Entrepreneurship

What is entrepreneurship?

• discovery, evaluation and exploitation of opportunities

• creating something new by mobilizing resources

What are the fundamental traits of capitalism?

• new consumer’s goods

• new methods of production and transportation

• new markets
  new forms of industrial organization that capitalist enterprise creates

• creative destruction

Framework for the psychology of entrepreneurship

• Personality

• Cognitive and social preconditions

• Cognitive, motivational, and affective antecedents

• Actions and behaviours

• Entrepreneurial success

What is a meta-analysis?

• statistical combination of the results of multiple primary studies → quantitative literature reviews

• weighted average effects on the relationships between variables across studies

• gives stronger weight to primary studies

• minimize errors across studies → more reliable understanding of evidence

What is the definition of personality?

• dispositions to react in a certain way across various situations

• high degree of stability over time

• influenced by genetics and environmental factors

• related to broad personality factors, temperament, motives, attitudes, and beliefs

• may facilitate or restrain entrepreneurs from undertaking entrepreneurial activities

What are the Big Five personality traits?

1. Undirectedness (disorganized, unambitious) vs. conscientiousness (organized, dependable)

2. Neuroticism (emotionally unstable, lack of self-confidence) vs. emotional stability

3. Closedness (down-to-earth, routines) vs. openness to experience (creative, artistic)

4. Antagonism (self-centered, skeptical) vs. agreeableness (non competitive, compassionate)

5. Introversion vs. extraversion

How do the Big Five effect business creation?

• Conscientiousness: high

• Neuroticism: low

• Openness: high

• Agreeableness: low

• Extraversion: N/S

How do the Big Five effect business performance?

• Conscientiousness: good

• Neuroticism: bad

• Openness: good

• Agreeableness: N/S

• Extraversion: good

What are motives?

internal forces that push people into certain actions

What are the two main drivers of motives?

• Need for achievement: high standards, desire for success, engagement in task-oriented behavior

• Need for autonomy: independent decision-making, own goals, control, avoidance of restrictions

How do motives affect business creation?

• Achievement motivation: high

• Autonomy: high

How do motives affect business performance?

• Achievement motivation: good

• Autonomy: good

What is risk taking propensity?

willingness to pursue decisions or courses of action involving some risk to achieve high rewards

How does risk propensity affect business creation and business performance?

• Creation: high

• Effect: for growth-oriented entrepreneurs more important than income-oriented

What is General Mental Ability (GMA)?

• information-processing capacity

• ability to solve problems and engage in higher order thinking

What is emotional intelligence (EI)?

Capacity to:

• monitor own affect

• monitor others’ affect 

• regulate own affect and behaviors

• manage social relationships

How does affect play a role in entrepreneurship?

Affect (dispositional/ event generated) → effects on basic cognitive processes (information processing, memory, cognitive strategies) → potential effects on key aspects of the entrepreneurial process (opportunity recognition, attracting and persuading stakeholders, capacity to respond effectively to highly dynamic environments)

How does affect shape information processing?

• + → global perception (big picture)

• + → heuristics, less careful information processing

• - → zoom into the problems

How does affect shape memory?

• mood is filter for information storage

• recall is facilitated if mood is similar to encoding

• mismatch of successful and harder days → issues with information processing

How does affect shape coping with stress?

• + → better immune system

• + → bigger network of supporters

What is the effect of entrepreneurial passion on the entrepreneur?

• expression of identity

• focus on activities that are object of passion

• drive and persistence

• ! harmonious vs. obsessive passion

What is the effect of entrepreneurial passion on the stakeholders?

• passion can attract stakeholders

• higher perceived competence

• ! the object of passion is important

• - → passion limits feedback

What is opportunity in a business context?

anchored in a product or service which creates or adds value for its buyer or end user

What are the benefits of 3D printing?

• invented in MIT in 1989

• invented to create parts of any geometry out of any material (ceramics, metals, polymers, composites)

• produce prototype parts, end-use parts, tools from a computer-aided design (CAD) modeling

• controlled drug delivery, pills with microstructure, prototyping

What determines opportunity identification?

prior knowledge on markets, customers, and other products

What are the roles of social networks?

• weak ties

  • informational support: advice, suggestions, information to recognize trends

    • mentors, business network members, fellow entrepreneurs, industry contacts, tradeshows

  • appraisal support: personal feedback, self-evaluation

    • entrepreneurship educators/coaches, fellow entrepreneurs, incubator & accelerator mangers 

• strong ties

  • instrumental support: labor, time, direct help, money

    • volunteers, family members, spouses, investors

  • emotional support: encouragement, empathy, care, love, trust

    • family members & friends

What is creativity?

Generation of ideas, insights, or problem solutions that are both novel and potentially useful

What are the types of creativity?

• reactive: reaction to problems or challenges

• proactive: thinking outside of the box

What kinds of thinking are needed for creativity?

• convergent: rational, based on logic and previous knowledge

• divergent: based on intuition, gut feeling and irrationality

What are ways to elicit creativity?

• conceptual combination: mentally combining different, previously unrelated concepts

• analogical reasoning: applying knowledge of one domain as a model to help in understanding or developing ideas in another domain

• checklist method

What factors contribute to opportunity identification?

• knowledge

• networks

• creativity

• changes in environmental conditions

What are possible sources of opportunities?

• due to complex pattern of changing conditions

• political, economic, societal and technological (PEST) conditions

• come into existence at a given point of time due to conditions that did not exist previously

What is the general process from an idea to an opportunity?

business idea → development activities (goal setting and planning [causation], efectuation) → business opportunity

What is a risk?

probability of an outcome that is possible to calculate or is knowable

What is an uncertainity?

probability of an outcome that is not possible to determine or is uniknowable

What are the steps of opportunity development?

1. goal setting (specific and challenging)

2. proactive action planning (defining specific steps)

3. process of business planning (business plans, goals, budgets)

4. outcome of business planning (intensity and analytic complexity)

positive and significant relationship with performance and growth

What are SMART goals?

Specific, measurable, achievable, relevant, time-bound

What is implementation intention?

when situation Y arises, I will do Z

What are the elements of a business plan?

• executive summary

• company description

• products and services

• organization and management

• marketing analysis

• marketing strategy

• financial projections

• (funding requests)

Effectuation framework

1. Resources

2. Affordable loss

3. Partnerships

4. Surprise

What is the difference between causation and effectuation in terms of resources?

• Causation: start with desired outcome, focus on means to generate outcome

• Effectuation: start with resources, select among possible outcomes

What is the difference between causation and effectuation in terms of affordable loss?

• Causation: calculate upside potential and pursue the best opportunity

• Effectuation: calculate downside potential and risk no more than you can afford to lose

What is the difference between causation and effectuation in terms of partnerships?

• Causation: set up transactional relationships with customers and suppliers

• Effectuation: build future together with customers, suppliers and competitors

What is the difference between causation and effectuation in terms of surprise?

• Causation: avoid surprises

• Effectuation: surprises and even failures can represent new opportunities

LOI

letter of intent

GTM

go to market time

What are the parts of the business model canvas?

• Product/service (value proposition)

• Front end

  • customer relationships

  • customer segments

  • revenue streams

  • distribution channels

• Back end

  • key activities

  • key partners

  • cost structure

  • key resources

Value proposition

• newness

• performance

• customization

• design/brand

• price

• risk reduction

• convenience/usability

Customer segment

• mass market

• niche market

• segmented

• diversified

• multi-sided platform (social media)

Distribution channel

• own sales force (sales reps)

• web sales

• own stores (logistics, e.g. packaging, cooling)

• partner stores

• retail & wholesale

Customer relationships

• personal assistance

• self-service

• automated services

• communities

• co-creation

Key resources

• physical

• intellectual (patents, copyright, data)

• human

• financial

Key activities

• production

• problem solving

• platform/network

Key partners

• optimization and economy of scale

• reduction of risk and uncertainty

• acquisition of particular resources and activities (e.g. prevent competition from taking over the market)

Cost structure

• cost vs. value driven business model

• fixed vs. variable cost

• economies of scale vs. scope (e.g. student discounts for apps you might use later → loyalty)

Revenue streams

• types

  • sales

  • subscriptions

  • rent

  • licensing (less profitable than releasing the product to market)

  • brokerage fees

  • advertising

• fixed pricing

  • list price

  • product features

  • customer segment dependent

  • volume dependent (discounts!)

• dynamic pricing

  • negotiation

  • yield management (e.g. plane tickets)

  • real-time market (e.g. stock market, auctions)

How does the multi-sided business model work?

• business: creates value from users, but customers monetize the value (e.g. social media)

• customer: pays on secondary market for derivative currency

• users: value is captured in derivative currency (e.g. user attention, data, user-generated content)

How can elements of sustainability be integrated into a business model?

• targeted impact: sustainability

• beneficiary needs: people, animals, environment, specific communities

• social costs: exploitation of employees

What is the general framework of resource mobilization?

• personal endowment

• resource environment

  • search: identify resource holders

  • access: secure attention & agreement → persuasion & negotiation

  • transfer: access to resources from resource holder

• organizational outcomes

What are utilizable personal resources?

human, social and financial capital

What are environmental factors impacting resource mobilization?

• search: preexisting network, proactive networking

• access: rational market logistics (e.g. equity), informal decision-making (negotiation)

• transfer: contracting (legal), informal relationships, repeated interactions

What are organizational outcomes of resource mobilization?

• organizational level resources

• opportunity exploitation

• pivoting (change from one direction through reallocation or restructuring of resources)

• firm performance

What is persuasion? How does it work?

• form of social influence

• a process of guiding people toward the adoption of an idea, attitude or action

• works via: psychological and social influence tactics, certain communication styles and elements

What are the steps in a negotiation and persuasion process?

• preparing the discussion

  • understanding own and parter’s goals (interests, benefit from deal)

  • understanding own and other party’s BATNA (best alternative to a negotiated agreement)

  • understanding own and partner’s limits

• discussion

  • achieving compromise (identify target and resistance points → aspiration range, come to the settlement range)

  • bargaining tactics

When is the peripheral route of persuasion used? What are its main traits (communicator, message, communication)?

• used when the other partner has low ability or motivation to process information

• judgment based on peripheral cues (credibility of source, number of arguments presented)

• communicator: likable, confident, enthusiastic, stress similar to audience

• message: creating emotional bond, emphasize what other side risks to lose than what other side risks to gain

• way of communicating: speaking quickly, vivid descriptions, metaphors, personal stories

• e.g. crowdfunding

When is the central route of persuasion used? What are its main traits (communicator, message, communication)?

• other party has high ability or motivation to process information

• judgment based on systematic assessments of central cues (quality and strength of argument)

• communicator: show knowledge and experience, prove trustworthiness (e.g. title, affiliations, mentors)ű

• message: logical, rationale arguments, feasability, benefits

• way of communicating: two-sided information, present potential pitfalls and demonstrate how to tackle them

• e.g. investors

Why are bargainign tacitcs used over collaboration? What are possible methods?

• all wins on one side result in losses on the other side (competition)

• influencing others can also lead to end of cooperative business relationships

• tactics: reciprocity, commitment and consistency

What is reciprocity? What are the two techniques?

• repay in kind what another person has provided us

• exchange does not need to be equal

• can arise from uninvited debts and reciprocal concessions

• techniques: “Door-in-the-face”, '“That’s-not-all-folks”

How does the “door-in-the-face” technique work?

• making extreme requests and follow up with a more reasonable one

• initial request can function as an anchor

• e.g. tutoring prisoners → escorting them to the zoo

How does the “that’s-not-all-folks” technique work?

• increasing the offer or reducing the costs

• can evoke the feeling of making a bargain

• e.g. cupcakes and 2 cookies for 75c or cupcake for 75c and two free cookies

What is the goal of commitment and consistency? What are the two techniques?

• human drive to be consistent

• people feel pressured to stick to a choice or opinion after they made a decision

• most effective when decision has been made in public, involved effort or is viewed as internally motivated

• techniques: “Foot-in-the-door'“, “Low-balling”

How does the “foot-in-the-door” technique work?

• escalating pattern of requests

• building a first connection and drawing on the connection

• e.g. petition → sign

How does the “low-balling” technique work?

• inducements are withdrawn after commitment is made

• e.g. fees added to the initially displayed price, change of time for an event

What are the sources of funding across the life cycle of a company?

1. development: own, family & friends, grants, crowdfunding

2. startup (valley of death): own, family & friends, grants, crowdfunding, business angels

3. survival: loans, venture capital, business angels

4. break-even point

5. growth: loans, venture capital

6. early maturity: loans, IPO, M&As

7. maturity: loans, IPO, M&As

What is an entrepreneurial team?

• min. 2 individuals

• active part in creation and development of the business

• key role in strategic decisions

• equity ownership (>10%)

What is strategic management?

Exploration of relationships between team characteristics with venture performance

What does organizational behavior observe?

Insights into the relationship of team inputs and team / venture outcomes

What does entrepreneurial behavior show?

More nuanced models taking into account complexities of entrepreneurial teams (e.g. team & venture life cycle)

Input-mediator-outcome framework

• inputs: team member’s prior experiences, social capital, personality

• mediators

  • team processes (activities, interactions between members): conflict, decision-making, planning

  • team emergent states (how members think & feel about the team): team cognition, cohesion, psychological safety

• outcomes: venture performance, venture growth, innovativeness

What are the three main concerns of an entrepreneurial team?

• find team members: getting ahead vs. getting along

  • majority of companies are founded with spouses or other family members

• set-up: co-founder agreement, equity split

• management: visions, managing conflict

What are the benefits and challenges of teams based on strong ties?

• benefits: psychological safety, no relational uncertainty, joint values

• challenges: fights, old and new roles, potential changes in team composition, equity division

What are the benefits and challenges of teams based on weak ties?

• benefits: flexibility in finding new partners, maximize human capital

• challenges: values and visions can clash, defining relationships, rules and roles → fairness and trust, introducing routines

What are criteria for an equity split (backwards vs. forwards)?

• backwards: idea premium, capital contribution, opportunity costs → more certainty about contributions, but not agreement

• forwards: prior experiences, level of commitment, titles

What are the effects of splitting equity early vs. late?

• early: attract team members with equity incentive, previous work experience with co-founders, calm negotiation before pressure

• late: contribution and commitment not always clear in the beginning, future incentives are available, business model and roles form over time, no renegotiations necessary later

What are the benefits of a dynamic split?

• best when uncertainty and changes in team members are present

• vesting can help keep equity split fair (financial cliff → time or milestones)

• advantages if members leave the startup early

• protection for all team members