ENT4000 - 09/13/07

Funding for entrepreneurs: equity providers
 - First stage is three Fs: friends, family, and fools (done on belief in the person himself)
 - (Credit cards - high risk)
 - Angel investors - focused on opportunity, have personal affinity to business, but expect return (name from Broadway)
 - Venture capitalists/private equity - knowledge, expertise, and relationships (and money) - small percentage

Causation and Effectuation
According to Professor Saras Sarasvathy (Darden, University of Virginia), entrepreneurs tend to use an effectuation process more often than a causal process.

Causal Process - "big company approach"
 - 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, and whom they know). - make it work from that
 - Selects among possible outcomes.

The Causation Process
The causation process has been typified by and embodied in the procedures used by Philip Kotler’s Marketing 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).

Given a product or a service, Kotler suggests a procedure 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.

Given a product or a service, Kotler suggests a procedure 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.

Principles of Effectuation

Implications of effectuation for the entrepreneur are explained 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 all stakeholders who are willing to make actual commitments to the project
 - determines the goals of the enterprise.
 - Lemonade:
 - prescribes leveraging surprises for benefits rather 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
 - 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.

Cognitive Adaptability
Describes the extent to which entrepreneurs are:
 - Dynamic.
 - Flexible.
 - Self-regulating.
 - Engaged in the process of generating multiple decision frameworks.
 - Focused on sensing and processing changes in their environments and then acting on them.
Reflects in an entrepreneur’s metacognitive awareness.

Achieving Cognitive Adaptability
Entrepreneurs can ask themselves questions relating to:
 - Comprehension:
 - increase entrepreneurs’ understanding of the nature of the environment - "What is the environment like?"
 - Connection:
 - stimulate entrepreneurs to think about the current situation in terms of similarities and differences with situations previously faced and solved.
 - Strategic:
 - stimulate entrepreneurs to think about which strategies are appropriate for solving the problem (and why)
 - pursuing the opportunity (and how).
 - Reflection:
 - stimulate entrepreneurs to think about their understanding and feelings as they progress through the entrepreneurial process.

Entrepreneurs who are able to increase cognitive adaptability have an improved ability to:
 - Adapt to new situations.
 - Be creative.
 - Communicate one’s reasoning behind a particular response.
 - Entrepreneur Background and Characteristics: Education

Research findings indicate that education is important in the upbringing of an entrepreneur. This is reflected in:
 - Level of education.
 - Role it plays in helping entrepreneurs cope with the problems they confront.
 - Ability to communicate clearly is important
Education does not determine whether an entrepreneur will create a new business to exploit the discovered opportunity.

Entrepreneur Background and Characteristics: Personal Values
Entrepreneurs diverge significantly from the bureaucratic organization in:
 - Nature of the enterprise.
 - Opportunism.
 - The institution.
 - Individuality.
Promoter dilemma
 - honesty and transparency while maintaining a good front
 - What do you do with bad news?
Innovator dilemma
 - unintended results
Ethics and ethical behavior of the entrepreneur is also of importance.