Maximilian Stark (mail@dakror.de), WS2018

Stand: 12.01.2019

Introduction to Entrepreneurship and Ethical Business

Introduction to Entrepreneurship

Definition

• Discovery, Evaluation, Exploitation of Opportunities to create Novelty by mobilizing resources (Shane & Venkatarmaran)

Core properties

• Disruption of industries
• Creation of industries
• Creative Destruction
• Sought even as employee (entrepreneurial thinking)
• correlation with wealth of nation

Management strategies

Traditional

• Fight for place inside industry
• Market share as success measure

Entrepreneurial

• Fight for territory across the board
• Share of opportunity space as success measure

Entrepreneurial behavior

• Understanding the people side of entrepreneurship
• Probing entrepreneurship phenomena only from economic perspective not enough (Busenitz)
• Central questions in entrepreneurship research (Baron)
  • Why only some people become entrepreneurs
  • Why some people see opportunities better
  • Why success rate of entrepreneurs varies

Personality

Definition

• stability over time
• Traits: dispositions to (re-)act in various situations
• influences by genetics and environment

The Big Five

• Introversion vs. Extroversion
• Neuroticism vs. Emotional stability
• Antagonism vs. Agreeableness
• Undirectedness vs. Conscientiousness
• Closedness vs. Openness

Findings in entrepreneurship

• Correlation of traits to venture creation & performance
• All aspects stronger than for managers
• positive Conscientiousness
• negative Neuroticism
• positive Openness
• very positive Autonomy
• positive Achievement motivation
• positive Risk taking propensity
• very positive self efficacy
• positive Locus of control
• weakly negative / insignificant Agreeableness
• weakly positive / insignificant Extraversion

Motivational Needs Theory (David McClelland)

• Into-Action-Push by internal forces
• Everyone driven by 3 basic needs
• Change of dominant need over life course and experience

1. Achievement
2. Autonomy
3. Power

Importance of Entrepreneurial Affect

• Highly uncertain environment
• Unpredictability
• Model
  1. Affect (disposition / event)
  2. .
     • Priming of mood-related associations & memories
     • Affect as heuristic cue
  3. Effects on cognitive processes
     • Judgement
     • Perception
     • Decisions
     • Memory
     • Creativity
     • Stress coping strategies
     • heuristic thought preference
  4. Potential effects on entrepreneurial business
     • Opportunity recognition
     • Resource acquisition
     • Social network development
     • Effective response to dynamic environments
     • Stress tolerance

Creativity

• generation of novel and useful ideas, insights, solutions (Baas)
• reactive to problems and challenges, also proactive (Runco)
• Techniques
  • conceptual combination (affordable luxury)
  • analogical reasoning (copy nature)
  • WIBNI: Wouldn't it be nice if...
  • Checklist method
    • Adapt
    • Modify
    • Magnify
    • Minify
    • Subsitute
    • ...
  • Brainstorming
    1. Defer judgement
    2. Encourage wild ideas
    3. Build on ideas of others
    4. Stay focues on boundary conditions
    5. One conversation at a time
    6. Go for quantity
  • Delphi Technique
    • Written approach
    • Iterative converging process
      1. Experts filling out questionaires
      2. Presentation of anonymized summary
      3. Re-evaluation of statements, cycle repetition
  • Six thinking hats
    • Perspective changes
    • Blue: Process
    • Green: Creativity
    • White: Facts
    • Yellow: Benefits
    • Red: Feelings
    • Black: Cautions

Development of market opportunity from technology

1. Analyzing tech
2. Broad problem / application field identification
3. Decision for single problem / application field
4. Identification of target customer

Entrepreneurial process

1. Idea generation
   • Difficulty in judgement of being worthwile, not in generation
   • Hard to imagine novelties
   • Evaluation based on internal models, not rational
   • Uncertainty, countless factors
   • Matching ideas an capabilities
     • Problem scale
     • Relevance to team
2. Opportunity development
   • Sources
     • Technology Push (TUM Konux)
     • Demand pull (TUM Lilium)
   • Contributing factors
     • Creativity
     • Knowledge
       • previous experience
       • can be restrictive, Creativity to overcome
     • Networks
     • Changes in the Environment
       • Emergence from complex pattern of changing conditions
       • PEST conditions: political, economic, societal, technological
3. Venture or business unit foundation
4. Growth

Prototyping

• Sharing
• Validation
• Fast failing
• Stages
  1. Inspiration
     • Embrace failure
     • Build to think
     • Low resolution
  2. Evolution
     • Expect changes
     • Experiment
     • Targeted models
  3. Validation
     • Manage changes
     • Build to spec.
     • Integrated models

Discussions

• BATNA: best alternative to negotiated agreement
• Bargaining tactics
  • Reciprocity
    • repay in kind
    • Uninvited debts
    • Reciprocal concessions
    • "Door-in-the-face": Extrem request with reasonable follow up
    • "That's-not-all-folks": Offer increase or cost reduction
  • Commitment and consistency
    • Pressure to consistent behaviour
    • "Foot-in-the-door": Escalating pattern of requests
    • "Low-balling": Withdrawal of inducements after deal

Decision making: Context for entrepreneurs

• High uncertainty
• Time pressure
• Emotional intensity
• Ambiguity
• Consequential extremes
• Environment
• Personality traits
• Heuristics and biases

Idea development

• From idea to opportunity
• Development activities
  • Goal Setting
  • Effectuation

Goal Setting

• SMART goals
  1. Specific
  2. Measurable
  3. Achievable
  4. Relevant
  5. Time-Bound
• Action planning: Breaking of goals into subgoals and plans

Effectuation

• General principle: Causation -> Effectuation
• Start with your resources: Means -> Goals
  • not chasing investors
  • not waiting for perfect opportunity
  • working on own strenghts
  • oppportunities that fit
  • Creativity with few resources
• Affordable loss: Expected return -> Affordable loss
  1. Limitation of investments
  2. Minimizing costs
  3. Use of low-cost resources
• Form partnerships: Competition -> Partnership
  • new means from investors
  • only investment of disposables
  • unexpected contingencies, leverable
• Leverage surprise
• In action
  1. Means
  2. Goals
  3. Interact
     • no commitment: dead end
  4. Stakeholder commitments
     • new means
     • new goals
     • Changes in environment
     • Expanding cycle of resources
     • Converging cycle of constraints
     • => new firms/products/markets

Teams

• Research
  1. Upper echelons perspective: relationship team <-> venture performance (Strategic Management)
  2. Intermediary mechanism exploration: team input & effectiveness (Organizational and Entrepreneurial Behaviour)
  3. Upper echelons + Input-mediators-outcomes
• Journey
  1. Finding members
     • Heterogeneity vs. Homogeneity
     • Complementary competence vs Friendship and availability
  2. Team setup
     • Strong ties: Professionalize
     • Weak ties: Team build up
     • Building blocks
       1. Foundations
       2. Roles & expectations
       3. Contributions & rewards
       4. Future development
     • Equity distribution
  3. Difficulty management
     • Relationship conflicts vs. Task conflicts
     • Destructive vs. constructive
     • Taking breaks
     • Team rules
     • Reflection
     • Feedback
     • Neutral coaches
     • Effective communication

Equity distribution

1. Criteria
   • Backwards orientation
     • Idea premium
     • Capital contribution
     • Opportunity costs
     • => Certainty about contributions
   • Forwards orientation
     • Prior experience
     • Level of commitment
   • Titles
2. Timing
   • early split
     • attractive
     • calm negotation before pressure
     • previous experience with co-founders
   • late split
     • commitment more clear
     • future incentives
     • established business model
     • no re-negotations
   • static vs. dynamic split
     • Contribution uncertainty
     • Vesting: Split level change over time
       • time based
       • milestone based
     • Handling early leavers
     • Protection for members

Input-mediators-outcomes

1. Inputs
   • Prior experience
   • Social capital
   • Personality
   • General mental ability
2. Mediators
   • Team processes
     • Transitions: Membership changes
     • Interpersonal: Team conflicts
     • Actions
       • Planning
       • Goal setting
   • Emergent States
     • Cognitive
       • Collective cognition
       • Cohesion
     • Affective
       • Team confidence
       • Psychological safety
       • Affective tone
3. Outcomes
   • Sales growth
   • Profitability
   • Number of employees
   • Innovativeness
   • Satisfaction
   • Well-being

Market Entry

• Startup: temporary organization, repeatable, scalable business model
• Liabilities of newness
• Capitalization on newness assets
• Product not the solution, business model is
• Entry strategies
  • First mover
    • + Cost advantage
    • + Less competitive rivalry
    • + Securing of supply/distro channels
    • - Market uncertainty
    • - Technological uncertainty
    • - Uncertainty for customer
  • Imitation
    • Franchising: acquire proven formula
    • Copying and minor modifications
    • + less R&D costs
    • + organizational legitimacy
    • + less customer uncertainty
  • Narrow-scope
    • Fill specific niche
    • + Gain specialist expertise
    • + High end market
    • + Less competition
    • - Much uncertainty
  • Broad-scope
    • Wide range of products / markets
    • learning process
    • - Many fronts of competition
    • + less market uncertainty
• Reduction of uncertainties
  • Informal advertising
  • Highlighting advantages
  • Frame of reference
  • Domentration & documentation

Business model

• Backend
  • Key activities
  • Key partners
  • Key resources
  • Cost structure
• Value proposition (the product)
• Frontend
  • Customer relationships
  • Customer segments
  • Distribution channels
  • Revenue streams
• Who is customer?
• Who is user?

Growth

Market
Existing	Penetration	Product development
New	Market development	Diversification
	Existing	New	Product

• Ansoff matrix
  • Penetration: Aggressive marketing for current products
  • Market development: Grow to new customers
    • geographic
    • demographic
    • new product use
  • Product development
    • Capitalize on existing distro
    • Capitalize on reputation
  • Diversification
    • Backward integration: step back up value-added chain toward raw materials
    • Forward integration: step forward down value-added chain toward customer
    • Horizontal integration: Same level, different chain
• Process model of growth
  1. Creativity: Crisis of leadership
  2. Direction: Crisis of autonomy
  3. Delegation: Crisis of control
  4. Coordination: Crisis of Red Tape
  5. Collaboration: Crisis of growth
  6. Alliances
• Firm categories
  1. Micro firm
     • < 10 employees
     • < 2m€ turnover & balance
  2. Small firm
     • < 50 employees
     • < 10m€ turnover & balance
  3. Medium sized firm
     • < 250 employees
     • < 50m€ turnover
     • < 43m€ balance
  4. Large firm
     • Rapid growth firm
     • > 10 employees
     • annual growth > 20% over 3 yrs
     • Gazelle
     • < 5 yrs old
     • > 10 employees
     • avg annual growth > 20% over 3 years
     • Unicorn: Startup valued > 1bn$

Internationalization

• 1960/70s
  • Gradual expansion
  • Perceived uncertainty about foreign markets
  • Foreign market entry mode
    1. Sporadic export
    2. Regular export
    3. Sales subsidiary
    4. Production subsidiary
• Born global, 1990s
  • Environment
    • Increasingly internationalized industries
    • Advances in ICT and transportation technologies
  • Product
    • High degree of innovation and specialization (shorter product life cycles)
    • Unique competitive advantage
    • Products often standardized (quick international roll-out)
  • Customers / Market
    • Often niche segments
    • International growth due to narrow market
    • "Global" need (increasing homogenization of customer preferences)
  • Management team
    • International background or experience: mindset
    • High international entrepreneurial orientation
    • Existing networks abroad -> previous customers, suppliers, etc.
• Foreign market entry barriers
  • Institutional barriers
    • import tarrifs or quota
    • Local ownership restrictions (joint ventures)
    • Local content clauses for foreign direct investment
  • Market-based barriers
    • hindered access to distribution systems
    • Personnel acquisition problems
    • Customer preferences for local companies
• Foreign market attractiveness
  • Volume
  • Growth
  • Price structure
  • Cost structure
  • Infrastructure
• Foreign market entry modes
  • Exporting
  • Licensing (Franchising)
  • Joint Venture
  • Subsidiary
• Foreign market entry: Eclectic Theory
  1. Ownership advantages (no) -> No internationalization
  2. Internationalization advantages (no) -> Licensing
  3. Location advantages in foreign country
     • (no) -> Export
     • (yes) -> Subsidiary