entrepreneur management

7/30/2019 entrepreneur management

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The Entrepreneurial

Mind-Set

McGraw-Hill/IrwinEntrepreneurship, 7/e Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2


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How Entrepreneurs Think

Entrepreneurs in particular situations may thinkdifferently when faced with a different task or decisionenvironment.

Given the nature of their decision-making environment,entrepreneurs need to sometimes:

Effectuate.

Be cognitively adaptable.

Learn from failure.


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Causation and Effectuation

According to Professor Saras Sarasvathy (Darden,University of Virginia), entrepreneurs tend to use aneffectuation 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, andwhom they know).

Selects among possible outcomes.


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The Causation Process (1of 3)

The causation process has been typified by andembodied in the procedures used by Philip Kotlers

Markjeting 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).


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The Causation Process (2 of 3)

Given a product or a service, Kotler suggests aprocedure for bringing the product/service to market:

Analyze long-run opportunities in the market.

Research and select target markets.

Identify segmentation variables and segment the market.

Develop profiles of resulting segments.

Evaluate the attractiveness of each segment.

Select the target segment(s). Identify possible positioning concepts for each target

segment.


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The Causation Process (3 of 3)

Given a product or a service, Kotler suggests aprocedure for bringing the product/service to market:

Select, develop, and communicate the chosen

positioning concept.

Design marketing strategies.

Plan marketing programs.

Organize, implement, and control marketing effort.

This process is called the STP (segmentation,

targeting, and positioning) process.


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Principles of Effectuation (1of 2)

Implications of effectuation for the entrepreneur areexplained in terms of five basic principles:

Patchwork quilt: means-driven action, emphasizes

creation of something new with existing means rather

than discovering new ways to achieve given goals. Affordable loss: prescribes committing in advance to

what one is willing to lose rather than investing in

calculations about expected returns to the project.

Bird-in-hand: involves negotiating with any and allstakeholders who are willing to make actual

commitments to the project; determines the goals of the

enterprise.


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Principles of Effectuation (2 of 2)

Implications of effectuation for the entrepreneur areexplained in terms of five basic principles:

Lemonade: prescribes leveraging surprises for benefitsrather than trying to avoid them, overcome them, or

adapt to them. 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.


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Cognitive Adaptability

Describes the extent to which entrepreneurs are: Dynamic.

Flexible.

Selfregulating.

Engaged in the process of generating multiple decisionframeworks.

Focused on sensing and processing changes in theirenvironments and then acting on them.

Reflects in an entrepreneurs metacognitive awareness.


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Achieving Cognitive Adaptability (1 of 2)

Entrepreneurs can ask themselves questions relatingto:

Comprehension: increase entrepreneurs understandingof the nature of the environment

Connection: stimulate entrepreneurs to think about thecurrent situation in terms of similarities and differenceswith situations previously faced and solved.

Strategic: stimulate entrepreneurs to think about whichstrategies 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 theentrepreneurial process.


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Achieving Cognitive Adaptability (2 of 2)

Entrepreneurs who are able to increase cognitiveadaptability have an improved ability to:

Adapt to new situations.

Be creative.

Communicate ones reasoning behind a particularresponse.


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Learning from Business Failure

Uncertainty, changing conditions, and insufficientexperience can contribute to failure amongentrepreneurial firms.

An entrepreneurs motivation is not simply frompersonal profit but from:

Loyalty to a product.

Loyalty to a market and customers. Personal growth.

The need to prove oneself.


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Grief

Loss of a business is likely to generate a negativeemotional response from the entrepreneur referred to

as grief.

It can interfere with:

Entrepreneurs ability to learn from the failure.

Motivation to try again.


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Grief Recovery Process

An individual has recovered from grief when thoughtsabout the events surrounding, and leading up to theloss of the business, no longer generate a negativeemotional response.

Two primary descriptions of the process of recoveringfrom grief are classifiable as:

Loss-oriented.

Restoration-oriented.


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Loss-Orientation

Involves working through, and processing, someaspect of the loss experience and, as a result of this

process, breaking emotional bonds to the object lost.

Involves confrontation, which is physically and mentallyexhausting.

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

Foster a sense of relief that the events surrounding theloss.


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Restoration-Orientation

Based on both avoidance and a proactiveness towardsecondary 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.


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A Dual Process of Grief

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

Obtain the benefits of each.

Minimize the costs of maintaining one for too long.


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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 increaseones knowledge of entrepreneurship.


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Managerial Versus Entrepreneurial

Decision Making

Entrepreneurial management is distinct from traditionalmanagement in terms of eight dimensions:

Strategic orientation.

Commitment to opportunity.

Commitment of resources.

Control of resources.

Management structure.

Reward philosophy. Growth orientation.

Entrepreneurial culture.


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Distinguishing Entrepreneurially from

Traditionally Managed Firms

Table 2.2

Insert Table 2.2


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Strategic Orientation and Commitment to

Opportunity

Strategic orientation: Refers to factors that are inputsinto the formulation of the firms strategy.

Strategy of entrepreneurial management:

Driven by presence or generation of opportunities for new entry.

Less concerned about resources required to pursue suchopportunities.

Entrepreneurially managed firms:

Committed to taking action on potential opportunities.

Able to pursue opportunities rapidly.

Can decommit resources from a particular opportunityand do so rapidly.


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Commitment of Resources and Control

of Resources

Resources:

Resources are more towards the firm minimizingresources required in pursuit of a particular opportunity.

Smaller sunk costs help stop entrepreneurially managedfirms from becoming entrenched with a particular courseof action.

Control of resources:

Less concerned about ownership of resources and moreconcerned about having access to others resources.


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Management Structure

An entrepreneurially managed firms structure isorganic.

Flayers of bureaucracy between top management andcustomer.

Multiple informal networks.

Structured to make use of internal and externalNetworks.


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Reward Philosophy

Focused on pursuing opportunities for new entry thatrepresent new value for the firm.

Rewards based on employees contribution towarddiscovery/generation and exploitation of opportunities.

Employees have freedom to experiment with potentialopportunities and are rewarded accordingly.

Organizational culture encourages employees togenerate ideas, experiment, and engage in other tasks toproduce creative output.

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