the entrepreneurial process and business opportunity
TRANSCRIPT
School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
The Entrepreneurial Process and Business Opportunity
Recognition
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Men, “heroes”, successful, big companies…
Images of entrepreneurship!
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Jan-Erik Solem, ass prof
Department of Mathematics
Polar Rose 2004, sold 2010 to Apple
Mapillary (2013)
“Academic commuter”
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What is academic entrepreneurship?
• Licensing
• Starting a firm
• Applying for a patent
• Commission research
• Commission teaching (?)
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Why entrepreneurship?
• New ventures
• New job opportunities
• Development of existing organizations
• Research – innovations – new products – new ventures – research …
• Changes in society (political, economical, social, technological, environmental, legal)
• Drives development of society
• Entrepreneurship tend to be related to venture creation – an increased focus on social entrepreneurship
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The entrepreneurial cycle
Societal change
Entrepreneurial opportunities
Entrepreneurs
New value
Creates
Discovered and exploited by Generates
Leads to
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Types of entrepreneurship
• For-profit entrepreneurs
– Gazelles, young, high-growth firms
– 95 % of all firms in Europe employ fewer than 10
people, 2/3 employ only one other person
» Salary-substitute firms (instead of employment), small
» Lifestyle firms
• Social or civic entrepreneurs
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Radical or incremental innovations
• Radical innovations are ground breaking and
revolutionary
» Extremely unique innovations that establish the platform on
which future innovations can be developed
• Incremental innovations are piecemeal and evolutionary
» Extend innovation into a better product or service or one that
has a different market appeal
» Result of market analysis and pull and not technological push
• Innovativeness is a continuum from small scale to never
seen before
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Innovative enterprises vs. imitative
enterprises
• When is a company innovative?
• A lot of companies imitate!
– Advantages of imitating:
» Skills necessary to be successful in the industry are
known
» Provide organizational legitimacy
» Reduce costs associated with R&D
» Reduce customer uncertainty over the firm
» Make the new entry look legitimate from day one
• We do things that are already tested – isomorphism
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Schumpeter’s definition
Joseph Schumpeter (1883-1950)
1. The introduction of new products or services (to a new market)
2. The introduction of a new production process (to a new market)
3. The entering or ’opening’ of a new market
4. The appropriation of a new source for raw materials (or intermediate goods)
5. The re-organization of an industry (e.g. breaking up or creating monopolies
An entrepreneur is an economic agent that introduces new combinations into the economy. Hence, entrepreneurship drives economic development.
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(To) market
New
New
Old
Old
(To) firm
I
New offer:
- Product/Service
- Bundle
- Price / Value relation
II
Organizational Change:
- Acquisitions
- Spin-offs
-Buy-outs
-Internal re-organization
III
Geographical market
Expansion
(incl.
Internationalization)
IV
Business as usual
Non-entrepreneurial
growth
Davidsson: Firm and market newness of economic activities
TRADITIONELL PIZZERIA
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Entrepreneurship as market drivers
(based on Davidsson, 2003)
I
Successful
enterprises
III
Failed enterprises
II
Unproductive
enterprises
IV
Catalysts
enterprises
Success (utility) for society + -
Success (utility)
for the individual
+
-
Someone tests, fail
and people around and society
learn.
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Pushed or pulled into entrepreneurship?
• Necessity driven entrepreneurship – situational factors
that push you towards entrepreneurship
– Unemployed, immigrant, disagreements, “Misfit”, no
other options
• Opportunity driven entrepreneurship – pulled
– Independence, recognition, personal development,
wealth
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What is needed?
• Character traits
• Skills and abilities
• An opportunity
• An opportunity turned into a business model
• A plan
• Resources
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Before moving to character traits a
small note…
• McLelland, Harvard, The Achieving Society, 1961
– Which personality or properties make the difference
between an entrepreneur and non-entrepreneur?
– Risk taking? Need for achievement? Locus of control?
Tolerance of ambiguity?
• Little evidence for any correlation between the
entrepreneurial behavior and the personality –
entrepreneurs are not born..
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Character traits
• Entrepreneurship does not fit everybody!
• Entrepreneurial orientation (EO)
– Need for achievement
– Need for autonomy and independence (Be your own boss.)
– Creativity, innovation and opportunism
– Acceptance of measured risk and uncertainty
– Internal locus of control and self-efficacy
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Influence on our character traits
Personal
character
traits
Situational factors
Culture and sub-
culture
Personal
character
traits Measuring your personal character traits:
www.get2test.net
The General Enterprise Tendency test
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Skills and abilities
Who starts companies in Sweden? (Delmar and
Samulesson, 2003)
» 8 of 10 have experiences from a specific sector, and
have been working in that sector for about 9 years
» About 40 years old when starting
» Male (72 %)
» Half have done it before!
» 62 % start in teams
» ¾ are companies you ‘live on’ – the entrepreneur are
not earning a lot of money.
» 38 % of those who start leave the company within 2
years
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Cont.
• More men than women start… Why?
– “Gendered” society
– Family businesses
– Men work in the private sector and women in the
public sector
– BUT, when women start and we compare
companies within a sector there are no major
differences between the companies –
isomorphism! You run a firm in a certain way.
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Opportunity discovery vs. creativity
Discovery (Shane & Eckhardt):
• Difference in knowledge
• Exogenous shock
• Alertness
• Application of decision rules
• Mean-end framework
• Strong rationality and optimizing
assumption
Creativity (Alvarez et al):
• An evolutionary process
• Based on social construction
• Fundamentally subjective
• Enactment
• Opportunities can only be
understood when they exists
• Based on perception
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Discussion
• How did you come up with your ideas?
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How do entrepreneurs come up with
ideas?
Sources Examples
New market emerges Mobile phone industry (end of the
1990s)
New technologies are created Digital photography, functional food
Political decisions, regulations,
deregulations of systems
Health care in Sweden
Changes in consumer behaviour Music industry from CD to web
loading
Sudden events 9/11
Changes in business models Amazon.com
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A model of the opportunity recognition
process (Ardichivilli et al. 2001)
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The entrepreneurial process
• Can be described as two, partly overlapping processes
• The “discovery” process: The initial conception, and
further refinement over time, of a business idea
• The exploitation process: The acquisition and
coordination of the resources that are needed to realize
the idea, as well as the identification and persuasion of
would-be buyers – IS THERE A MARKET?
Discovery Process
Exploitation Process
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Cont.
• The processes are not sequential and independent, but
overlapping and intertwined
– The business idea is not fixed first, then exploited.
Instead, discovery guides the exploitation process
and feedback from the exploitation process leads to
refinement of the business idea
• In order to turn opportunity (initial idea) into a viable
business, it is refined into a powerful business concept
(model). This is what the discovery process is about.
• In order to turn opportunity into a viable business, we also
need to acquire and organize resources. This is what the
exploitation process is about.
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The entrepreneurial process
Idea Business
opportunity Business
model Business
plan New
venture?
Decision to start? Career choice?
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Activity based approach to
entrepreneurship (Paul Reynolds)
Activities Example of activities
Generate ideas, opportunity recognition - Discuss with friends and family
- Identify gaps in the market
- Identify problems in everyday life
- Think...
Evaluate ideas - Talk to potential customers
- Google competitors
- Conduct NABC-analysis
Prepare and plan - Find team members
- IPR applications
- Seek finance
- Market analysis
- Business model (canvas)
- Business plan
Start-up, launch and manage - Find office space
- Buy equipment
- Establish legal entity
- Management and control systems
Post-start activities - Employ staff
- Marketing activities
- Plan for growth etc…
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But, all business start-ups do not follow
the same process…
• There is no correct way to start a venture
• It is a mix of planning and action, and luck and serendipity
• Variation in the process depends on:
– Context
– Industry (different logics)
– Newness (e.g. innovative-necessity, new vs. old
industries)
– Individual or team
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Saras Sarasvathy - contributed with a new
perspective to the field of entrepreneurship research
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The background
• Herbert Simon
– Bounded rationality
– Decision making cannot be fully rational, i.e. it is not possible to identify
and list all existing alternatives and determine all consequences resulting
from each of the alternatives to finally compare the accuracy and
efficiency of each of these sets of consequences. Humans are not able to
do that.
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Causal reasoning
• Begins with a pre-determined goal and a given set of
means
• Seeks to identify the optimal (fastest, cheapest, most
efficient etc.) alternative to achieve the given goal
Given
goal
M1
M2
M3
M4
M5
M6
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Effectual reasoning
• Begins with a given set of means
• Allows goals to emerge contingently over time from the
varied imagination and diverse aspirations of the founders
and the people they interact with
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Casual and effectual reasoning
• The principle of effectual reasoning:
– Focus on affordable loss (risk)
– Build upon strategic partnership
– Stress the leveraging of contingencies
– Control an un-predictable future
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Important questions to ask
• Who am I?
• What do I know?
• Whom do I know?
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Two different approaches
The
customer
Market definition
Segmentation
Targeting
Positioning
Customer identification
Customer definition
Adding segments/
strategic partner
Definition of one or several
markets
Classic causation model from
marketing textbooks
A doing mode; process of effectuation
used by expert entrepreneurs.
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A summary…
• https://www.youtube.com/watch?v=TIXVe4nEDEE
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Seductively appealing for many…
• But…
– Saras Sarasvathy studied expert entrepreneurs
– She does not say that you should not plan at all
– Entrepreneurship related to your background and
skills
– Entrepreneurship is about effectuation and causation
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Discussion
• What do you perceive as the most difficult
activity/decision in the commercialization of your idea?
Why?
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Entrepreneurs act in uncertain
environments
• No historical trends
• No previous levels of performance
• Little if any specific market information
• No, or little information about the product or service
• Entrepreneurs face complex decision-making processes
• Decision-making practices = routines (Nelson and Winter,
1982) and routines do not exist in new firms
• Entrepreneurs act on ideas with limited information, they
are opportunists (Gartner et al. 1992)
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We are embedded in social context that
influence us
• Our social context matter and the groups we are part of.
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Readings related to this lecture: • Alvarez, S.A and Barney, J.B. (2007). Discovery and creation: Alternative theories of
entrepreneurial action. Strategic entrepreneurship journal, 1:11-26.
• Bhave, M. P (1994). A process model of entrepreneurial venture creation, Journal of
Business Venturing, Vol. 9, pp. 223-242.
• Gaglio, C. M. and Katz, J. A. (2001). The psychological basis of opportunity identification:
Entrepreneurial alertness. Small business economics, 16: 95-111.
• Sarasvathy, S. (2001) Causation and effectuation: Toward a theoretical Shift from
Economic inevitability to Entrepreneurial contingency. Academy of Management, 26(2):
243-263.
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