A Scale of AttractionNov. 19, 2020
By Justin Walker
There are a lot of key factors in deciding to start that new company or launch a new product. Is this the right time? Is there a need? Is it worth the effort? For many entrepreneurs, there is a constant wave of questions in the development process.
So what makes an opportunity attractive to some and not others? It ultimately boils down to what matters to you most, Entrepreneurship Professor David Scheaf said.
"When you look at what the research has to say on what goes into evaluating an entrepreneurial opportunity, it is kind of all over the place," Scheaf said. "Riskiness, industry profits, do they actually like the things they are doing. It is a long, long, LONG list."
The question of what core assessments drive a person's evaluation of a new product or service idea is the foundation behind Scheaf's research in "Measuring Opportunity Evaluation: Conceptual Synthesis and Scale Development," written by Scheaf, fellow Baylor professor Matthew Wood, Andrew Loignon of Louisiana State University, as well as Justin Webb and Eric Heggestad, both from the University of North Carolina at Charlotte. The article was published in the Journal of Business Venturing.
Scheaf and the research team did not stop at identifying the lists of factors evaluated in their research. They ultimately wanted to introduce a scientifically- and rigorously-developed measurement tool to measure the criteria they identified. It is not enough to just ask the question, he said. They needed to be able to reliably measure how people evaluate entrepreneurial opportunities.
From digging through the prior research, the team synthesized the long list into four general assessments that people make when they think about evaluating opportunities, Scheaf said. This allowed them to develop a construct for opportunity attractiveness comprised of these assessments: gain estimation, loss estimation, perceived desirability and perceived feasibility.
With the assessment definitions in place, the researchers developed scale items to capture peoples' assessments of various entrepreneurial opportunities. A total of 40 items were constructed and assigned to the respective assessment categories.
To test the validity and reliability of the measuring instrument, the team conducted six independent studies with a total of 855 participants. The first three studies included undergraduate students, the fourth looked at MBA students and the final two studied sets of international entrepreneurs. It may initially sound like overkill, Scheaf said, but this level of rigor is key to this type of research.
"You want to make sure that the instrument is accurately measuring the thing you think it is and it does so consistently," he said.
Following the six studies, Scheaf and the research team were able to reduce the 40 items down to 14, but they also discovered the perceived desirability assessment was often associated with obtaining non-monetary benefits. The definition of gain estimation was revised to include this, resulting in just three assessments of opportunity attractiveness.
This scale provides a new method for measuring how a person determines if an opportunity is attractive or not, Scheaf said. This is significant, as there had not previously been one available to entrepreneurs or researchers.
The existence of such a scale is important because it sets a standard, Scheaf said. He compares the process of hiring an employee. You would not change the bar for each candidate, you would evaluate them against a certain set of criteria and determine how they fit in the position. The same applies to evaluating entrepreneurial opportunities.
While this development is huge for entrepreneurship research and entrepreneurs as a whole, Scheaf admits there are a few limitations to the study. One such is there is no real understanding of how people weigh the criteria.
"We really don't know why or how people weigh the criteria," he said. "We also found that some people weigh it differently, it changes by the person. Some people emphasize more gains. Some people don't care about losses. Some only look at feasibility."
There is a difference between first- and third-person evaluations, Scheaf said. Some people may think an idea is great and go out and do it, while others may think it is not a good venture at all. Both are examples of first-person evaluations. But a third-person evaluation is when a person thinks the idea is solid, but not a good idea for them personally. Scheaf and his colleagues' new measurement captures first-person evaluations but it does not capture these third-person evaluations.
While there are a few limitations, this study has significant real-world importance because it provides a standardized way to measure opportunity evaluation, Scheaf said.
"Now managers, entrepreneurs or founding teams can give this tool to everyone on their team and discuss why numbers or ratings differ," he said. "What it comes down to is it allows for a paradigm on how to think rather than what to think. It is a facilitation of conversation and a way to measure what people within your organization actually think about an opportunity."