The Entrepreneurial Process and Business Opportunity ...

School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY

The Entrepreneurial Process and Business Opportunity

Recognition

[email protected]


Men, “heroes”, successful, big companies…

Images of entrepreneurship!


Jan-Erik Solem, ass prof

Department of Mathematics

Polar Rose 2004, sold 2010 to Apple

Mapillary (2013)

“Academic commuter”


What is academic entrepreneurship?

• Licensing

• Starting a firm

• Applying for a patent

• Commission research

• Commission teaching (?)


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


The entrepreneurial cycle

Societal change

Entrepreneurial opportunities

Entrepreneurs

New value

Creates

Discovered and exploited by Generates

Leads to


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


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


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


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.


(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


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.


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


What is needed?

• Character traits

• Skills and abilities

• An opportunity

• An opportunity turned into a business model

• A plan

• Resources


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..


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


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

http://www.get2test.net/


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


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.


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


Discussion

• How did you come up with your ideas?


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


A model of the opportunity recognition

process (Ardichivilli et al. 2001)


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


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.


The entrepreneurial process

Idea Business

opportunity Business

model Business

plan New

venture?

Decision to start? Career choice?


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…


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


Saras Sarasvathy - contributed with a new

perspective to the field of entrepreneurship research


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.


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


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


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


Important questions to ask

• Who am I?

• What do I know?

• Whom do I know?


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.


A summary…

• https://www.youtube.com/watch?v=TIXVe4nEDEE


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


Discussion

• What do you perceive as the most difficult

activity/decision in the commercialization of your idea?

Why?


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)


We are embedded in social context that

influence us

• Our social context matter and the groups we are part of.


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.

The Entrepreneurial Process and Business Opportunity ...

Documents

Transcript of The Entrepreneurial Process and Business Opportunity ...