate entrepreneurs from non-entrepreneurs (Venkataraman, 1997).

The question then arises, can we categorically say that an individual with high entrepreneurial self-efficacy and prior knowledge and experience will be better at recognizing business opportunities and will decide to develop these business opportunities into new ventures? We say, not really. This is because studies by Hills (1999) indicate that entrepreneurs often talk about the influence of gut feeling and how it ultimately leads them to take decisions about developing opportunities. Further, Shepherd and Detienne (2007) demonstrate that while prior knowledge and experience are important for opportunity recognition, the decision to develop the opportunity is impacted by the feedback about the potential or lack of financial reward of the business opportunity. They also add that prior knowledge and experience can sometimes create mental ruts and thus make it more difficult for entrepreneurs to recognize innovative opportunities. The above findings contradict previous empirical findings (Shane, 2000) about prior knowledge and experience being the only primary antecedents to an entrepreneur's opportunity recognition process. Evidence for the role of emotions in OR is also suggested by Cardon, Zeitsma, Saparito, Matherne, Davis (2005), who talk about the entrepreneur's passion and its impact on the entrepreneurial process. So, the OR process which includes motivation to discover opportunities, and depends on whether the entrepreneur likes the idea or not, or whether he or she wants to go ahead with it, suggests that entrepreneurship is really a recurring pattern of both thoughts and feelings that shape entrepreneurial reality and hence action and value creation (Karp, 2006).

In short to answer our question above, "Can we definitely say that an individual with certain cognitive factors will always recognize opportunities better than other without those cognitive factors?" is "NO". The reason as seen above is because there seems to be an emotional component that provides evaluative information and supplies energy for motivational behavior in the entrepreneur (Ford, 1999) that can change the impact of cognitive factors on the OR process (Baron, 2008; Shepherd and Detienne, 2007). All the above studies thus lead to a glaring gap in the OR literature and that is, the development of an OR model that includes the feelings/emotions experienced by the entrepreneur, when going through the opportunity recognition process. The description of this study thus begins with a cognitive perspective of the OR process and how emotions play a role in two of the key stages of the OR process. After this review, we put forth a model and propositions about how emotions and cognitive factors together and separately impact the evaluation and elaboration stages of opportunity recognition.

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TIP OF THE WEEK

Social Networking

Facebook

Facebook is an international social marketing technique originally adopted by teens to get to know one another. Using the Internet, Facebook provides a venue for sharing photos, information, news, and sales; it allows marketers to have an interactive Web presence with their existing clientele, as well as to encourage prospective customers to try their products. Consumers are encouraged to become "fans," post messages, and encourage their friends to become a friend of the fashion site. Nordstrom, Versace Couture, Chanel, and Saks Fifth Avenue use Facebook as a fashion marketing tool. It is an inexpensive, targeted, and highly effective method for reaching their primary target market.

Annabelle LaRoque"s private brand, LaRoque, has become extremely successful since its inception in 2005. In 2009, more than 1,000 custom-made designs were sold. What is so amazing about this figure is that the LaRoque brand is marketed solely by flyers, Facebook, and word of mouth. LaRoque says that Facebook has become the best marketing effort for her fashion house. Every design is featured on Facebook. The company receives at least five new orders through this medium every week. LaRoque and her customers e-mail each other, talk about fashions, and discuss new fabrics, styles, and designs - all through Facebook. Customers tell her when they are on their way to her store. Facebook "is amazing for my business," she says. "I change my profile picture every day. My picture is always one of my garments. I always tell people what I am doing at the store. Facebook provides a social relationship with my customers."

One of LaRoque's Facebook marketing efforts is the Rainy Day Sale. Any day it rains, the store has a 15-percent-off sale. Customers will log on to Facebook and e-mail Annabelle; they give her the weather forecast and a reminder that they will be in the store the next day. This marketing promotion instills loyal customer behavior and encourages the target market to continually look on Facebook for new ideas and additional contact with the owner, thereby instilling a sense of friendship.

Fashion marketers must always evaluate the success rate of any advertising strategy. As advertising dollars decrease, it is even more important to verify that every advertising strategy reaches its intended audience and that they retain the information. Retention is "a form of competitive advertising calculated to keep a product, services, industry, or view point in the public eye" (Ostrow & Smith, 1988 p. 207). Research on mobile advertising reveals that 40 percent of viewers recall mobile advertising. This recall level is very important in product advertising and encouraging purchase behavior (Ankeny, 2008).

Youtube

YouTube is a social marketing medium whereby videos, television commercials, and photos are posted on the Internet. Average YouTube viewers are 44 percent female and 56 percent male, between the ages of 12 to 17. The popularity of YouTube is widespread. Each month, more than 2.5 billion videos are watched (Woog, 2009). Its viewing frequency makes YouTube and excellent tool for the fashion marketing industry, and yet, despite the enormous number of consumers looking on YouTube on a daily basis, it would be a mistake to use this tool as your primary fashion marketing effort. And integrated fashion marketing effort remains vital to promote merchandise. Integrated efforts include a variety of marketing efforts that repeatedly demonstrate the fashion's benefits to consumers.

YouTube began as a social marketing tool among the younger target market. This marketing media is now used by a wide range of fashion companies. Companies are able to reach their stakeholder by posting television advertisements and fashion show. Designers use YouTube to continually build brand loyalty, market awareness, and product knowledge.

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Student Case Writing Competition

The Baylor University Entrepreneurship Program and USASBE are jointly sponsoring a student case writing competition in conjunction with USASBE's annual meetings beginning in 2011 at USASBE's 25th Annual Conference to be held January 13-16, 2011 in Hilton Head, South Carolina. This is an innovative international event that supports and encourages undergraduate and graduate students who wish to engage in case research and case writing. Submitted cases are suitable if they advance the field of entrepreneurship, broadly defined, and contribute to an understanding of entrepreneurial phenomena. For more information,Click Here

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