The Entrepreneurial Mind-Set

Nature and Development Entrepreneur

An individual who takes initiative to bundle resources in innovative ways and is willing to bear the risk and/or uncertainty to act

Entrepreneurial action Behavior in response to judgmental decision under

uncertainty about a possible opportunity for profit Entrepreneurial process

Creating something new with value by devoting the necessary time and effort, assuming the accompanying financial, psychic, and social risks and uncertainties, and receiving the resulting rewards or monetary and personal satisfaction

1. Identification and evaluation of the opportunity2. Development of the business plan3. Determination of the required resources4. Management of the resulting enterprise

How Entrepreneurs Think

Entrepreneurs in particular situations may think differently when faced with a different task or decision environment.

Opportunity identification – the process by which an entrepreneur comes up with the opportunity for a new ventureWindow of opportunity – the time period available for creating the new ventureGiven the nature of their decision-making environment, entrepreneurs need to sometimes:

Effectuate. Be cognitively adaptable. Learn from failure.

Causation and Effectuation

According to Professor Saras Sarasvathy (Darden, University of Virginia), entrepreneurs tend to use an effectuation process more often than a causal process.

Causal Process starts with a desired outcome. focuses on the means to generate that outcome.

Effectuation Process starts with what one has (who they are, what they know,

and whom they know). selects among possible outcomes.

The Causation Process (1of 3)

The causation process has been typified by and embodied in the procedures used by Philip Kotler’s Marketing Management.

Market: “Consists of all the potential customers sharing a particular need or want who might be willing and able to engage in exchange to satisfy that need or want” (1991: 63).

The Causation Process (2 of 3)

Given a product or a service, Kotler suggests a procedure for bringing the product/service to market:1. Analyze long-run opportunities in the market.2. Research and select target markets.3. Identify segmentation variables and segment the

market.4. Develop profiles of resulting segments.5. Evaluate the attractiveness of each segment.6. Select the target segment(s).7. Identify possible positioning concepts for each

target segment.

The Causation Process (3 of 3)

Given a product or a service, Kotler suggests a procedure for bringing the product/service to market:8. Select, develop, and communicate the chosen

positioning concept.9. Design marketing strategies.10. Plan marketing programs.11. Organize, implement, and control marketing

effort.

This process is called the STP (segmentation, targeting, and positioning) process.

Principles of Effectuation (1of 2)

Implications of effectuation for the entrepreneur are explained in terms of five basic principles:1. Patchwork quilt: means-driven action,

emphasizes creation of something new with existing means rather than discovering new ways to achieve given goals.

2. Affordable loss: prescribes committing in advance to what one is willing to lose rather than investing in calculations about expected returns to the project.

3. Bird-in-hand: involves negotiating with any and all stakeholders who are willing to make actual commitments to the project; determines the goals of the enterprise.

Principles of Effectuation (2 of 2)

Implications of effectuation for the entrepreneur are explained in terms of five basic principles:4. Lemonade: prescribes leveraging surprises for

benefits rather than trying to avoid them, overcome them, or adapt to them.

5. Pilot-in-the-Plane: urges relying on and working with people as the prime driver of opportunity and not limiting entrepreneurial efforts to exploiting factors external to the individual.

Entrepreneurial Mind-Set Involves the ability to rapidly sense, act, and

mobilize, even under uncertain conditions.

Cognitive Adaptability

Describes the extent to which entrepreneurs are: Dynamic. Flexible. Selfregulating. Engaged in the process of generating multiple

decision frameworks. Focused on sensing and processing changes in

their environments and then acting on them.

Reflects in an entrepreneur’s metacognitive awareness.

Achieving Cognitive Adaptability (1 of 2)

Entrepreneurs can ask themselves questions relating to: Comprehension: increase entrepreneurs’

understanding of the nature of the environment Connection: stimulate entrepreneurs to think about

the current situation in terms of similarities and differences with situations previously faced and solved.

Strategic: stimulate entrepreneurs to think about which strategies are appropriate for solving the problem (and why) or pursuing the opportunity (and how).

Reflection: stimulate entrepreneurs to think about their understanding and feelings as they progress through the entrepreneurial process.

Achieving Cognitive Adaptability (2 of 2)

Entrepreneurs who are able to increase cognitive adaptability have an improved ability to: Adapt to new situations. Be creative. Communicate one’s reasoning behind a particular

response.

Connection tasks – designed to stimulate entrepreneurs to think about current situation in terms of similarities to and differences from situations previously faced and solved

Strategic tasks – designed to stimulate entrepreneurs to think about which strategies are appropriate for solving the problem or pursuing the opportunity

Reflection tasks – designed to stimulate entrepreneurs to think about their understanding and feelings as they progress through the entrepreneurial process

Learning from Business Failure

Uncertainty, changing conditions, and insufficient experience can contribute to failure among entrepreneurial firms.

An entrepreneur’s motivation is not simply from personal profit but from: Loyalty to a product. Loyalty to a market and customers. Personal growth. The need to prove oneself.

Grief

Loss of a business is likely to generate a negative emotional response from the entrepreneur referred to as grief.

It can interfere with: Entrepreneur’s ability to learn from the failure. Motivation to try again.

Grief Recovery Process

An individual has recovered from grief when thoughts about the events surrounding, and leading up to the loss of the business, no longer generate a negative emotional response.

Two primary descriptions of the process of recovering from grief are classifiable as: Loss-oriented. Restoration-oriented.

Loss-Orientation

Involves working through, and processing, some aspect of the loss experience and, as a result of this process, breaking emotional bonds to the object lost.

Involves confrontation, which is physically and mentally exhausting.

Can evoke a sense of yearning for the way things used to be.

Foster a sense of relief that the events surrounding the loss.

Restoration-Orientation

Based on both avoidance and a proactiveness toward secondary sources of stress arising from a major loss.

Involves suppression, which requires mental effort and presents potentially adverse consequences for health.

Provides opportunity to address secondary causes of stress. May reduce emotional significance of the loss.

A Dual Process of Grief

The dual process of oscillating between the two grief orientations enables a person to:

Obtain the benefits of each. Minimize the costs of maintaining one for too

long.

Practical Implications of the Dual Process

Practical implications of the process: Knowledge that feelings and reactions being

experienced are normal. Realizing that “symptoms” of grief can reduce

secondary sources of stress and assist with choice of treatment.

Process of recovery from grief will eventually diminish.

Recovery and learning process can be enhanced. Recovery from grief offers an opportunity to

increase one’s knowledge of entrepreneurship.

Strategic Orientation and Commitment to Opportunity

Strategic orientation: Refers to factors that are inputs into the formulation of the firm’s strategy. Strategy of entrepreneurial management:

Driven by presence or generation of opportunities for new entry.

Less concerned about resources required to pursue such opportunities.

Entrepreneurially managed firms: Committed to taking action on potential

opportunities. Able to pursue opportunities rapidly.

Can decommit resources from a particular opportunity and do so rapidly.

Reward Philosophy

Focused on pursuing opportunities for new entry that represent new value for the firm. Rewards based on employees’ contribution

toward discovery/generation and exploitation of opportunities.

Employees have freedom to experiment with potential opportunities and are rewarded accordingly.

Organizational culture encourages employees to generate ideas, experiment, and engage in other tasks to produce creative output.

Product Evolution Process

The process for developing and commercializing an innovationI. Recognition of social needII. Initiation of technological innovationIII. Interactive synthesis leading to inventionIV. Development phaseV. Industrial phase

Interactive synthesis Intersection of knowledge and social need that

starts the product development process Ordinary innovations

New products with little technological change Technological innovations

New products with significant technological advancement

Breakthrough innovations New products with some technological change