According to Lumpkin, Hills and Shrader, Opportunity Recognition (OR) is a "vitally important area of entrepreneurship" and an "essential aspect of understanding entrepreneurship." However, there has been little research on this topic.

Their review of literature revealed two approaches to OR—economic events and process models. According to the economic approach, opportunities arise due to changes such as demographics, sociopolitical trends and government regulations. These changes cause an imbalance in the economy and provide opportunities. In the literature, these opportunities are generally recognized by those possessing "entrepreneurial alertness"—not through investigation or searching. The process model approach views OR as a complex multifaceted process influenced by many factors including environmental and job forces, venture alertness cultivation, specific problems, social encounters and market or technological knowledge. Lumpkin, Hills and Shrader reviewed several models which then contributed to a new model of OR—Creativity Based Model of Opportunity Recognition.

Lumpkin, Hills and Shrader present a model which combines the multiple phase process concept with the idea of a discrete "event" suggested in the economic approach. Their model views OR as an inherently creative multiple stage process which includes an "event" or insight. Their creativity-based model of Opportunity Recognition includes the following stages:

Preparation: Preparation refers to the knowledge base an entrepreneur brings to the OR process. This knowledge may come from one's personal background, training or work experience. It is often neither systematic nor deliberate but rather a part of life experience. Research indicates more than 50% of start-up ideas develop from an individual's prior work experience.

Incubation: This stage is described as the "simmering of the pre-recognition stew over time." It is the period during which ideas intermingle and "new combinations" emerge.

Insight: Insight is referred to as the "Aha" moment or the "Eureka" experience. This is the moment the entrepreneur realizes that the idea he/she has been mulling over may truly be an entrepreneurial opportunity. This does not necessarily mean that the potential entrepreneur is ready to move on to the next stage. Rather, it may mean stepping back to the preparation or incubation stage.

Evaluation: This stage is described as the most challenging since it requires brutal honesty to determine if "what seems to be a good entrepreneurial idea is, in fact, a bona fide business opportunity." This evaluation should take the process beyond the individual for review and feedback from experts and the marketplace. Neglecting to evaluate or conduct a feasibility study is one of the frequently identified reasons for the failure of new ventures.

Elaboration: When a business idea has survived the evaluation stage and is still considered viable, elaboration is the next stage. This is the stage when many of the details are worked out, the opportunity is refined and much is learned through trial and error.

The authors point out that while not every incident of OR goes through all five stages, all stages are needed to explain the potential paths to Opportunity Recognition.

Lumpkin, Hills and Shrader conducted research with the following question as their overall research objective: How do the entrepreneurs' perceptions of the nature and importance of opportunity recognition inform us about how to teach this topic to entrepreneurship students and improve the practices of entrepreneurs? The sample consisted of 218 Chicago area entrepreneurs in two groups — 1) those who qualified for the UIC/Chicago Area Entrepreneurship Hall of Fame (53 participants) and 2) a randomly selected group of business owners with substantial track records (165 participants).

Both groups had considerable experience with OR. Nearly all had pursued major, new business opportunities in the past five years, with approximately one-third of both groups having pursued three to four opportunities and another quarter having pursued five to ten opportunities. Both groups reported a significant success rate. Both groups identified a focus on specific problems and specific customers' needs as a key element of opportunity recognition. In addition, 68 - 73 percent of both groups indicated that their own business was established from a market-driven idea and 84 to 91 percent confirmed that they listen extremely well to what customers say as a way of identifying opportunities.

The authors identified the following practical implications from their study:

Implication 1: OR is inherently a creative process. Therefore, entrepreneurs should take steps to create an environment open to creativity. If entrepreneurs do not consider themselves to be creative, they should surround themselves with creative people.

Implication 2: OR involves experimentation. Failures and false starts are part of the recognition process and often lead to future gains, open doors and generate possibilities that might not have been apparent before.

Implication 3: OR will be more successful among those who have a high level of domain knowledge. Entrepreneurs who know a business domain will have a better chance of correctly recognizing opportunities than those who have not experience in the domain.

Implication 4: "Good ideas" must be formed into viable business opportunities. Not every business idea is viable. Research suggests that entrepreneurs who evaluate ideas more closely launch fewer businesses than those who do not take the time to evaluate ideas. However, the businesses that are launched with evaluation are more likely to be successful.

Implication 1: OR is not industry or business specific. Findings of the study indicated that OR is an ongoing process that occurs among entrepreneurs regardless of the business or industry they are in. In other words, entrepreneurs are continually pursuing new business opportunities. This suggests that teaching OR skills is an important part of entrepreneurship education.

Implication 2: OR is problem and customer specific. For the entrepreneurship educator, this implies that they should teach students to seek to recognize solvable problems that represent commercializable opportunities. The authors suggest that this can be accomplished 1) using a case based approach to teaching entrepreneurship and 2) by maintaining a market/customer orientation.

Implication 3: Teaching creativity skills can enhance OR. Entrepreneurship educators can strengthen OR skills by giving students an ability to think creatively, to speculate on opportunities and business conditions in an "out of the box" fashion and to learn the craft of creative leadership.

Implication 4: Experimentation and learning are essential to OR. OR is more than just an Aha! experience. Opportunities often become apparent after a period of experimentation or failures. Therefore, entrepreneurial educators can enhance learning by creative an environment that invites experimentation and de-emphasizes the importance of instant success. Continual learning through a trial- and-error approach can be helpful in teaching the dynamics of opportunity recognition.

Implication 5: Networking enhances the OR process. Research indicates that entrepreneurs with wider networks of social contacts identify more ideas and recognize more opportunities than entrepreneurs with fewer contacts. The findings suggest that entrepreneurship educators might consider giving students an opportunity to network with colleagues and other entrepreneurs beyond the traditional methods already used. These opportunities should include in-depth mentoring programs, internships and business planning activities.