entrepreneur management
TRANSCRIPT
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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.