Emerging Business

September 1, 2015 By Don Springer Leave a Comment

Enrollment

Expert serial entrepreneurs believe that the growth of a venture is limited only by the number of collaborators they could attract, not by the amount of money they could raise. This is what Saras Sarasvathy, Darden School of Business researcher, learned when interviewing expert serial entrepreneurs.

In fact, attracting people to your new business or new corporate initiative is paramount to successful growth. It is essentially enrolling self-selected people to the venture not to do something you want them to do, but offering them the opportunity to do something they want to do and feel that they can do it if they join your venture.

Attracting people to a cause has several advantages:

Confirmation of value – it is an inexpensive way to confirm that your business venture or corporate initiative is on the right track
More resources to tap – with limited funds for start-ups and limited budgets for new corporate ventures, enrollment of people brings resources that you could not “buy”
Spread the risk – the addition of resources reduces the resources one person or one department must contribute
More creativity – more participation provides new ideas

The last listed advantage actually provides a quantum leap in that stakeholders can actually change the design and direction during dynamic contribution.

As one of Sarasvathy’s elements for her “effectual logic”, a design approach to new ventures, she calls the enrollment of partners “quilting” and she contrasts it with building a puzzle.

With a puzzle, you have a clear picture of the objective and it is a question of finding the right pieces. In a new venture with a known market, it is a question of putting the right resources and positioning together quicker than your competitor.

However, when it is an unknown market with a new untested venture, the process is closer to quilting. As you enroll each new stakeholder, new resources and ideas are brought to bear on the venture such that it will most likely change, just as a quilt changes its pattern as more fabric is added by more quilters.

Enrollment is accomplished by inspiring people to be a part of something. While it has always been a key of leadership in galvanizing an organization, it is also becoming known as a key element in starting a new business or launching a new corporate initiative.

August 25, 2015 By Don Springer Leave a Comment

Embracing Uncertainty

Treating an uncertain world as though it is predictable can cause trouble for a new venture, new business, or new corporate initiative. One clear fact that emerges from both research and the history of entrepreneurial ventures is that it is impossible to assess with any certainty, prior to experience, whether a venture will be successful or not. Expert serial entrepreneurs approach the uncertainty by moving forward anyway. It is the way that they move forward that is instructive.

Contrary to simply “throwing things on the wall to see what sticks”, expert entrepreneurs move forward in small steps, managing the financial loss, attracting partners, and selling to customers until the venture “gains traction” and proves itself. This approach is getting a lot of press lately and it has been characterized as “effectual logic” by Saras Sarasvathy, the “lean start-up” approach by Steve Blank and Eric Ries, and “creaction” by Leonard Schlesinger and Charles Kiefer.

In their aptly titled book, Just Start, Schlesinger and Kiefer leverage the research of Saras Sarasvathy, research professor of the Darden School of Business, University of Virginia and recount an experiment at Babson College. They confirm Sarasvathy’s findings and further emphasize the beginning of a venture as a key element in launching a business or corporate initiative. For Schlesinger, it is a creative impulse with tension between what one envisions and current reality. In fact, the entrepreneur, the artist, the software engineer, and the writer all bring their businesses, paintings, games, and books into being in similar fashion. With a vision to guide you, you take small steps to “test the idea or market” correcting and perfecting as you gain new information.

Since as an entrepreneur, you are not simply executing a plan, the vision becomes altered over time as new data is gathered, new customer demands identified, and new partner resources added. For an entrepreneur or a corporate executive, it is an organic process that moves towards the creation of a new business or new product offering.

As Schlesinger and Kiefer propose, once you have a desire for a new venture, act quickly with the means at hand, assess the affordable loss, build on what you find, and bring other people along. That is the way entrepreneurs and business developers embrace uncertainty.

August 18, 2015 By Don Springer Leave a Comment

Affordable Loss

In the early 70s, Hewlett-Packard engaged SRI International, the premier computing research group, to assess the market for an electronic scientific calculator. After a great deal of market research, SRI concluded that the product wouldn’t “sell” even though the primary alternative was a slide rule. As Peter Sims recounted the story in Little Bets, Bill Hewlett wasn’t so sure about the conclusion.

With $30 billion in sales at that time, HP’s organizational bias only considered opportunities that were going to be billion dollar businesses. Hewlett, however, had recently had a lengthy discussion about the calculators on a plane with a fellow passenger who was amazed by the product. After performing his own casual, informal research, Hewlett suggested that they build a thousand units and “see what happens”. Within five months, HP was selling one thousand units per day. Testing a thousand units was an affordable bet for HP.

Saras Sarasvathy, researcher at the Darden School of Business, University of Virginia, would characterize the approach as an “affordable loss”. She found affordable loss to be one of the operational principles used by expert entrepreneurs to launch a business in the face of the unknown. While a causal approach to a business or product launch would select optimal strategies to maximize returns, the entrepreneurial approach estimates the downside and examines what is an affordable loss to start the venture or launch the new product.

Sarasvathy calls the entrepreneurial approach the “effectual approach” since it begins with the known and moves to the unknown. The causal approach requires estimates of future sales and the risks that impact cost of capital while the effectual approach of the expert entrepreneur requires only that they know their current financial condition and a psychological assessment of their commitment in the face of a worst case scenario, i.e., their affordable loss. In the causal approach, all of the information is about things outside of the decision makers’ control while the effectual approach is about things within the decision makers’ control.

The effectual approach works for the entrepreneur or the new product manager if one is open to adapting the venture to the means-at-hand as opposed to an idea based on analysis of the future. One approach is about predicting the future and one approach is about designing the future. By choosing not to constrain themselves to a pre-conceived market, entrepreneurs and product marketers open themselves to the businesses or markets that will resonate with them, even if those markets do not exist today. Hewlett was able to test the non-existent electronic scientific calculator market by knowing and accepting his affordable loss.