ITE FINAL (QNA)

Flashcard 1
Q: What is effectuation in entrepreneurship?
A: Effectuation is a way entrepreneurs think and act by using what they already have, focusing on affordable loss, working with others, and shaping the future instead of predicting it.

Flashcard 2
Q: What does the Bird-in-Hand principle mean?
A: Entrepreneurs start with who they are, what they know, and who they know, rather than fixed goals.

Flashcard 3
Q: How does Bird-in-Hand affect negotiation?
A: It creates flexible goals, reduces “take it or leave it” attitudes, and allows integrative and co-creative negotiations.

Flashcard 4
Q: What is the Affordable Loss principle?
A: Entrepreneurs decide based on what they can afford to lose, not on expected profits.

Flashcard 5
Q: How does Affordable Loss affect negotiation?
A: Risks are discussed openly, losses are accepted as possible, and future gains are treated as uncertain.

Flashcard 6
Q: What is the Crazy Quilt principle?
A: Stakeholders self-select and commit to the venture without guaranteed returns.

Flashcard 7
Q: How does Crazy Quilt affect negotiation?
A: Stakeholders gain the right to shape the venture, encouraging trust, collaboration, and co-creation.

Flashcard 8
Q: What is the Lemonade principle?
A: Entrepreneurs embrace surprises and failures and turn them into opportunities.

Flashcard 9
Q: How does Lemonade affect negotiation?
A: Negotiations focus on flexible agreements, future adjustments, and emotional acceptance of failure.

Flashcard 10
Q: What is the Pilot-in-the-Plane principle?
A: Entrepreneurs believe the future is created by actions, not predicted.

Flashcard 11
Q: How does Pilot-in-the-Plane affect negotiation?
A: Success depends on trust, cooperation, and intelligent altruism between entrepreneurs and stakeholders.

The Two Main Dimensions

1. Prediction vs Control (Horizontal Axis)
On the left side, negotiation is based on prediction. This means entrepreneurs rely on forecasts, business plans, market size estimates, and expected returns. They try to predict the future before acting.

On the right side, negotiation is based on control. Here, entrepreneurs believe the future cannot be accurately predicted, so they focus on what they can control through action, commitment, and collaboration with others.

2. Resource Seeking vs Relationship Seeking (Vertical Axis)
At the top, negotiation focuses on resource seeking, such as money, assets, technology, or formal investment.

At the bottom, negotiation focuses on relationship seeking, such as trust, cooperation, commitment, and long-term partnership.

The Four Negotiation Styles

1. Causal Negotiation – “Deal” (Prediction + Resources)
In this style, entrepreneurs aim to close a specific deal. Negotiation is driven by forecasts and clear goals. The main objective is to secure resources, and relationships are secondary to the transaction.

This approach is common in traditional business negotiations where outcomes are clearly defined in advance.

2. Visionary Negotiation – “Pitch” (Control + Resources)
Here, entrepreneurs focus on convincing others to believe in a vision rather than presenting detailed predictions. They seek resources, but instead of relying on data and forecasts, they emphasize passion, direction, and possibility.

Negotiation is persuasive and inspirational rather than analytical.

3. Adaptive Negotiation – “Help” (Prediction + Relationships)
This style emphasizes relationships while still using some prediction. Entrepreneurs negotiate by asking for support, advice, or assistance rather than formal investment.

The focus is on collaboration and flexibility, with outcomes allowed to evolve over time.

4. Effectual Negotiation – “Ask” (Control + Relationships)
This is the core effectual approach. Entrepreneurs ask stakeholders to commit and become partners in shaping the future. There are no fixed predictions or guaranteed returns.

Negotiation is based on trust, mutual commitment, and co-creation rather than contracts or forecasts.

Explanation of the Highlighted Text

The highlighted text explains why relationships are especially important when prediction is unreliable. When entrepreneurs cannot accurately forecast the future, they rely more on people and commitments.

The idea of “chasing faces instead of wallets” means entrepreneurs prioritize relationships (faces) over immediate financial resources (wallets). Strong relationships can later lead to resources, opportunities, and long-term success.

Key Takeaway for Exams

This figure shows that effectual negotiation shifts focus away from prediction and immediate resources, and instead emphasizes control, relationships, and joint creation of future outcomes with stakeholders.

1. Are community members becoming overly dependent on social services provided by entrepreneurs?

community members may become dependent if social enterprises focus only on giving aid rather than building skills. For example, continuous free support without training can reduce self-reliance. However, good social entrepreneurship emphasizes empowerment through job creation and skill development. Therefore, dependency depends on service design, not social entrepreneurship itself.

2. Social Venture Plan for Long-Term Community Empowerment

Mission:
To empower low-income youth through digital skills training that leads to sustainable employment.

Vision:
A self-reliant community where young people have equal access to education and economic opportunities.

Goals:
To reduce youth unemployment and improve digital literacy in underserved communities.

Objectives:
To train 200 youths in basic digital and freelancing skills within two years.

Short-Term Milestones:
Within six months, establish a training center and enroll the first 50 students.

Work Plan:
Partner with local schools and NGOs, recruit volunteer trainers, deliver structured digital courses, and connect graduates with online job platforms and local employers.

3. Qualities of a Social Entrepreneur and a Cambodian Case

A social entrepreneur needs empathy, resilience, creativity, and ethical leadership. Social entrepreneurship will grow as businesspeople seek purpose beyond profit. In Cambodia, Phare Ponleu Selpak supports disadvantaged youth through arts education while earning income from performances, showing how business can support social impact..

4. Causes of Failure in Social Entrepreneurship and Comparison with Commercial Ventures

Social entrepreneurship may fail due to poor management, lack of funding, mission drift, or over-reliance on donations. Both social and commercial ventures face competition and cash flow issues. However, social ventures balance social impact and profit, while commercial ventures focus mainly on profit.

5. Using Digitalization to Improve Social Venture Impact

Digitalization improves reach, efficiency, and transparency. For example, online learning platforms reach rural students, and digital payments improve access to finance. In Cambodia, NGOs use digital tools to provide education and health information to remote communities.

6. Balancing Effectuation and Causation

Entrepreneurs should use effectuation in the early stage by relying on available resources and relationships. As uncertainty decreases, causation becomes more useful for planning and growth. Successful entrepreneurs switch between both approaches as needed.

7. Negotiation Quadrant Choice as an Early Entrepreneur

Early entrepreneurs should choose the Effectual “Ask” quadrant because they lack strong predictions and resources. Focusing on relationships and stakeholder commitment allows flexibility and reduces risk during early stages.

8. Situations Where Effectuation May Not Work Well

Effectuation is less suitable in highly regulated and capital-intensive industries such as pharmaceuticals or aviation. These industries require accurate planning, strict regulations, and large investments, making causation more appropriate.

Bonus QnA

1." What risks does short-term liabitity financing pose for long-term equity growth, and to what extent can it drive improvements in net income?"

_Using short-term liabilities to support long-term equity growth increases repayment pressure and liquidity risk, because the firm must repay the debt quickly. This can limit long-term growth if cash flow becomes tight. However, short-term debt can increase net income in the short run if the borrowed funds generate returns higher than the interest cost. Over time, excessive short-term debt may weaken equity growth.

2.Sokha is negotiating with Investors. Instead of presenting a fixed plan, vision, objectives, he discusses his available skills, networks, and affordable loss. He invites the investor to co-create the future business model.

Identity the negotiation logic Sokha is using and justity your answer with two characteristics.

_Sokha is using effectual negotiation logic.

First, he focuses on available means, such as his skills and networks, instead of a fixed plan. Second, he emphasizes affordable loss and invites investors to co-create the business, rather than predicting outcomes. These are key features of effectuation.

3.A company forms a temporary negotiation team with members from three departments: Finance, Marketing, and IT. Differences in identity salience lead to in-group favoritism, out-group stereotyping, and communication barriers.

Using Social Identity theory explain how can enhancing organizational identification mitigate these effects during negotiation?

_Social Identity Theory explains that people favor their own group and may distrust other groups. In negotiations, this leads to poor communication between departments. Strengthening organizational identification helps members see themselves as one team, which reduces bias and improves cooperation during negotiation.

4.During a budget negotiation, Employees with strong departmental identification show resistance to proposals that benefit the broader organization. Explain how nested identification (team vs, organization) and social categorization processes contribute to negotiation impasses.

What interventions can shift identity focus toward organizational goals?

_Strong departmental identity causes employees to protect their own team’s interests instead of the organization’s goals. Social categorization creates “us versus them” thinking, leading to negotiation deadlocks.

To fix this, leaders can highlight shared organizational goals, create cross-department rewards, and encourage joint decision-making.

5.If a company reduces its COGS by 30% while keeping sales constant, explain how this affects:

a) Gross profit b) Net income c) Pricing strategy in The Market.

a) Gross profit increases because production costs are lower.
b) Net income increases if other expenses stay the same.
c) The firm can lower prices to attract more customers or keep prices unchanged to earn higher profit margins.

6.A business wants to improve its balance sheet by increasing equity.

Discuss three ways this con be achieved and how each affects total assets and liabilities.

Three ways to increase equity

1. Issue new shares → Increases cash and equity, no change in liabilities.

2. Retain earnings → Equity grows through higher profits over time.

3. Convert debt to equity → Equity increases while liabilities decrease.

7.Assets = $1,200,000 Liabilities = $700,000 It acquires new equipment

worth $100,000, raw materials worth 500$ by taking a loan. a) Calculate

the updated totals for assets, liabilities

8.A startup is deciding between issuing new equity or taking short-term debt to finance growth.

Compare the impact of these two financing options on:

Ownership control

Financial risk

Long-term sustainability of the firm

Ownership control:
Equity reduces ownership control; debt does not.

Financial risk:
Debt increases repayment risk; equity lowers financial pressure.

Long-term sustainability:
Equity supports long-term growth; short-term debt may cause cash flow problems.

9. A firm converts a portion of its short-term debt into equity through

negotiations with creditors.

Explain how this restructuring affects the firm's balance sheet, risk

profite, and bargaining power in future negotiations.

This change lowers liabilities and increases equity on the balance sheet. Financial risk decreases because repayment pressure is reduced. The firm’s bargaining power improves due to a stronger financial position.

10. Explain how changes in net income affect equity and, indirectly, the firm's asset-liability structure over time.

Higher net income increases retained earnings, which raises equity. Stronger equity allows firms to rely less on debt over time. Lower net income weakens equity and increases financial risk.

Create a short business plan that can make my community empower rather then a longterm plan

Easy Community Snack Stand – Business Plan (300 Words)

This idea is meant to be simple, affordable, and something our community can actually start without stress. The plan is to set up a small snack and drink stand that everyone can take turns running. The goal is not just to make money, but to give people a chance to learn basic skills, build confidence, and have a small source of daily income.

The stand will sell things that are easy to prepare and popular—iced drinks, fruit cups, simple sandwiches, noodles, and local snacks. These are items that don’t require cooking experience or expensive equipment. A cooler, some containers, and basic tools are enough to get started. We can place the stand near a school, a busy street, or at a community gathering spot so people naturally pass by and buy.

What makes this plan empowering is that it involves everyone. Community members, especially youth and women, can learn how to manage money, talk to customers, and work as a team. Instead of a long or complicated business, this is something people can understand quickly and feel confident doing. Anyone helping with the stand will earn a share of the profits at the end of each day, while a small portion goes back into buying ingredients for the next round.

We don’t need much to start—just a small amount of money for the first batch of ingredients. Training isn’t complicated; we can teach everything in one short session. Within a week, the stand can already be operating.

The impact is immediate. People get to earn, learn, and participate in something meaningful. It also creates a space where the community can come together and support each other. Over time, if things go well, the stand can slowly grow, adding new items or even becoming a small café. But the main purpose is simple: start small, empower everyone, and make progress step by step.