A Primer in Entrepreneurship

• Having substantial social and professional contacts you are exposed to more opportunities and ideas potentially leading to new business starts

• In a survey of 65 start-ups, half the founders reported that they got their business idea through social contacts.

It is more likely that an entrepreneur will get new business ideas through weak-tie rather than strong-tie relationships.

• Strong Tie Relationship

frequent interaction between coworkers, friends, and spouses → between like-minded individuals

like-minded individuals tend to reinforce insights and ideas that people already have

• Weak Tie Relationship

infrequent interaction and form between casual acquaintances

more likely to spark a completely new idea

Creativity is the process generating a novel and/or useful idea.

• preparation

backgorund, experience, and knoledge of an entrepreneur

• incubation

consideration of an idea/a problem: "mulling things over"

• insight

the flash of recognition: the solution to a problem is seen or an idea is born

• evaluation

an idea comes under scrutiny (check/inspection) and is analyzed for its viability

• elaboration

design, developement, making

Siehe das Bild

• brainstorming

• focus groups

• surveys

• other techniques

Brainstorming is not used for analysis or decision making, but to quickly generate a number of ideas.

A brainstorming session is targeted to a specific topic about which a group of people are instructed to come up with ideas.

Brainstorming generates ideas that might not arise otherwise.

1. Since no criticism is allowed, people are more likely to offer ideas

2. Brainstorming focuses on creativity rather than evaluation.

1. No criticism

2. Freewheeling is encourage

3. The session should move quickly

4. Leap-frogging is encouraged (surpass or overtake another to move into a leading or dominant position)

Focus groups are used for a variety of purposes. They can be used to help generate new business ideas.

• Members of a Focus Group

A focus groups consists of 5-10 people who are related to the issue discussed.

• Strength

Companies are able to uncover what is on their customers’ minds through the give-and-take nature of a group discussion.

• Weakness

Participants do not represent a random sample, hence the results cannot be generalized to larger groups.

Surveys generate new product, service, and business ideas by gathering information from a sample of people. They ask specific questions and get specific answers.

• Survey Sample

The survey sample is usually just a fraction of the population being studies. The most effective surveys sample a “random” portion of the population. Sample is neither selected nor consisting of people who volunteered.

• Survey Data

The quality of the survey data is determined largely by the purpose of the survey and how it is conducted.

Self-selected opinion polls may distort results.

• Self-selected Opinion Poll

Most call-in television surveys or magazine write-in polls are highly suspect because the participants represent what’s called a self-selected opinion poll.

• Result

Most people who take the time to participate in a self-selected opinion poll do so because they have either strong positive or strong negative feelings about the particular product or topic.

Firms use a variety of other techniques to generate ideas.

• Customer Advisory Board

discusses needs, wants, and problems that may lead to new ideas

• Day-in-the-life research

is a form of anthropological research

(Anthropology is the scientific study of humans, human behavior and societies in the past and present)

• IDEO Method Cards

look like a deck of playing cards and show 51 of the methods that IDEO uses to come up with new ideas.

• Trade Shows, Conferences, etc.

are used as intelligence missions to learn what their competition is doing and then use the information to stimulate new ideas.

• Establishing a Focal Point for Ideas
• Encouraging Creativity at the Firm Level
• Protecting Ideas from Being Lost and Stolen

• ... designating a specific person to screen and track ideas.

• ... establishing an idea bank which is a physical or digital repository for storing ideas.

Intellectual Property is any product of human intellect that is intangible but has value in the marketplace, and therefore should be protected.

• patents

• trademarks

• copyrights

• trade secrets

Rules

A mere idea or concept does not qualify for intellectual property protection. Protection comes later when the idea is translated into a more concrete form.

At the opportunity recognition stage three steps should be taken when a potentially valuable idea is generated.

• Step 1

The idea should be put into a tangible form (physical idea logbook, computer disk)

• Step 2

The idea should be secured.

• Step 3

Avoid making in inadvertent or voluntary disclosure of an idea in a way that forfeits your claim to its exclusive rights.

(Vermeiden Sie eine versehentliche oder freiwillige Offenlegung einer Idee in einer Weise, die Ihren Anspruch auf ihre ausschließlichen Rechte verliert.)

1. Arbitrage and the bearing of risk and uncertainty

2. Co-ordination of factors of production

3. Innovation and creative destruction

4. Leadership and motivation

5. Personal and psychological traits

Arbitrage and the bearing of risk and uncertainty

Cantillon (1755):

• entrepreneur is an arbitrageur and speculator

• conducts all exchanges and bears risk – anyone with an uncertain income is an entrepreneur

• survival of the fittest (strongest) ; no innovation

Knight (1921):

• entrepreneurs are opportunists and choose occupation based on expected income

Say (1828):

• entrepreneur combines and co-ordinates factors of production

• stands at the centre of the economic system

• individuals with characteristics such as judgement, perseverance and experience are scarce and hence earn supernormal profits

• all characteristics are needed to actually earn supernormal profits

Schumpeter (1934, 1939):

• Incorporates innovation

• Radical changes, disruptive

• Creative destruction

• Entrepreneur is an exploiter (as in Say's theory)

Leibenstein (1968):

Gradual changes in nature of products and services by combining leadership, motivation, risk taking and crises resolving

Entrepreneurship is triggered by innate personal characteristics

• 1. Lazear’s Jack-of-all-trades

• 2. Fabel’s/Cremer’s 0-ring theory

• Entrepreneurs‘ main task: manage resources; put people together and combine them with physical capital and ideas to produce product or process innovations

• Entrepreneurs must know about many different areas

• Entrepreneurs need all abilities; the weakest ability determines income

• People (who try to be an Entrepreneur) with a balanced skill profile become entrepreneurs

• Individuals are endowed with a range of skills

• Skill profiles differ between individuals (“generalists”/”specialists”)

• Generalists (“jacks-of-all-trades”) become entrepreneurs; they need to assemble production factors and need knowledge in a large number of areas

• Individuals who become entrepreneurs invest in several skills

• Implicit assumption: all tasks have to be performed by one person

• Entrepreneur must fulfill many different tasks

• Assumption: constant returns to scale and symmetry

• Skill endowment: x₁, x₂; joint density g(x₁,x₂)

• Specialists income: max [x₁, x₂ ]

• Entrepreneurs income: λmin [x₁, x₂ ]

• Entrepreneurial choice:λmin [x₁, x₂ ] > max [x₁, x₂ ]

• 1. Individuals with more balanced skill sets are more likely to become entrepreneurs.

• 2. The supply of entrepreneurs is smaller for production processes that require a higher number of independent skills.

• 3. Individuals who become entrepreneurs should have a more balanced human capital investment strategy on average than those who become specialists.

• Based on Kremer (1993)

• Different abilities are supplied by different individuals with different abilities

• The quality with which a task is fulfilled is essential.

• If a group member fails to fulfill her task, the entire project fails

• Implications:

  • Teams are homogenous wrt.(with respect to) ability

  • The more able the team, the larger it is

  • The more able the team, the more per capita capital is used

• Knowledge of different persons (specialists) necessary

• But: each additional person is additional source of risk output has no market value if someone malperforms

• In equilibrium: homogenous teams wrt. ability; reason: impact of replacement with slightly higher skilled the greater the higher average ability of other team members

Feasibility analysis is the process of determining if a business idea is viable.

Feasibility Analysis ...

• ... is the preliminary evaluation of a business idea, conducted for the purpose of determining whether the idea is worth pursuing.

• ... takes the guesswork (to a certain degree) out of a business launch, and provides an entrepreneur with a more secure notion that a business idea is feasible or viable.

• ... follows the opportunity recognition stage but comes before the development of a business plan.

Before a company undertakes a feasibility analysis, a concept statement should be developed.

The sequence pictured makes perfect sense.

BUT

The majority of entrepreneurs do not follow this pattern before launching their ventures.

Entrepreneurs tend to underestimate the amount of competition there will be in the marketplace and tend to overestimate their personal chance for success.

• Product / Service Feasibility Analysis

• Industry / Market Feasibility Analysis

• Organizational Feasibility Analysis

• Financial Feasibility Analysis

The product / service feasibility analysis is an assessment of the overall appeal of the product or service being proposed.

Idea:

Before a prospective firm rushes a product or service into development, it should be confident that the product or service is what prospective customers want.

Components of Product / Service Feasibility Analysis:

• Concept Testing

• Usability Testing

A concept test entails (DE: beinhaltet) showing a representation of the product or service to prospective users to measure costumer interest, desirability, and purchase intent.

Concept Statement is a one Slide description of a business that is distributed by a startup entrepreneur to people who are asked to provide feedback on the potential of the business idea.

• 1. evaluate the underlying premises (preconditions) of a product or service that an entrepreneur thinks is compelling (fascinating)
• 2. help develop an idea

• 3. estimate the potential market share the product or service might command (occupy/take hold)