Geo-Economics and Politics

How do the world’s leading entrepreneurs spot opportunities?

Amy Wilkinson
Lecturer in Management, Stanford Graduate School of Business, Stanford University
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Jack Ma was an English teacher of modest means. He had little business experience and few connections in the Chinese government. Yet he launched an internet company that became the $216 billion market behemoth Alibaba. People often point to entrepreneurs’ resources and personal connections, but Jack Ma had neither.

Or consider Elon Musk, who dropped out of his PhD programme to launch the first in a rapid succession of ground-breaking companies. How, by his early 40s, could Musk have created an online currency, designed and built an electric car, created a rocket company that resupplies the International Space Station, and formed the largest residential solar company in the US? If domain expertise were the catalyst, Musk could not have succeeded in such diverse fields.

Expertise, raw talent and resources each have something to do with innovation. But scores of people who possess all of these ingredients nonetheless launch businesses that wither on the vine. And entrepreneurs who possess none of them continue to succeed.

I would argue that Ma and Musk, and others like them, have a certain sensibility that strengthens their ability to identify gaps and opportunities. They see what others don’t. Entrepreneurial alertness is one way to describe it.

How can they spot opportunities others don’t see? Through 200 interviews with leading entrepreneurs, I’ve identified three key patterns of discovery that I call Architects, Sunbirds and Integrators.

Architects: building new models from scratch

Jack Ma and Elon Musk saw what was missing and built new solutions to fill the void. They are Architects: blank-sheet-of-paper creators who design and build new models from the ground up.

Just as professional architects who design tall buildings work within environmental and logistical constraints, Architects deal with individual components of projects, striving to understand how each element builds upon the next. They have a unique ability to envision how separate parts fit together into a logical design, and they often reconfigure elements into something breathtakingly new. Architects see what is not there. They listen for silence and pay attention to what others have overlooked.

Jack Ma focused on a part of the Chinese market that was of little interest to others at the time. In 1998, on a business trip to Seattle, Ma first saw a computer connected to the web. On a whim he searched for “beer”. The search engine returned sites from across the world…except China. He searched again, this time trying “Chinese beer”. Nothing. Ma recognized that China’s small and medium-sized businesses were invisible on the internet. And he saw what a huge untapped opportunity that represented.

At the time Ma was getting started, only large Chinese companies had clear sales channels to the international market. Ma knew that four-fifths of China’s companies were small and medium-sized, and they faced tremendous obstacles without a means to connect with each other or the outside world. The beauty of Alibaba was that it provided visibility to smaller players.

By the end of 2001, the Alibaba China “Supplier Club” had topped 1 million, making it the world’s largest B2B website in terms of members. Four years later, Yahoo invested $1 billion dollars for a 40% stake. By 2014, when Alibaba went public on the New York Stock Exchange, it was the largest seller of online goods, as well as the largest payment processor and cloud storage business in China.

“Reasoning by first principles” is another way Architects spot opportunities. By definition, first principles are the fundamental elements upon which a theory is based. In entrepreneurship, reasoning by first principles requires Architects to break an issue down into its basic parts. They identify assumptions one-by-one and determine what is challenging or special about each element.

Elon Musk is a classic first-principles entrepreneur. Consider how he built the case for all-electric cars at Tesla Motors. For most people, the argument for electric vehicles foundered on the simple fact that batteries are hugely expensive. Musk deconstructed that logic: can’t we make batteries much more cheaply, he asked?

While battery power typically costs about $600 per kilowatt hour, Musk found that the open market arithmetic of battery components told a different story. He assessed the spot market value of carbon, nickel, aluminum and steel to find that the combined price was closer to $80 per kilowatt hour. By acquiring the principle elements of battery packs and putting them together in a new way, this Architect believes that battery powered vehicles will continue to become more affordable.

Sunbirds: from one domain to another

Another way to find the gap is by repurposing something that already exists. Unlike Architects, Sunbirds start with things that are fully formed. They transport ideas across geographies and domains, seeing solutions in one area that will solve problems in another.

The name comes from a small bird that subsists primarily on nectar. They fly from bud to bud, cross-fertilizing flowers by transferring pollen.

Biotechnology pioneer Robert Langer approaches the world in much the same way. “When I finished my doctorate, I did something very unusual for an engineer: I actually started in a surgery lab,” he recalls.

Langer has an astounding ability to pick up ideas in one sphere and apply them in another. Transferring his engineering knowledge into the medical field, he invented a breakthrough technology – a new type of polymer able to deliver angiogenesis inhibitors to prevent blood vessels from feeding cancerous tumours. Langer’s technology is now used to deliver drugs used not only in fighting cancer, but also in treating diabetes, schizophrenia, narcotic addiction and alcoholism.

Today, Langer’s biomedical engineering lab at Massachusetts Institute of Technology is the largest of its kind in the world. It has spun out over 25 start-ups, each generating over $100 million in annual revenue.

For Sunbirds, spotting an idea that’s worth transferring requires an understanding of why it worked in the first place and what similarities or differences will make it work again. Sunbirds reason by analogy.

Starbucks founder and CEO Howard Schultz is a notable Sunbird innovator. On a trip to Italy, he was intrigued to find people flocking to local cafés, drinking espresso and enjoying the company of friends and neighbours. Espresso bars were an important part of Europe’s cultural landscape, which wasn’t the case in the US.

Schultz didn’t invent the espresso bar concept – he borrowed it. But he was alert enough to key-in on coffee bars, and insightful enough to add a few new twists and bring them to the US, and later to other countries.

Integrators: combining new concepts

Unlike Sunbirds, who transfer ideas across divides, or Architects, who construct new concepts from the ground up, Integrators combine existing elements to shape novel outcomes.

Yet, while combinations strike us as innovative and unusual in the abstract, they can be tricky to pull off. Steve Ells, the founder of Chipotle Mexican Grill, has a reputation for combining unusual flavours to create original recipes. A graduate of the New York Culinary Academy, Ells began his career as a chef at Stars, an upmarket San Francisco restaurant. But Ells wasn’t ready to settle for the norm: he wanted to reinvent it. Going against all advice, he confounded critics and peers alike to integrate his fine dining expertise with fast food delivery. Cooking up a new combination, Ells launched Chipotle in 1993, creating a whole new category of restaurant called “fast-casual”.

Chipotle’s distinctive practice of serving customers quickly yet still cooking from scratch stems from what Ells calls “cooking for the line”. As a line of customers grows longer, cooks increase the amount of ingredients they prepare, and when the lines tapers off they systematically pull back, integrating real-time demand into Chipotle’s made-to-order equation.

All the elements of the Chipotle formula existed elsewhere, but Ells integrated them in a new way. The fast-casual, simple-gourmet dining concept took hold. Today, Chipotle operates 1,780 restaurants creating over $4 billion in annual revenue.

The trap of knowledge

Knowledge plays a paradoxical role in an individual’s ability to discover. Firsthand experience supplies the raw materials from which new ideas are forged but can carry with it the potential to ensnare us in old ways of thinking and seeing.

Jack Ma tells a story about the Balinese money trap that captures the point. A monkey trap is made of rope and a coconut with a small hole and a shiny treasure inside. The hole is large enough to fit a monkey’s hand, but too small for its fist when clasped around the shiny object. The trap works because the monkey, after grabbing the spoon, refuses to release his grip.

We must be willing to unclench our fist to avoid old ideas from entrapping us. Much of what holds us back is our inability to give up past ways of doing things to consider new approaches. It all starts with an alert and questioning mind.

Have you read?
Why innovation is the key that will unlock global growth
5 ways to close the global innovation divide

This article has been excerpted and adapted from Amy Wilkinson’s new book, The Creator’s Code: The Six Essential Skills of Extraordinary Entrepreneurs released by Simon & Schuster in February 2015. 

Author: Amy Wilkinson is a strategic adviser, entrepreneur, and lecturer at the Stanford Graduate School of Business. She frequently addresses corporate, association, and university audiences on entrepreneurial leadership. She also advises start-ups and large corporations on innovation and business strategy.

Image: View of a giant incandescent light bulb as part of the Incandescence installation by artist Severine Fontaine during the rehearsal for the Festival of Lights in central Lyon late in the night December 4, 2014. REUTERS/Robert Pratta

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