Entrepreneurship as a Mindset

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Entrepreneurshipas a Mindset

• Dante Di Gregorio
• UNM
• EMBA Entrepreneurship
• March 2009

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Entrepreneurship

• How, by whom, and with what effects
  opportunities to create future goods and services
  are discovered, evaluated, and exploited
• (Shane Venkataraman, 2000 218)

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Entrepreneurial OpportunitiesModes of
Exploitation

• New Venture Creation (start-ups)
• Corporate Venturing
• Entrepreneurial Action

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Entrepreneurial Action

• Actions by which firms move into new markets,
  seize new customers, introduce new resources,
  and/or combine markets, customers, and resources
  in new ways (Smith Di Gregorio, 2002 130)
• Includes product markets and factor markets
• Not limited to new venture creation
• Defining characteristic is novelty

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Innovation as Bisociation

• Schumpeter (1928)
• It is by means of new combinations of existing
  factors of production, embodied in new
  combinations of existing factors of production,
  embodied in new plants and, typically, new firms
  producing either new commodities, or by a new,
  i.e. as yet untried, method, or for a new market,
  or by buying means of production in a new market.
  What we, unscientifically, call economic
  progress means essentially putting productive
  resources to uses hitherto untried in practice,
  and withdrawing them from the uses they have
  served so far. This is what we call
  innovation.
• Koestler (1964)
• The creative act is not an act of creation in the
  sense of the Old Testament. It does not create
  something out of nothing it uncovers, selects,
  re-shuffles, combines, synthesizes already
  existing facts, ideas, faculties, skills. The
  more familiar the parts, the more striking the
  new whole. Mans knowledge of the changes of the
  tides and the phases of the moon is as old as his
  observation that apples fall to earth in the
  ripeness of time. Yet the combination of these
  and other equally familiar data in Newtons
  theory of gravity changed mankinds outlook on
  the world.

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Dichotomies in Innovation and Entrepreneurship

• Radical v. incremental
• Architectural v. incremental/modular
• Disruptive v. sustaining
• Competence-enhancing v. competence destroying
• Exploration v. exploitation
• Value creation v. value appropriation
• Disequilibrating v. equilibrating
• Effect on diffusion impact projections

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Equilibrating Actions

• The role of the entrepreneur is to
• bridge missing markets
• connect buyers and sellers
• correct ignorance and distribute knowledge
• help markets become more perfect
• refine the production function cognition
• Austrian economics (Hayek, Mises, Kirzner)
• Ex replicating an action that was successful in
  one geographic market in a second and proximate
  market
• GEM studies
• movies, music reality TV, sudoku

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Equilibrating actions may beunder-appreciated

• They need not be incremental
• Why didnt I think of that?
• The Milk Chug
• Sony Walkman
• Even incremental innovations can generate
  tremendous (and quick) profits
• Beethovens most profitable compositions
• First Symphony
• Wellingtons Victory

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Disequilibrating Actions

• The role of the entrepreneur is to
• create new markets by destroying others
• create ignorance and confusion
• call to question taken-for-granted means-end
  relations
• redefine the production function shatter
  cognitive frames
• Evolutionary economics, Schumpeter
• perennial gale of creative destruction

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Disequilibrating actions may alter the course of
history, but can you make any money?

• 1st mover may not capture any of the rents
• Apple Newton (Microsoft Origami 2006 UMPCs)
• PCs
• In other cases, competitive advantage is
  sustainable by violating industry recipes and
  creating confusion
• Southwest Airlines
• Wal-Mart

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Innovation Entrepreneurial Action Not Just for
New Economy

• I dont need to worry about thisI work in a
  mature industry, where execution trumps
  innovation. WRONG!
• McGahan Silverman (2001) studied patenting
  activity in mature and emerging industries,
  finding
• No evidence that patenting activity is lower for
  firms in mature industries than for firms in
  emerging industries
• No evidence of a shift from product to process
  innovation, and
• No evidence that leaders innovate less in mature
  industries than in emerging industries.

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Judging Creative ActionsThere is a fine line
between breakthrough innovation and utter
irrelevance

• As the creator-entrepreneur, (when) should you
  pay attention to what people think?

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Defining CreativityNovel and Appropriate Action

• Novelty
• necessary but not sufficient
• novelty per se may just be deviance
• Appropriateness
• need for legitimacy
• appropriate stakeholders must view action as
  appropriate
• Who should judge whether a creative action is
  appropriate?

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Resource Dependence Approaches to Innovation

• The success of an innovation often depends upon
  buy-in, cooperation, or collective action on the
  part of
• Customers
• Competitors
• Complementors (e.g., suppliers, distributors)
• Investors
• Why?
• Network effects
• Complementary assets and infrastructure
• Inter-organizational cognition

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CUSTOMER ORIENTATIONDo you really want to stay
close to your customers?
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Usually, but not always.

• Experts on the subject
• Christensen Innovators Dilemma
• Bob Dylan
• Listen to the people you want to become your
  customers
• Sometimes, it helps to be deaf to the world
• Beethovens Ninth Symphony
• Numerous other works were deemed inappropriate by
  very important critics

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Competitors

• You should listen to competitors when
• Network effects exist there is a need for
  collective action
• Technology standards
• Worry less about imitation more about diffusion
• Competitive pressures can help you stay on top of
  your game
• But dont pay any attention when you are at the
  cutting edge
• Competence-destroying innovations
• Beethoven-Haydn

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Complementors Clusters

• Complementors suppliers, distributors, etc.
• Players couldnt handle virtuosity required in
  Beethovens music
• Pianos couldnt handle his sonatas
• Clusters
• Beethoven in Vienna
• Does it really help to be in a cluster?
• Sorensen clusters exhibit higher-than-average
  start-up rates, but not higher-than-average
  survival rates
• Charles Darwin and the Origin of Species
• The year which has passed...has not, indeed,
  been marked by any of those striking discoveries
  which at once revolutionize, so to speak, the
  department of science on which they bear.
• President of the Linnean Society, 1848

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Investors

• Listen to your investors, IF you have the right
  investors
• Objectives time horizons must match
• There are virtues to being closely held, as well
  as limitations
• Beethoven v. Haydn
• Haydn had a single patron for many decades
• Beethovens patrons were numerous and short-lived

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The key to sustained competitive advantage

• Achieve a strategic balance of entrepreneurial
  actions (exploitation exploration)

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Achieving Strategic BalanceAmbidexterity or
Bi-Sexuality?

• How can a firm/entrepreneur simultaneously
  succeed in both exploration and exploitation?
• Skunk works approaches
• Can you outsource innovation?
• Profit centers, cost centers, and strategic
  money-losers
• It might sound exciting, but is it sustainable?
• At what level is balance needed?
• Individual v. firm v. consortium v. industry

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Portfolios and Real Options

• Portfolios of actions, products and businesses
  can promote sustainability
• The power of real options thinking
• Uncertainty can be your friend
• Discounted cash flow approaches discount for
  uncertainty (risk)
• Real option investments become more valuable as
  uncertainty increases
• Make key commitments, maintain flexibility, and
  extinguish failures ruthlessly

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Perhaps start-ups should act more like
established firms, and vice versa

• Clear stereotypes exist
• Start-Ups Organic structure
• informality, loose structure better for
  turbulent env.
• Established Firms Mechanistic structure
• Formalization, role specialization,
  administrative
• But is this functional?
• Sine et al (2006) show that internet start-ups
  were more likely to succeed when they behaved
  like established firms (mechanistic structure)
  than like start-ups (organic).

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Think hard before you leap

• There are good reasons to avoid entrepreneurship
• The overwhelming majority of new ventures survive
  less than 5 years
• No clock to punch permeates all aspects of your
  life
• Entrepreneurs and other creative types are
  notoriously difficult to deal with
• Acting entrepreneurially can consume ones life,
  and become an interpersonal flatulence from
  which friends are certain to flee (Burt, 1992)
• But if youve got it in you, do you have any
  choice?