Quiz 1 Content Slides Foundations of Entrepreneurship January 29,

Entrepreneurial opportunities Attractive, timely, durable, provide value

Defined Situations in which new goods, services, raw materials, and organizing methods can be introduced and sold at a price that is greater than their cost of production (Casson, 1982) An opportunity that is attractive, durable, timely, and grounded in a product or service that delivers value to a customer (Armstrong)

Run a prison! Timely? Durable? Attractive? Grounded in a product or service that delivers value to a customer?

Pet rocks! Timely? Durable? Attractive? Grounded in a product or service that delivers value to a customer?

Type writer repair! Timely? Durable? Attractive? Grounded in a product or service that delivers value to a customer?

“Handheld electronic device” Timely? Durable? Attractive? Grounded in a product or service that delivers value to a customer? Apple Newton Message Pad,

Apple Newton’s Message Pad

Newton MessagePad Newton MessagePad, a tablet-PDA hybrid with handwriting recognition. There was nothing else like it, but its ungainly size,, and hard-to-read screen relegated it to technology-cult status.technology-cult status But its innovations lived on, with its handwriting recognition still used in the Mac OS X's Ink control panel that appears when a pen tablet is connected and that helped form the gesture technology used in the iPhone. The Newton also inspired 1996's Palm Pilot, which used many of the Newton's ideas in a size that made it easy to carry around.

Takeaways You must meet all criteria (attractive, timely, durable, provides value) to ensure quality of opportunity Experiment, prototype, and protect intellectual property (see Apple Newton example) Prepare for imitators – what is unique about your offering?

The institutional context of entrepreneurship 11

Entrepreneurship Defined: Entrepreneur: someone who perceives an opportunity and builds an organization to pursue that opportunity. Entrepreneurship involves all the functions, activities, and actions associated with perceiving opportunities and creating organizations to pursue them. These include: –Market and Customer Research –Service and Product Innovation –Team Building –Finding & Managing Resources –Leadership –Etc…

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Basic requirements Institutions Infrastructure Macroeconomic stability Health and primary education 14

Efficiency enhancers Higher education and training Goods market efficiency Labor market efficiency Financial market sophistication Technological readiness Market size 15

Innovation and entrepreneurship Entrepreneurial financing Government policy Government entrepreneurship programs Entrepreneurship education R&D transfer Market openness Physical infrastructure for entrepreneurship Commercial, legal infrastructure… Social and cultural norms 16

Entrepreneurship profile Attitudes – Perceived opportunities and capabilities – Fear of failure – Social status of entrepreneurship Activity – Opportunity- / necessity-driven – Early stage, established, exit Aspirations – Growth, innovations, international orientation 17

Factors Influencing the Decision to Start a Company Higher Internal Locus of Control Desire for Financial Success Desire to Achieve Self-Realization Desire for Recognition Joy of Innovation Risk Tolerance Personal Attributes Environmental Factors Local, Regional, or National attitudes towards entrepreneurship Social and cultural pressures for or against risk taking and entrepreneurship Access to entrepreneurial role models Responsibilities to family and community Remember: No single type of person is best suited for entrepreneurship! Entrepreneurs come from all walks of life, backgrounds, etc!

Entrepreneurship process 19 Compare to Moore’s Model:

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The Timmons Model for Entrepreneurial Success:

The Tenets of the Timmons Model: 1) The Opportunity –Is there a clear customer need for the proposed product or service? –Is the timing right: is the team ready, is the market ready? –Ideas are a dime a dozen – it’s the combination of the factors above and the execution of the business plan that makes an idea an opportunity. 2) The Lead Entrepreneur and Management Team –Experience within the proposed industry can be essential to success. –Investors and other backers prefer to see a track record of driving growth and profits. –An ‘A’ team with a ‘B’ idea is almost always better than the opposite. 3) The Resources –Resources include capital, technology, equipment, and most importantly – people. –The entrepreneur’s mantra is one of Low Overhead, High Productivity, and Controlling but not Owning resources. –The best entrepreneurs are incredibly creative at finding ways to get things done inexpensively and effectively. You can always find ways to do things faster, cheaper, or better!

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Decision making, emotions, and entrepreneurship Ivey 908M58

Key questions 1.What’s new about emotional intelligence in our understanding of human behavior? 2.Is EI really as “touchy-feely” as it’s been portrayed in popular media? 3.How can you use dimensions of EI? 4.Why have some managers / individuals persisted in discounting emotional intelligence?

Emotions and feelings… Reduce rationality Contribute to poor decision making Weak Incompetent Inappropriate

Decision making > intellect alone Feelings play a fundamental role in the way we make decisions Lack of emotion reduces our ability to make good decisions People with damage in the “emotion” neighborhood of their brains tend to make inappropriate or bad decisions

Logic + feelings = good decisions Feelings help us to: Direct our attention to highly important things Make choices between competing options Be flexible, maintain options, and widen our points of view Be creative and aware of opportunities that surround us

Positive v. negative feelings Positive feelings associated with increased creativity, integrative thinking, inductive reasoning Negative feelings associated with greater attention to detail, detection of errors, problem solving and detailed information processing

Moods and emotions Are expressions of feelings or “affect” Moods are low-level, non-specific feeling that we may not even be conscious of Emotions tend to be sharp, short-lived specific responses to specific events Moods and emotions are differentiated by their level of energy

Describing moods and emotions MoodEmotion PositiveContent, serene, relaxed, calm Alert, excited, enthusiastic, elated, happy NegativeSad, Depressed, Lethargic, Fatigued Tense, nervous, stressed, upset, angry

How moods affect our decisions We tend to store information that is consistent with our mood We tend to recall information that is consistent with our mood When decision making we tend to selectively remember information that does not provide a balanced assessment of the situation

Positive = good, negative = bad, right? Good moods increase susceptibility to decision making biases like planning fallacy, optimistic bias, greater belief in likelihood of positive outcomes, and lower likelihood of negative outcomes Negative emotions can refocus a leader’s attention, alert us to focus on issues that we’d otherwise ignore (attention to detail)

Emotional intelligence “The ability to effectively join emotions and reasoning, using emotions to facilitate reasoning and reasoning intelligently about emotions” EI provides insights into organizational behavior EI can mitigate decision making biases caused by emotions

Importance of EI 1.EI is twice as important as both technical skills and IQ in terms of performance 2.EI is more important at higher levels within an organization, accounting for 90% of difference between average and high performers 3.Teams with critical mass of EI significantly outperform teams without EI critical mass

The emotionally intelligent entrepreneur Self-awarenessSelf-regulation Motivation Empathy Social skill EI Entrepreneur

Goleman’s model of emotional intelligence DimensionDefinitionHallmarks Self-awarenessAbility to recognize and understand your moods, emotions, and drives, as well as their effect on others Self-confidence, realistic self- assessment, self- deprecating sense of humor

Goleman’s model of emotional intelligence DimensionDefinitionHallmarks Self-regulationAbility to control or redirect disruptive impulses and moods; to think before acting Trustworthiness, integrity, comfort with ambiguity, openness to change

Goleman’s model of emotional intelligence DimensionDefinitionHallmarks MotivationPassion for work for reasons that go beyond money or status; propensity to pursue goals with energy & persistence Strong desire to achieve, optimism in the face of failure, organizational commitment

Goleman’s model of emotional intelligence DimensionDefinitionHallmarks EmpathyAbility to understand emotional makeup of others; skill in treating people according to their emotional reactions Expertise in building and retaining talent, cross-cultural sensitivity, service to clients and customers

Goleman’s model of emotional intelligence DimensionDefinitionHallmarks Social skillProficiency in managing relationships and building networks, ability to find common ground & build rapport Effectiveness in leading change, persuasiveness, expertise in building and leading teams

Hallmarks of EI entrepreneur Self-awarenessSelf-confidence, realistic self- assessment, self-deprecating sense of humor Self-regulationTrustworthy, open to change MotivationAchievers, optimists, committed EmpathyBuilding & retaining talent, service Social skillChange leaders, persuasive, team builders

How entrepreneurs think Foundations of Entrepreneurship 43

How entrepreneurs think Causal processes – a process that starts with a desired outcome and focuses on the means to generate the outcome Effectuation processes - a process that starts with what one has (who they are; what they know; and whom they know) and selects among possible outcomes 44

Example – The chef in the kitchen Causation Chef picks out menu Chef identifies ingredients, shops for them, and cooks meals Customers presumably will pay to eat what’s on menu Effectuation Chef looks through cupboard to see what’s there Imagines possible menus based on ingredients and utensils Prepares the meal 45

5 principles of effectuation 46

5 principles of effectuation Patchwork quilt: create something new with what you have on hand Affordable loss: commit in advance to what you’re willing to lose instead of calculating expected returns Bird-in-hand: negotiate with stakeholders to commit resources to project Lemonade: use surprises to create benefits instead of problems Pilot-in-the-plane: use people as prime driver of opportunity, not resources external to individual 47

These 5 principles… Put entrepreneurs in control of their new ventures (instead of pre-programmed plans) to shape environment and exploit unexpected events Help entrepreneurs think in an environment of high uncertainty – environments are complex, dynamic, and characterized by rapid, substantial, and discontinuous change 48

Entrepreneurial mindset The ability to rapidly sense, act, and mobilize, even under highly uncertain conditions Individuals attempt to (1) make sense of opportunities in the context of constantly changing goals, (2) constantly questions one’s “dominant logic,” and (3) revisit deceptively simple questions about what we believe to be true about markets and the firm Requires “cognitive adaptability”… 49

Cognitive adaptability “The extent to which entrepreneurs are dynamic, flexible, self-regulating, and engaged in the process of generating multiple decision frameworks focused on sensing and processing changes in their environments and acting on them.” More simply: “an individual’s ability to reflect upon, understand, and control one’s thinking and learning”* Requires us to “think about our thinking” to reflect, be strategic, plan, have a plan in mind, know what to do, and to self-monitor 50* Schraw & Dennison, 1994

Survey 51

Cognitive adaptability Arises by asking ourselves questions related to: 1.Comprehension questions to increase understanding of environment before addressing an entrepreneurial challenge 2.Connection tasks in which entrepreneurs think about current situation in terms of similarities and differences with previously face/solved situations 52

Cognitive adaptability Arises by asking ourselves questions related to: 3.Strategic tasks to stimulate entrepreneurs to think about which strategies are appropriate for solving the problem 4.Reflection tasks to stimulate entrepreneurs to think about their understanding and feelings as they progress through the entrepreneurial process 53

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