Individual-Opportunity Nexus Theory
The Individual-Opportunity Nexus: Are Opportunities Found or Made?
There is a long-standing debate in academia about the origins of business ideas. Do entrepreneurs create opportunities through sheer willpower, or do they merely discover gaps that already exist?
Scott Shane and Jonathan Eckhardt (2003) argue firmly for the latter. Their theory, the Individual-Opportunity Nexus, proposes that opportunities are objective phenomena that are found, not made.
Defining the Opportunity
According to this theory, the foundation of entrepreneurship relies upon the objectiveness of opportunities. If opportunities were just hallucinations of founders, the field would be on shaky ground.
"[W]e define entrepreneurial opportunities as situations in which new goods, services, raw materials, markets, and organizing methods can be introduced for profit."
— Eckhardt and Shane (2010)
The Core Argument: Discovery Theory
This theory places Shane and Eckhardt in the Discovery School of entrepreneurship (opposed to the Creationist School). They argue:
- Opportunities Exist Objectively: Changes in technology, regulation, or society create gaps in the market. These gaps exist whether anyone notices them or not.
- Discovery: An individual with the right mix of skills and access ("The Individual") spots this gap.
- Exploitation: The entrepreneur acts to fill the gap.
The Tesla Analogy
To understand this, consider Tesla. A Creationist might argue that Elon Musk "created" the electric vehicle market.
However, the Individual-Opportunity Nexus argues that the opportunity (cheaper batteries + climate change regulations + consumer demand) existed objectively out there. If Musk hadn't launched Tesla, someone else would have eventually filled that space. Musk simply possessed the specific "Nexus" of skills and resources to discover and exploit it first.
The Role of the Individual
If opportunities are objective, why doesn't everyone see them?
This is where the "Individual" side of the Nexus comes in. While the opportunity is objective, the recognition of it is subjective. It requires a specific mix of:
- Information Asymmetry: Knowing things others don't (specialized knowledge).
- Cognitive Properties: The ability to connect dots (Self-Efficacy, Creativity).
- Access: Resources within a network to act on the insight.
As the post notes, "There has to be someone digging for anything to get dug up." The theory suggests that what looks like "creativity" from the outside is actually a rigorous process of search and pivoting to find the opportunity that already waits in the market.
Video: Scott Shane on Entrepreneurship
References
Casson, M. (2005). The individual–opportunity nexus: a review of Scott Shane: a general theory of entrepreneurship. Small Business Economics, 24(5), 423-430.
Eckhardt, J. T., & Shane, S. (2010). An update to the individual-opportunity nexus. In Handbook of Entrepreneurship Research (pp. 47-76). Springer New York.
Shane, S., & Eckhardt, J. (2003). The individual-opportunity nexus. In Handbook of Entrepreneurship Research (pp. 161-191). Springer US.
