View Table of contents
1 - 8 Questions about Entrepreneurship2 - The Entrepreneurial Personality3 - Entrepreneurial Opportunities4 - Entrepreneurial Decision Making5 - Design ThinkingExcurs: The scientific Approach to Entrepreneurial Decision Making6 - Prototyping7 - Business ModellingExcurs: The Blue Ocean Strategy8 - Entrepreneurial Teams 9 - Entrepreneurial Decision Making10 - Entrepreneurial Finance 11 - Entrepreneurial Strategy12 - Sustainable Entrepreneurship13 - Social Entrepreneurship
1 - 8 Questions about Entrepreneurship
What is Entrepreneurship?
- Activity involving the discovery, evaluation, and exploitation of opportunities to create something new by mobilizing ressources (shane & vekatermann)
- The pursuit of decisions based on uncertainty
What are the main tasks of an entrepreneur?
- building an organ (company) that delivers the product to the customer
- mobilizing and coordinating resources such as capital and human talent
- growing from entrepreneurship to leadership
- establishing structures and hirarchies for
- managing employees
- business partners
- delegating tasks
Why is entrepreneurship important?
- Contribute to the economic development of a country
- Foster Economic Change
- Schumpeter: We need entrepreneurs to question the old way of doing things and replace them with new ways → Creative destruction
What are the key drivers of the capitalist engine according to schumpeter?
- new goods
- new methods of production and transportation
- new markets
- new form of industrial organizatino
⇒ All of this through the process of creative destruction
- the entrepreneur is the agent of change, and the source of "creative destruction"
What is the difference between an entrepreneur and an innovator?
- Inventor: comes up with new technology and products
- entrepreneur: ensure the product is produced in enough quantities. Finds our the correct target group for the invention
What is the difference between entrepreneurship in developed and developing countries?
- Developing countries ⇒ necessity driven entrepreneurship (here self-employment, e.g selling fruits)
- Developed countrires ⇒ opportunity driven entrepreneruship (satisfaction of specific and new market needs)
⇒ There is more entrepreneurial activity in developed countries
What are the 4 levels that can be affected by entrepreneurial spirit?
What is the difference between traditional firms and entrepreneurial firms in terms of strategic goals, success measures, consequences, and types of acquisitions?
2 - The Entrepreneurial Personality
What is the definition of personality traits?
Dispositions (Art und Weise) how to (re)act in a certain way across various situations
How do personality traits develop over time?
- Childhood: genetics and enviornmental factors influece development a lot
- Higher degree of stability over time when growing into adolescence
Why is a psychological perspective on entrepreneurship helpful?
Because the entrepreneur and his or hers character traits are the firm and the firm is the entpreneur
Why so some person but not others choose to become entrepreneurs?
Why do some person but not others recognize opportunities for new prodcts or services that can be profitably exploited
Why are some entrepreneur sho much more successfull than other?
What are the "big five" personality traits?
- Openness → being curious, creative, open for change and surprises
- Conscientiousness (Pflichtbewusst / Gewissenhaft) → organized, dependable, trustworthy
- Extraversion → outgoing, energetic
- Agreeableness (Freundlichkeit)
- Neuroticism → stable and self-satisfied
What is the effect of the big five on business creation and business performance? Do they negatively or positively influence either one? Are they not siginifanct?
What are Motives?
Internal forces that push people into certain directions
What are the two key motives of entrepreneurial activity?
- Need for achievement
- Need for autonomy
What is the effect of the two motives on business creation and business performance? Do they negatively or positively influence either one? Are they not siginifanct?
What is affect?
Dispositional and / or event generated emotions
What effect does affect have on basic cognitive processes? (Baron)
- Influenced memory
- Influences information processing
- Influences how we can deal with stress
How does affect influence specific entrepreneurial actions?
- Opportunity regocnition
- attracting and persuading stakeholders
- capacity to respond effectively to highly dynamic enviornements
- Tolerance to intense levels of stress
How does passion enhance affect?
- more intense and longer enduring positive affect while engaging in entrepreneurial activities
What are the effects of passion the entrepreneur himself and on stakeholders?
3 - Entrepreneurial Opportunities
What are the three things entrepreneurs do with opportunities?
- Identify opportunities
- Evaluate opportunities
- Exploiting opportunities by eventually mobilizing ressources
What are 4 definitions of an opportunity?
- Opportunities to create new products and services to solve customer probelems
- Opportunities to make more or new profits
- Opportunity to meet a new market need
- Opportunity to sell new good or services at a greater price than their cost of production
What are the 4 factors that contribute to opportunity identification?
- Changes in enviornment
What is creativity? What are techniques to foster it?
- Gneration of ideas that are both novel and potentially useful
- reactive (solve probelms) and proactive creativity
- Analogical reasoning → Solutions for problem in one context are applied to another (e.g bird has wings to fly ⇒ a plane could have wings to also fly)
- conceptional combination → combining different, previously unrelated concepts
- checklist method
- WIBNI Method
How does knowledge influence opportunity identification?
- prior knoledge about markets, customers, and other products (market reserach) influences the discovery of business opportunities
- other experiences will lead to the discovery of other opportunities
- Knowledge can however be restrictive in developing new opportunity
- Creativity is needed to overcome restrictions
What influence does your network have on opportunity idenfication?
- people are inspired by friends and familiy and potential customers
- social capital
- provides information about changes in environment (social, technological, demographical)
- encourages to go ahead
- can provide support
How can make use of changes in the environment for opportunity identification?
- Understand PEST changes and their conncetion → Only a full understanding will lead to an understanding of possible opportunites
4 - Entrepreneurial Decision Making
What is the difference between risk and uncertain decision?
- Risky decisions: Probability of outcomes and all the outcomes are known but what will occur is not know
- Uncertain decisions: Probability and specific outcomes are not known (e.g new product in new market → ansoff-matrix (more on that later)
What is effectual decision making? What are the 4 key principles? (Saravathy)
= to cope with uncertain decisions, entrepreneurs tend to use an effectuation process
- Means-Driven (start with your available ressources)
- Calculate and afforable loss
- Leverage surprises
- Form partnerships
What is the difference between causation and effectuation in regards to being means driven?
- Causation = Recipe Metaphor → Setting up a new idea based on a fixed recipe → collect necessary ressources to pursue idea
- Effectuation = Fride with ingredients but no recipe → Look at what you got, who you are, and who you know and then creatively identify possible outcomes
How is the potential loss calculation different between causation and effectuation?
- Causation = Calculate only upside potential and pursue only (risk adjusted) best opportunity)
- Effectuation = Calculate downside potential and risk so that you risk no more than you can affort to lose
- try to minimize losses
How are causation and effectuation partnerships different from each other?
- Causation = transactional relationships → formal contracts
- Effectuation = building relationships, more than just a fixed contract, develop together and build a future
How do you deal with surprises in terms of causation and effectuation?
What are the key sections of the effectuation chart?
- our enviornment influences means as well as contraints
- after we identified means and constraints we should form commited partnerships
- eventually new firms, products or makets are developed
5 - Design Thinking
What is design thinking?
- Is a human centered approach to
- innovate based on the needs of people (desireability) while
- keeping in mind the technological possiblities (feasability) and
- making sure the requirements for business success are met → prototyping and testing (viablity)
What kind of mindset do you need to have for design thinking?
- Ability to reframe problems
- Able to colaborate
- Mindfulness of the process
- Bias towards actions
What are the stages during the design process? (Explain each step specifically)
- understand the most important and actual problems → immersion
- interview the customer (How and why they to things)
- set up a team of heterogeneous capabilities
- Define: Meaningful and actionable problem statement
- Repeat contextual interview
- Explore all customer touchpoints with the problem → understand the context.
- divergent to convergent thinking
What are the key priciples for effective teamwork?
- Deadlines (Pakinsons Law)
- Experts in the design-process but not in the domain
- Clear project leader, who fosters the following things:
- one conversation and idea exploitation at the time
- enocouraging wild ideas
- building and adding to ideas of others
- leverage each team members strenghts
- Fail often and fail early
What are the three key elements of a design thinking process?
Excurs: The scientific Approach to Entrepreneurial Decision Making
How does problem (solution) identification work in the scientific approach?
- clear hypothesis definitions
- rigorous test to prove or disprove them (A/B test, ethnographic interview = open ended questions not directly related to the problem but rather about the problem context)
- measure the results of the tests against predefined metrics
- make decisions based on these results
Most entrepreneurial decisions fail. How does the scientific method help against that? What kind of errors does it try to minimize?
- entrepreneurs are more likely to face false positive rather than false negative ideas
- the scientific method yields a higher likelihood to exit from business ideas and /or pivot new ideas
How did the process of (1) creating a business model canvas, (2) conducting customer interviews, (3) Creating a MVP, and (4) protyping differentiate between the scientific approach and the conventional appraoach?
How did the idea validation process of the company inkdome look like compared to a standart approach?
6 - Prototyping
What are Google rules for prototyping Google Glass?
- Find a quick path to experiencing the product
- use materials that move at the speed to thought to maximize learning
- expansive learning
What are the 3 types of prototypes?
What can you use prototypes for?
- trying out ideas and getting early feedback → user feedback
- failing quickly and cheaply
- learning about or identifying the actual problem
- communicating ideas to others
What are the three stages of prototyping? How many prototypes to you build at each stage?
Explain the three stages of the build measure learn loop from Lean Startup
7 - Business Modelling
What is a business model?
A business model describes the rationale (Grundprinzipen) of how an organization creates (value proposition), delivers (customer segments and relations), and captures (revenues) value
What are the front and back-end elements of a business model (9 elements total)?
Center: Value proposition → product or service that solves a problem or need
- Customer segments → For Who?
- Customer relationships → Types of relations, How to maintain relations, How costly
- Distribution channels → How do we reach customers? Where and how do we sell our product?
- Revenue Streams → What value are customers paying for? How much? Pricing model
- Key ressources → Physical, Intellectual, Human and Financial Ressources required
- Key activiites → Production, problem solving, networking activities
- Key partners → Key suppliers, affiliates. What do they provide to use? We to them?
- Cost structure → What costs? How much each type?
What if you customers are not users?
= Multi-Sided Business Model
- you still create value for the users, however customers monetize that value
- Users: Normal people
- Customers: Advertisers on the Plattform
- Users indrectly pay with their attention, data and user generated content
Excurs: The Blue Ocean Strategy
What is the difference between red and blue ocean strategy in terms of market, competition, demand, costs, and a firms general strategy?
The value/cost trade-off is the view that a company has the choice between creating more value for customers but at a higher cost, or reasonable value for customers at a lower cost.
What does the 4 actions framework for new value creation indicate?
- eliminate and create a very radical
- reduce and raise are more conservative
8 - Entrepreneurial Teams
What defines an entrepreneurial team?
- at least 2 individuals
- both take actively part in the creation and development of the business
- they play a key role in strategic decision
- equity ownership is the business is usually more than 10% for each team member
What skills do you need as an entreneurial team?
- regulatory and legal
- finance and controlling
- knowledge about industry
- technological skills
What are inputs, the two mediators and the outcomes in the team framework?
Where should teams be homogeneous and where heterogeneous?
- Heterogenity in competences in discussion inputs
- But homogeneity in values and vision is crucial!
- Harmony, which is more likely to be found in homogeneous teams, can limit the scope of newness of the business idea and its development
What are the two types of team conflicts?
How much power has each team member within the firm and the team? What happens if power is not equally distributed?
- Make sure that each team member’s capabilities are fully leveraged for each specific problem; this improves decision-making quality
- Unequal power distributions might lead to:
- perceived unfairness
- reduction of effort
- causing conflicts
- missing out on contributions made by the less strong team members
What are the 4 main building blocks of a co-founder agreement?
What is the difference between forward and backward orientation regarding equity split in teams?
- Allocation of equity based on backwards orientation
- Who had the better / more ideas?
- Who invested more opportunity costs?
- Who contributed more capital?
- Allocation based on forward orientation?
- look at prior experiences and decide who will contribute more
- look at level of future commitment
- look at titles
What is the vesting model for equity splits in teams?
- equity needs to be earned over time based on time and milestones
- there is still a 50 50% split planned, but one or both memebers have to earn their 50% over the course of e.g 5 years
9 - Entrepreneurial Decision Making
What are two types of decisions that we make?
- Intuitve → unconcious and fast decisinos
- Analytic → concious and slow decisions
What kind of decisions does an entrepreneur face? What happens if wrong decisions are made?
Decisions under uncertaincy, concering:
- Opportunity assesment
- Entrepreneurial entry decisions
- Decisions about exploting opportunities
- Entrepreneurial exit decisions
⇒ wrong decisions may lead to loss of investments, career opportunities, family relationships, and wealth and well-being
What is the difference between decision and strategy?
Decision = process of selecting among alternatives
Strategy = series of decisions that determine behaviour
How does the ideal decision making process look like?
What are constraints to that framework?
- don't have all necessary information at hand
- don't know all the decision alternatives
- don't know the possible outcomes of each alternative
- cannot predict future goals, values and objectives
- don't have a clear preference ordering on what alternative to choose to solve problem
What do entrepreneurs use to make decisions given those conditions?
- Simplified decision strategies called Heuristics
- as they are based on few information and more intuitive thinking, those decisions often include a certain bias
What are advantages and disadvantages of using heuristics?
What is overconfidence bias?
- unrealitic high belief in the accuracy of one's judgement
What is the availability bias?
- give more weight to informaiton that comes easy to your mind, i.e is more readily available?
- More recent information are often heavier weighted than past experiences
What is the representative bias?
- generalization or drawing conclusions based on little information
- limited amount of informaiton may reflect chance rather than a pattern
- making decisions based on own experience rather then proven information
What is anchoring bias?
- tendency to adjust guesses or estimates towards an initial value
- estimates are bias towards the anchor value
- from newspaper articles you conclude that you startup needs 1Mio in funding, as this is what is assumed to be normal according to the articles
What is hindsight bias?
- "I told you" thinking → you assume to have known the outcomes before the start of e.g a project
What is debaising?
- Solution to the hindsigh bias
- before the start of the project you thinking of future reasons why the project could fail
- you review that list and find possible solutions to that problems
10 - Entrepreneurial Finance
What is the cash burn rate? What is the cash runway?
- Cash burn rate: rate at which cash is consumed
- Beginning cash is EUR 100.000 and cash at the end of the year is EUR 40.000, then
- the cash burn rate is EUR 5.000/month (60.000 / 12)
- Cash Runway: If 40.000 is left and th burn rate stays at 5.000, it will take 8 months to run out of capital
What are the 6 stages of a new venture and what are the financing methods avaiable?
What is the differnce between equity and debt financing?
Equity → Investor provides cash in return of equity in the business
Debt → Entitiy receives loan that need to paid back with interest
What are the advantages and disadvantages of equity financing?
- Easier to access → no credit score requirements
- no forseable repayments, therefore no bankrupcy risks
- more equity financing increases debt fianncing in future
- shareholder split
- owner(s) loose some decision making power
- in the long run buyout might be more expensive than what the investor has bought in for
What are advantages and disadvantages of debt financing?
- Investor gets no share in business and thus has no influence on decision making
- usually cheaper than equity ownership
- debt can be used to descipline managers to not fall into bankrupcy
- fixed payments
- credit score requirements might be tought
What are advantages and disadvantages of familiy, friends and fool financing?
- easier access
- longer time frame
- more flexible
- lower costs
- limited amount of funds
- risk aversion to not loose money and hurt family memebers
- potential relationship problems
What are business angles? When do they usually invest?
- wealth individuals with a lot of business expertise
- usually invest in early stage startups that create products or services of their interest
- provide extensive Business angle network
- more flexible to find investor as not as high of a growth rate is required. VC's require higher rates
What is venture capital? When is it issued? What is the goal? What is the time frame?
= Equity capital (in return of usually 20%-30% equity) provided to young ventures (startup stage) combined with management support
- has the goal to sell the business within a certain time period (3-5 years)
- expected return rate 20% per year
What are criteria investors look at when deciding to invest?
What are new ways of business financing?
- Busines incubators
- loans to people livigng in poverty
- Peet to peer lending
What are the most common exit strategies?
- Trade Sale → selling startup to corportation
- Leverage Buyout → selling startup to investor
- IPO → Listing the startup at an exchange and selling shares
- Merger → merge with another startup competitor
What is the cash flow cycle of a firm?
What areCentral factors affecting a firm’s financial needs are?
- Internal cash flow generation
- Sales growth
- Working capital management
How you determine the financial needs of a firm?
- Set up a forcasting period
- Estimate profit or loss either with bottom up or top down approach
- Model balance sheet including assets and liabilities
- Model cash flow
11 - Entrepreneurial Strategy
What are pros and cons of the first mover strategy?
- Less competitive enviornment
- gain customer trust and establish good relations
- secure supplier relations
- gain expertise
- higher development costs
- high uncertainty about market success
What are pros and cos of the late mover strategy?
- lower development costs
- proven market
- higher competitiveness
- harder to gain new customers
- ressources and suppliers are not as available
What are 2 imitation strategies?
- Franchising → Acquiring and using a proven formula under a contract
- Copying products in the frame of patent law
What is the difference between the narrow-scope and broad-scope strategy?
- Narrow scope
- entry market neiche with highly specialized product
- low competitiveness but smaller target group
- often highly profitable
- Broad scope
- range of products to large market
- higher competitiveness
- however reduced risks of market uncertaincies as product palette allows for changes
- remember one-product DS store vs multi-product DS store
What is the difference between traditional mirco, small, medium and large firms?
What are characteristics of rapid growth firms? What are two types?
What are the key activites of a start-up entrepreneur?
- entrepreneur in spider web
- focus mainly on internal activities
- ressource acquisisition
- product dev
- purchasing equipment
- analytic work
- External: Aquisition of new customers
What are the key activities of growth-stage entrepeneurs?
- Hireing of new employees to delegate tasks
- Focus more on external tasks
- strategic management
- stakeholder relationship management
- business development
- culture management
What are the 4 strategies mentioned in the Ansoff matrix? What are the corresponding market and product types?
- Penetration = Grow by encouraging existing customers to buy more of current products
- New Market is e.g geographical, demographical, or new use of product for other neiche
- product development in existing market has advantage of leveraging existing infrastruture
- Diversify into new products or markets by either forward or backward, as well as horizontal integfration?
12 - Sustainable Entrepreneurship
What is sustainability?
is meeting “the needs of the present without compromising the ability of future generations to meet their own needs.”
What are the factors of the triple-bottom-line approach?
Economic, ecological and social
or profit, plate and people
What is sustainable entrepreneurship? How is it different to a social entrepreneur and environmental entrepreneur?
- Preservation of nature, life support, anc communite in the pursuit of opportunity to bring into existance future product and services for profit
- Environmental ES:
- earn money by solving environmental problems
- Social ES:
- earn money while solving social problems
When do we talk about market failure?
Departure of pareto efficiancy and perfect compeittion
What are private costs of production? What a social costs of production? What happens if social costs exceed private costs?
How does market faillure effect the enviornment?
- environmental damage
- environmental assets become eless amenable to market allocations
- degradation of the environement
What are two opportunities that arise with market failures?
- Exogeneus shocks: altered demand and supply opening up new opportunities for economic profit
- Asymmetries in awareness: customer preferences changer, so that new products can address those.
13 - Social Entrepreneurship
What is social entrepreneurship?
“innovative, social value creating activity that can occur within or across the non-profit, business or government sectors”
How do social entrepreneurs foster change in the social sector?
- adopt mission ot create and sustain social value
- recognize and pursue opportunities to serve social missions
- acting boldly without having ressources at hand
Where does a social business rank between NGO's and normal businesses?
What are three common business models for social businesses?
- Social by selling → impact by what they sell and to whom they sell
- Social by sourcing → impact by how they source and make their product or services
- Social by sharing → impact by sharing profits with charity organizations or causes
What are the three reach levels of a social entrepreneur?
What are the elements of the IOOI framework?
What is Zahnrad Bruns and Social Bees approach to social entrepreneurship
- every crisis is an opportuntiy
- there are steps to exploit those:
- understand the social problem
- learn and evaluate
- become clear as a team and develop a common purpose
- refrain the problem to an opportunity and solve it.