1. The financial dimension Entrepreneurship is an economic activity which is most concerned with building stable, profitable businesses which must survive in a competitive environment. The new world created by the entrepreneur must be a more valuable one than which existed before.Entrepreneurs create new value not just someone wins and some loses entrepreneurs do more than just shift existing wealth around new value can be shared in a variety of ways
2. The personal dimension Some entrepreneurs need a sense of achievement, having a sense of creating something or of ‘making a whole new world’. Or entrepreneurs may be motivated by the challenge that the competitive environment presents. So it is often not the final destination that matters, but the journey (the build-up).
3. The social dimension: What makes entrepreneurs want to drive changes in the structure of society:- Provide the society with new products and access to new services- Provide fellow citizens with jobs- Help make the economic system competitiveThe entrepreneur envisages a kind of world or the possibility of a better world (often part of their vision and so their mission). To achieve this, the entrepreneur has to operate with some degree of social responsibility.
The entrepreneur is responsible for bringing together these four interacting contingencies to create new value:
1. The entrepreneur: The entrepreneur is the manager who drives the whole process forward. They work singly or in management teams.
2. Opportunity: An opportunity is the gap left in a market by those who currently serve it. The entrepreneur is responsible for scanning the business landscape for unexploited opportunities or possibilities that something important might be done both differently from the way it is done at the moment and, critically, better than it is done at the moment.
3. (Business) Organization: Organizations can take on a variety of forms, depending on a number of factors; their size, their rate of growth, the industry they operate in, the types of product or service they deliver, the age of the organization and the culture that it adopts.It has been found more effectively to think in terms of organization in a wider sense as being a network of relationships between individuals, with the entrepreneur sitting in the center. The network view gives a good insight in how entrepreneurial ventures establish themselves, how they locate themselves competitively, and how they sustain their position in their market by adding value to people’s lives.
4. Resources: Resources include:
- The money that is invested in the venture
- The people who contribute their efforts
- Knowledge and skills to it
- Physical assets such as productive equipment and machinery, building and vehicles
- Intangible assets such as brand names, company reputation and costumer goodwill
Key function of the entrepreneur is to attract investment to the venture to use it to build up a set of assets which allow the venture to supply its innovation competitively and profitably.At first, the entrepreneur plays a critical role in identifying opportunity, building and leading the organization, and attracting and managing resources when the company grows, it develops processes and systems, and the people within it adopt distinct roles.In this way, entrepreneurial ventures quickly take on a life of their own. They become quite distinct from the entrepreneur who established them.
Key function of the entrepreneur
is to attract investment to the venture to use it to build up a set of assets which allow the venture to supply its innovation competitively and profitably.At first, the entrepreneur plays a critical role in identifying opportunity, building and leading the organization, and attracting and managing resources when the company grows, it develops processes and systems, and the people within it adopt distinct roles.In this way, entrepreneurial ventures quickly take on a life of their own. They become quite distinct from the entrepreneur who established them.
The entrepreneurial process is dynamic success comes from the contingencies of the entrepreneur, the opportunity, the organization and resources coming together and supporting each other over time.
1. Opportunity-organization fit:
Essential features for opportunity of an organization:
- Assets the things which it possesses
- Structure how it arranges communication links within itself
- Process how it adds value to its inputs to create its outputs
- Culture the attitudes, beliefs and outlooks that influence the way people behave within the organization
2. Resource-organization configuration
- Productive assets
Configuration of resources is the way in which a particular ix of resources is brought together and blended to form the organization’s assets, structure, process and its culture.
3. Resource-opportunity focus:The entrepreneur must decide what resources will make up the organization. The entrepreneur must be single-minded and focus those resources definitely and unambiguously on to the opportunity that has been identified since the performance of the entrepreneurial organization depends on how well the contingencies of opportunity, organization and resources are linked together.
So the three aspects above make the organization fit the opportunity it aims to exploit, configure the resources to shape the organization and focus the resources in pursuit of the opportunity.They merely provide different perspectives on the same underlying management process.However:
- Leadership must be applied constantly
- Entrepreneurial organization must be a learning organization
- It must not only respond to opportunities and challenges but also reflect on the outcomes
- They must modify future responses in the light of experienceSo assets and structures must be modified as the organization grows and changes and, critically, learns from its successes and failures.
People build highly structured societies. Within these societies we join together in organizations.An organization is an arrangement of relationships in that it exists in the space between people. Conclusion: whatever the organizational arrangement is at the moment, there is probably a better way of doing things.The world is dynamic Technological progress quickly changes the rules
In terms of satisficing behavior:- An opportunity is
-A apportunity is the possibility to do things both differently from and better than how they are being done at the moment. In economic terms, differently means an innovation has been made. Better means the product offers a utility, in terms of an ability to satisfy human needs, that existing products do not.
- Organizations must base their decisions on the knowledge they have to hand, and their ability to use it. Furthermore, they make their decisions while following the rules they have laid down for themselves and the rules of the culture that shapes their lives.
- Business opportunity can be seen as a landscape ‘open ground,’ ‘areas which are build up’, ‘areas with old buildings’ etc. so organizations know where to move and to start building.
chance to do something differently and better
way of doing something differently and better
All goods are made up of three factors
- natural raw materials,
- physical and mental labour
An innovation is a new combination of these three things.
Innovation is a much broader concept than just inventing new products.Important areas in which valuable innovations might be made:
1. New products: Most common innovation is the creation of a new product. This may:
- Exploit an established technology
- Outcome of a whole new technology
- A radically new way of doing something
- An improvement on an existing theme
Branding can also be a way to satisfy emotional needs -> personal statement
2. New services: A service is an act which is offered to undertake a particular task or solve a particular problem. It can effectively use branding. It is beneficial to stop thinking about ‘products’ and ‘services’ as distinct types of business and to recognize that all offerings have product and service aspects.
3. New production Techniques: Innovation can be made in the way in which a product is manufactured. It must either allow them to obtain the product at lower cost, or to be offered a product of higher or more consistent quality, or to be given a better service in the supply of the product.
4. New operating practices: Services are delivered by operating practices which are, to some extent, routinized. These routines provide a great deal of potential for entrepreneurial innovation. By standardizing your product preparation, advantages can be gained.
5. New ways of delivering: the product or service to the costumerDistribution can only be a success when costumers know of your product. The potential for innovation can include the route (the path the product takes from the producer to the user) or the means of managing its journey.
A common innovation is to take a more direct route by
1. cutting outdistributors or intermediaries. Another approach is
2. to focus on the distribution chain and to specialize in a particular range of goods (‘category busting’).
6. New means of informing the costumer about the product:
Demand will not exist if the offering is not properly promoted to them. Promotion consists of: a message and a means. Venture often do not have the resources to invest in high-profile advertising so they are encouraged to develop new means of promoting their products (for example ‘free publicity’).
7. New ways of managing relationships: within the organizationCommunication channels are guided b y the organization’s structure. The structure of the organization offers considerable scope for value-creating innovations.
8. New ways of managing relationships between organizations:The way in which organizations communicate and relate to each other is very important. Many entrepreneurial organizations have made innovation in the way in which they work with other organizations into a key part of their strategy.Organizations see that managing the relationship with their costumers is important. Some organizations succeed in breaking the barrier between their organization and their customers.
An entrepreneurial venture does not have to restrict itself to just one innovation or even one type of innovation. Success can be built on a combination of innovations.
High and low pioneering-innovativeness, distinguished on:
- the basis of a variety of strategic characteristics
- the selection of which reflects the innovation discovered
- the business opportunity and resources available
- the personal preferences of the entrepreneur
Table 11.1 It’s quite simple actually. You should take a look at the table in the book.
Opportunity motivates entrepreneurs. It is the thing that attracts their attention and draws their actions. They try to take control of opportunities.Entrepreneurs always scan the business landscape looking for new ways of creating value. This value can take form of:
- new wealth
- a chance to pursue an agenda of personal development
- creating social change
Things that drive an entrepreneur:
- dissatisfaction with the present, although many can still enjoy the what is
- satisfaction with the journey
- creating a space for themselves to take pride in what they have achieved
The best ideas are
those which are inspired by a clear need in the marketplace rather than those that result from uninformed invention.
One of the misconceptions about entrepreneurs is
That they are ‘wanderers’ of the business world; they hop from industry to industry. Entrepreneurs need certain experience or knowledge of the field they will work in. Some important elements of this knowledge include knowledge of:
- the technology behind the product or service supplied;
- how the product or service is produced;
- costumers’ needs and the buying behavior they adopt;
- distributors and distribution channels;
- the human skills utilized within the industry;
- how the product or service might be promoted to the costumer;
- competitors: who they are, the way they act and react.
Business success, and the accumulation of wealth this brings, creates a number of possibilities for the entrepreneur and their ventures to dispose of that wealth:
1. Reinvestment: The business reinvests some of the profits it has generated.
2. Rewarding stakeholders: Entrepreneurs exist in a tight network of relationships with a number of other internal and external stakeholders who are asked to give their support to the venture. They take risks, therefore they are being rewarded.
3. Investment in other ventures: (optional -> if reinvestment within the venture has taken place, and the stakeholders have been rewarded for their contributions, and there are still funds left over, then alternative investments might be considered)The entrepreneur may:
- Start a new venture;
- Provide investment support to another entrepreneur.
4. Personal reward(optional): Created value can be used for personal consumption or entrepreneurs can put their money into altruistic projects. This may reflect their desire to make a mark on the world outside the business sphere.
5. Keeping the score(optional): Money is just a way of quantifying what they have achieved; a way of keeping the score of their performance. The money value of their venture is a measure of how good their insight was, how effective their decision making was, and how well they put their ideas into practice.
The entrepreneur calls upon support of a certain number of groups:
1. The employees: Being rewarded by:
- Being paid a salary
- A possibility of owning a part of the firm through share schemes
- Developing social relationships
- Gaining personal development
2. The investors: Two sorts of investors:
- Stockholders -> buy a part of the firm, they are entitled to a share of any profits made. The return the stockholders receive depends on the how the business performs.
- Lenders -> people who offer money to the venture on the basis of it being a loan. They do not own a part of the firm. Lenders expect a rate of return which is agreed independently of how the business performs before the investment is made.
3. The suppliers: Suppliers are the individuals and organizations who provide the business with the materials, productive assets and information it needs to produce its outputs. They are being paid with money.Supplying goods may involve an investment in developing a new product or providing a back-up support.
4. The customers: Customers may need to make an investment in using a particular supplier. When costumers decide to use the products offered by a new venture rather than one with an established track record, they may be exposing themselves to some risk. Costumers expect high quality products.
5. The local community: The way businesses operate may affect the people who live and other businesses which operate nearby. The responsibilities a company has towards the local community include legal or formal responsibilities as well as ethical responsibilities.
6. The government: The government provides businesses with political and economic stability, education and health care. Because these services cost money the government taxes individuals and businesses. In general, governments aim to support entrepreneurial businesses because they have an interest in their success. Entrepreneurs bring economic prosperity, provide social stability and generate tax revenue.
- customers can be rewarded for their loyalty;
- higher payments may be used to motivate employees;
- profits can be used to support projects in local community;
- distributing the rewards created by the venture is a great responsibility.
Modern decision theory clearly distinguishes among decisions made under conditions of risk, of uncertainty and of ambiguity. All these decision types are based on knowledge of three information sets:
1. The set of states in the world -> outside the active control of an entrepreneur
2. The sets of acts -> the choices that the entrepreneur can make and has control over. Acts are made in anticipation of the state of the world that will obtain.
3. The sets of outcomes -> outcomes result from the intersection of an act with a state of the world. They are the payoff expected to happen if the entrepreneur does ‘this’ and ‘that’ occurs.
Decisions are made on the basis of knowledge about states, acts and outcomes. The different types of decision:
1. Decisions under certainty -> the actual state of the world that will occur is known definitely. The decision maker simply selects the act that gives the highest returns (rare).
2. Decisions under risk -> the states that might occur are known, but it is not known for definite which one will occur. What is known is the probability with which each state might occur.
3. Decisions under uncertainty -> a manager might have a good knowledge of what might happen, he or she does not usually have detailed knowledge of the actual probabilities of what will happen.
4. Decisions under ambiguity -> based on intuition. Decisions under ambiguity lie between those under uncertainty and risk. There is no definite probability for the things that might happen (risk), but the situation is not one of complete uncertainty either.
5. Decisions under ignorance -> not only are the possibilities not known, but even what might happen is not known.
So what entrepreneurs actually do is not take on risk but act to convert uncertainty (and ignorance) into risk (via ambiguity) by using their judgement to analyze and clarify the eventualities (states) thatmight occur estimate their probabilities and then identify the acts that will maximize payoffs given these eventualities.