Entrepreneurship PDF

# Entrepreneurship ## What Is Entrepreneurship? Entrepreneurship involves not just creating innovative products or services but also establishing and managing an organization that can effectively deliver them to customers. Entrepreneurs face the challenges of raising capital, acquiring talent, and...

# Entrepreneurship ## What Is Entrepreneurship? Entrepreneurship involves not just creating innovative products or services but also establishing and managing an organization that can effectively deliver them to customers. Entrepreneurs face the challenges of raising capital, acquiring talent, and building relationships with various stakeholders. As the venture evolves, leadership becomes a crucial aspect, requiring entrepreneurs to establish organizational structures, hierarchies, and communication channels. This transition involves moving from the initial creative and informal phase to a more structured framework with defined roles, reflecting the maturation of the entrepreneurial venture. **Market Pull:** Discovering a market need and creating a new product or service that fulfils this need. **Technology Push:** The development of new technology triggers individuals to find valuable applications that serve as a solution to existing problems in a specific market. ## Why Is Entrepreneurship Important? Entrepreneurship is highly important because it is the basis for addressing the needs that each one of us has, and addressing these needs can make our lives better. Entrepreneurs not only develop new products that we use in our daily lives such as smartphones, clothes, and the large variety of food, but they also ensure that we have access to new medical treatments or environmentally friendly technology. On that note, we must note that entrepreneurs are not the same as inventors. While inventors come up with the idea of a new technology or product, it is the entrepreneurs who ensure that the product is produced in sufficient quantities, and delivered to the customers who need it. ## How Is Entrepreneurship Related to Economic Development? Joseph Schumpeter once said: "Entrepreneurship is the engine of capitalism." He describes entrepreneurs as creative destructors. They are creative because they come up with new products and services. But since the new products or services also make existing products obsolete, entrepreneurs are also destructive. It is this creative destruction of the entrepreneurs that keeps the capitalist system alive. Later, economists have examined whether countries with a higher density of new firm entries (higher raise of entrepreneurship) also experience on average higher growth of the GDP (Gross Domestic Product). While this already seems to be the case, suggesting a positive relationship between entrepreneurial activities within a country and its economic growth, it is important to have a deeper look at the nature of entrepreneurial pursuits in different countries. In developing countries, you often observe necessity driven entrepreneurship. To survive, many people engage in self-employment by, for example, growing fruits, and selling them at the market. This is very different from opportunity driven entrepreneurship. In many developed countries, the entrepreneurs develop sophisticated technological products to fulfil a specific market need. Therefore, some developing countries have higher entrepreneurial activity than some developed countries. On average, however, more entrepreneurship is associated with higher economic growth. ## Who is an Entrepreneur? Entrepreneurs can be, and often are, individuals who come up with a new idea for a product or service. However, particularly in technology sectors, new entrepreneurs are founded by a team because the complexity of bringing a new product to market requires specialized and diverse knowledge from different areas that individuals are unlikely to possess on their own. The definition of entrepreneurship as "The discovery and exploitation of a market opportunity for a product or service" does not limit the entrepreneurial actor to be an individual or a team. Existing firms discover and exploit these opportunities as well when they come up with new products or services. This is called “Corporate Entrepreneurship”. The central activity for large firms entering new markets such as the German car manufacturers trying to get into electric cars, car-sharing, and mobility services. ## What Distinguishes Entrepreneurial From Traditionally Managed Firms? Entrepreneurial firms and traditionally managed firms differ in their strategic goals and approaches. Traditional firms, exemplified by BMW in the premium car industry, focus on gaining a positional advantage within their industry, measured by market share. In contrast, entrepreneurial firms, also illustrated by BMW, aim to capture territory for future opportunities beyond their core industry. Their success is measured by the share of opportunity space for future products. This distinction leads to differing perceptions of threats and acquisition strategies. Traditionally managed companies primarily see threats from within their industry, while entrepreneurially managed firms consider threats from both within and outside, broadening their opportunities base. For instance, German car manufacturers' delayed entry into the electric mobility segment is attributed to their traditional approach of overlooking emerging players like Tesla and mobility software providers. In terms of acquisitions, traditionally managed firms typically acquire within their own industry, while entrepreneurial firms acquire from diverse industries to expand their opportunities base. This difference is metaphorically likened to chess (traditional firms improving position in a given space) versus Go (entrepreneurial firms covering as much space on the board as possible). ## What Is Social, Environmental, and Sustainable Entrepreneurship? ### Social Entrepreneurship Social entrepreneurship is about addressing particular social needs in society. It is about solving problems faced by disadvantaged groups. As an example, social entrepreneurs try to lift people out of poverty, help disadvantaged children, or integrate those at the margins into society. In doing so, Social entrepreneurs typically balance economic and social goals, such that the venture is viable. But it is not about generating profits for shareholders, or paying salaries to managers. For example: TUM Alumnus "Zarah Bruhn" created "Socialbee", a startup helping refugees to find jobs in German companies. ### Environmental Entrepreneurship Environmental entrepreneurship is about addressing environmental decline such as the loss of biodiversity, air pollution, climate change, and overfishing marine ecosystems. There entrepreneurs balance economic and non-economic (environmental cause) goals. One example is the TUM startup "Orcan Energy" which uses waste heat to generate electricity. ### Sustainable Entrepreneurship Sustainable entrepreneurship is about combining all three goals in the venture's activities (Economic, Social, and Environmental) often referred to as "the triple bottom line approach". As an example, a sustainable entrepreneur would not import coffee that is either organic and good for the environment or fair trade which is good for the farmers, but coffee that is both organic and fair trade. ## Can I Become an Entrepreneur Myself? Yes. Everyone can become an entrepreneur, and indeed perhaps we all have some desire for autonomy, for creating something new, for having a meaningful impact in our lives. Entrepreneurship is certainly an important way in which you can achieve these outcomes by creating an organization that is tailored exactly to your needs, to what you want to do, what you find important, and what motivates you to get up in the morning every single day. ## Entrepreneurial Personality ### Personality * High degree of stability over time, in particular after adolescence. * Personality traits: They are dispositions to act or react in a certain way across various situations. Regardless of a few exceptions where people who are shy at home, for example, are courageous at work, people usually tend to behave in line with their personality traits. There is an influence of our genes and childhood experiences. People with high levels of testosterone, for example, tend to be less risk takers. Testosterone levels are primarily determined by genetics, but they can also be influenced by supplements and lifestyle choices. Childhood experiences, especially traumatic experiences can significantly diminish people's tendency to take risks. ### The Big Five The personality on an individual can be decomposed into personality factors using the 'Big Five'. * **Openness:** * Openness is a personality trait that reflects an individual's willingness to experience * new things, ideas, and perspectives. People high in openness tend to be curious, * creative, imaginative, and open-minded. They are often creative, adventurous, and * enjoy exploring different possibilities. On the other hand, individuals low in openness * may be more traditional, conventional, practical, and prefer routine and familiarity. * **Conscientiousness:*** * Conscientiousness is a personality trait that involves being organized, responsible, and * dependable. Individuals high in conscientiousness are typically disciplined, * trustworthy, organized, self-motivated, and strive for excellence in their work and * personal lives. They are often reliable, efficient, and have a strong sense of duty. * Conversely, individuals low in conscientiousness may be more spontaneous, careless, * and less goal-oriented. * **Extraversion:** * Extraversion refers to an individual's level of sociability, assertiveness, and preference * for external stimulation. People high in extraversion are outgoing, energetic, and enjoy * being around others. They tend to be talkative, confident, and seek social interaction. In * contrast, individuals low in extraversion may be more introverted, quiet, task-oriented, * reserved, and prefer solitary activities. * **Agreeableness:** * Agreeableness is a personality trait that reflects an individual's tendency to be * compassionate, cooperative, and considerate of others. People high in agreeableness * are typically empathetic, kind, and value harmonious relationships. They are often * helpful, trustworthy, and prioritize the needs of others. Conversely, individuals low in * agreeableness i.e. “Antagonists" may be more, self-centered, competitive, skeptical, * and less concerned with the feelings of others. * **Neuroticism:** * Neuroticism a personality trait that relates to an individual's emotional stability and * tendency to experience negative emotions. People high in neuroticism may be prone to * anxiety, mood swings, and worry. They may be more reactive to stress and have a * heightened sensitivity to negative experiences. In contrast, individuals low in * neuroticism are often more emotionally stable, calm, and resilient in the face of * challenges. ### Typical Personality of an Entrepreneur On average, successful entrepreneurs tend to be: * More open. * More conscientious. * More extroverted. * More antagonistic. * Less neurotic. ### Overview of Meta-Analytic Findings of the Big Five in Entrepreneurship The table shows the results of meta-analytic findings on how certain personality traits (the Big Five personality traits) affect business creation, and business performance. The results are from two sets of studies: one conducted by Zhao & Seibert in 2006 and the other by H. Zhao et al. in 2010. 1. **Conscientiousness:** Entrepreneurs have been found to score higher on conscientiousness than managers in relation to business creation, with a small to medium effect size (r = .22). This trait also shows a small but significant positive correlation with business performance (r = .19). 2. **Neuroticism:** Entrepreneurs score lower on neuroticism than managers when it comes to business creation (r = -.18), and this trait also shows a negative correlation with business performance (r = -.18), indicating that lower levels of neuroticism might be beneficial for both starting a business and running it successfully. 3. **Openness to Experience:** Entrepreneurs score higher on openness to experience than managers in the context of business creation (r = .18), and this trait also has a positive correlation with business performance (r = .21). 4. **Agreeableness:** Entrepreneurs score lower on agreeableness than managers in relation to business creation (r = -.08), but this result is not statistically significant when it comes to business performance, suggesting that agreeableness might have a slight impact on the likelihood of starting a business but not necessarily on how well the business does. 5. **Extraversion:** There is no significant correlation between extraversion and business creation, but there is a small positive correlation with business performance (r = .09). From this table, it can be inferred that certain personality traits might influence the likelihood of someone starting a business, and also affect how well the business performs. However, it is also crucial to consider that correlation does not imply causation, and these findings show associations rather than direct effects. **Business Creation Important Traits** * Conscientiousness * Neuroticism (lower scores) * Openness to experience * Agreeableness (lower scores) **Business Performance Important Traits** * Conscientiousness * Neuroticism (lower scores) * Openness to experience * Extraversion However, please note: * These are tendencies, and most effects are small to medium-sized. * In different situations, also the opposite traits can be relevant. For example, agreeableness is helpful for collaboration in entrepreneurial teams, and introversion helps to focus on relevant tasks. * Knowledge on strengths and weaknesses connected to one's personality help entrepreneurs/entrepreneurial managers to choose their role, their teammates, and their strategy/business model. ## Why Is It Important To Know This? Although it is hard to change one's personality, knowing the strengths and weaknesses associated with it helps to choose one's role in a venture, select teammates who can compensate for one's weaknesses, and adapting your strategy or business model in a way that aligns with your business personality. In addition to personality traits such as the big five, there are other characteristics that describe an entrepreneurial personality. Motives are another way to represent personality, mainly because motives are internal forces that push people into certain actions. * **Need for Achievement:** Preference for high (internal or external) standards, desire for success, engagement in task oriented behaviour. * **Need for autonomy:** Preference for making decisions independently, setting one's own goals, being in control, avoidance of restrictions. Both motives are associated with becoming a successful entrepreneur. ## Affect in Entrepreneurship So far, we have only considered aspects that are stable over time. However, if you listen to entrepreneurs, they will tell you about many "Ups and Downs" that they have experienced, and often refer to the entrepreneurial journey as a rollercoaster of emotions. There fore, emotions or "Affect" are key experiences along the journey. Affect can also be dispositional, for example, we know that people have tendencies to generally be optimistic and experience positive affect, or generally pessimistic and experience negative affect. However, Affect is also triggered by specific events. For example, even if you are a generally positive person, you will likely feel anger when someone annoys you or if you had a heated argument. But why is it important to know how entrepreneurs feel? You Affective experiences can have a significant impact or even shape your cognitive processes, which in return ultimately influence entrepreneurial outcomes such as the recognition of new opportunities, interaction with stakeholders, response to challenges, and environments, etc... You should also know that positive affect makes you less careful in processing information, such that the danger of making a mistake increases. For example, many entrepreneurs are so fascinated by their ideas that they become overconfident and tend to ignore criticism. The effect of a positive mood or positive affect on the memory is very important. For example, whenever you are in a positive mood, you are much more likely to remember positive incidents, but when you feel down, it is really hard to think about something positive, if you break up with your girlfriend or boyfriend, once you start fighting it is quite hard to remember the good things, and you get into a negative spiral. Similar experiences can happen to entrepreneurs, for example, when entrepreneurs are down from product failures, conflicts within the team, or the loss of an important investor, they may underestimate the potential of their business opportunity by neglecting positive feedback and market data they have collected in the past. Moreover, mood can also filter how you store information. For example, when negative emotions are strong, it is hard to get new information in your head because the emotions take up your cognitive capacity. Therefore, it is sometimes really helpful to do something that changes mood and then start over again. Finally, affect influences how entrepreneurs cope with stress. For example, there's a lot of research that has shown that positive emotions are good for your health. If you are a happy person, you feel less stressed, and your immune system works much better, so you become more resilient and able to cope with demanding situations. Further, in stressful situations, it is necessary to build on the help of others to cope with the high demands. Entrepreneurs, for example, often need the help of mentors or the emotional supporter of the personal networks to tackle difficult situations. Positive affect can help to connect to other people and by that build a network of key supporters that help you cope with stress. ### Affect and Cognition in Entrepreneurship * **Positive Affect:** May lead to overconfidence and reduced focus on potential mistakes. * **Negative Affect:** Can hinder new information absorption and filter how information is stored. ### Affect and Memory in Entrepreneurship * **Positive Affect:** Enhances recall of positive incidents, potentially overlooking challenges. * **Negative Affect:** May result in downplaying opportunities and neglecting positive feedback during challenging situations. One major feeling or affect entrepreneurs feel is Passion. "Passion should be the fire that drives your life's work!" - Michael Dell "If you just work on stuff that you like and you're passionate about, you don't have to have a master plan with how things will play out." - Marc Zuckerberg "If you love your work, pretty soon everybody around will catch the passion from you – like a fever." - Sam Walton It is not easy to find something that you are passionate about. Also, one must note that passions change due to the fact that our interests change, and therefore, one must adapt accordingly. In a study with more than 100 startup employees, we found that the passion can indeed be contagious and enhance the commitment of the employees. Others have found the display of passion in investment pitches can enhance the likelihood of getting funded. Passion has wide implications not only for entrepreneurs but also for how their venture develops. ## Entrepreneurial Opportunities Entrepreneurial opportunities are those situations in which new goods, services, raw materials, and organizing methods can be introduced and sold at greater than their cost of production. An opportunity has to do something with a product or service that fulfils needs for a customer, which is connected with perceiving a possibility for new profit. ## What Factors Contribute to Opportunity Identification? * **Creativity** The generation of ideas, insights, or problem solutions that are both novel, and potentially useful. Creativity can be reactive as it is often a reaction to problems or challenges, however, it can also be proactive. Creativity involves convergent and divergent thinking. (i.e. logic, previous knowledge, and rationality as well as intuition, gut feeling, and irrationality. Creativity entails the process of generating solutions for various challenges, including those faced by customers. In the context of brainstorming, a fundamental principle is to refrain from criticism. The essence of brainstorming is to encourage the free flow of ideas, even if they may initially seem unconventional or "silly." The underlying concept is that these seemingly unusual suggestions can serve as catalysts, sparking unique thought processes in others, ultimately leading to the desired outcome. Creativity is an invaluable skill that can be cultivated and honed through deliberate practice. There exist several established techniques, and methods designed to nurture and enhance one's creative abilities. These approaches include analogical reasoning, a cognitive process that involves drawing parallels between seemingly unrelated concepts or ideas, thereby fostering novel insights. Additionally, the conceptual combination technique encourages individuals to merge disparate concepts or elements to generate innovative solutions or concepts. Another valuable tool for fostering creativity is the checklist method, a systematic approach that prompts individuals to explore a predefined set of factors or criteria to generate fresh ideas or perspectives. Furthermore, the "Wouldn't It Be Nice If" (WIBNI) method encourages creative thinking by challenging individuals to envision an ideal scenario or outcome, sparking creative solutions that bridge the gap between the current state and the desired future state. Through the exploration and application of these techniques, individuals can develop and refine their creative thinking skills, enabling them to approach challenges and problems with a heightened sense of innovation and ingenuity. **Analogical Reasoning **Analogical reasoning involves drawing parallels between concepts from different domains to gain insights and inspiration. For instance, in the realm of aviation, the Wright brothers famously looked to birds as a model for their flying machine. By observing the way birds controlled their flight and adjusted their wings, the Wright brothers developed the principles of aerodynamics that are fundamental to modern aircraft design. Another example is the application of analogical reasoning to road safety. Engineers have mimicked the reflective qualities of a cat's eyes to create road markings that are highly visible at night. By borrowing from the feline world, they've improved road safety for drivers during low-light conditions. **Conceptual Combination** Conceptual combination encourages the fusion of seemingly unrelated concepts to generate innovative ideas. Consider the concept of "smartphones." This revolutionary device emerged by combining the functionalities of a phone, a computer, and a camera into a single device. By merging these disparate elements, smartphones have transformed how we communicate, work, and capture memories. This method illustrates how bringing together various concepts can lead to groundbreaking innovations that change the way we interact with technology and the world. **Checklist method** The checklist method is a structured approach to boost creativity by generating a list of thought-provoking questions. It encourages breaking down a problem or object into smaller components, allowing you to explore various angles, and generate innovative ideas. The method encompasses several questions, each serving as a prompt for creative thinking: * **Put to Other Uses?** Explore new applications for the object or concept. Can it serve a different purpose, either as is or with modifications? * **Adapt? **Consider how the object can be adapted or what similar concepts it resembles. What alternative ideas or features does it suggest? Are there elements you can borrow or imitate? * **Modify? **Encourages creative thinking by altering various aspects of the object - its meaning, color, motion, odor, form, or shape. How can you add, emphasize, or exaggerate elements? * **Magnify? **Think about amplifying aspects of the object. What could be made bigger, stronger, thicker, or more frequent? How might exaggeration lead to innovative solutions? * **Minify?** In contrast, explore ways to make elements smaller, condensed, or lighter. What substitutions or simplifications could bring about fresh insights? * **Substitute? **Consider the potential for replacing components or materials. Who or what could be substituted? Are there alternative ingredients, materials, processes, or places? * **Rearrange?** Experiment with rearranging elements – interchange components, change patterns, layouts, sequences, or approaches. How can reordering lead to creative breakthroughs? * **Reverse?** Challenge conventions by exploring reversals, opposites, or transpositions. What happens when you turn things backward or consider the opposite perspective? * **Combine?** Encourage blending, alloying, or combining different units, purposes, appeals, or ideas. How might combining elements lead to unique and synergistic solutions? ### WIBNI Method "Wouldn't It Be Nice If..." Method The "Wouldn't It Be Nice If..." method is a creative thinking technique that encourages individuals to envision an ideal scenario or outcome, sparking innovative solutions to bridge the gap between the current situation and the desired future state. In the realm of technology, a remarkable example of the WIBNI method is the development of electric cars. Engineers and innovators envisioned a world with reduced emissions and cleaner transportation, inspiring the creation of electric vehicles. These cars were designed to mitigate the environmental impact of traditional gasoline-powered vehicles, ultimately contributing to a greener and more sustainable future. This method exemplifies the power of creative thinking and problem-solving, showcasing how individuals can employ diverse techniques to drive innovation and progress across a wide range of fields and industries. Here are some WIBNI-inspired scenarios: * Wouldn't it be nice if people could reach different locations within a few seconds? This WIBNI question encourages imaginative thinking about the future of transportation, perhaps envisioning faster and more efficient modes of travel. * Wouldn't it be nice if you could send a postcard from this moment? This question could stimulate ideas about instantaneous communication methods or preserving memories in real-time. * Wouldn't it be nice to move without packing? This WIBNI question can lead to creative ideas about simplifying the process of relocating or reimagining how belongings are transported. * Wouldn't it be nice if we could cure this disease? Encouraging individuals to explore innovative approaches to medical research and finding cures for challenging diseases. * Wouldn't it be nice if there weren't any famines? This question prompts people to think about addressing food shortages and humanitarian crises, sparking ideas for more effective solutions. The WIBNI method is a powerful tool for inspiring creative thinking and innovation, leading to transformative ideas and solutions that address a wide range of challenges and aspirations. ## Knowledge Of course, knowledge is a very broad term. It can refer to knowledge gained in university, but it can also refer to the knowledge you have from your personal interests, in the sports you do, from your vacation experiences, from the way you live, etc... Essentially knowledge comes from all the experiences you have made in your past. * Prior experience determines the discovery of a particular opportunity. * Other experience – other opportunities. * No relevant experience - no opportunities. All individuals are not equally likely to recognize a given entrepreneurial opportunity. People's prior knowledge about markets, customers, and other products influence their discovery of business opportunities. In summary, people's prior knowledge determines whether or not they will identify an opportunity! Knowledge, while essential for recognizing entrepreneurial opportunities, can sometimes limit entrepreneurs' ability to see market needs. It can be restricting in developing opportunities, and creativity is needed to overcome restrictions. ## Networks Networks mean all the people you know from both professional and private circles because both can trigger opportunity recognition. E.g. friends and family, potential customers, suppliers and distributors, investors, and lenders, and more... **The Role of private environment** Your private network is particularly important for your decision to start your own business. As you can see, for example, having parents running their own businesses increases the chances of starting-up yourself by a factor of 1.4. More important, however, seem to be your friends if they encourage you to pursue your opportunity you are almost twice as likely to do so, and if your friends are entrepreneurs themselves, the effect is similarly large. In contrast, it doesn't seem to matter if you're married or not, so friends seem to play a particularly important role in one's entrepreneurial endeavors. The total network useful for recognizing and following on your business opportunities are often referred to as “The entrepreneur's social capital". The people you know are your capital because they provide you with a lot of information, and knowledge you do not have yourself, for example, in technology trends, social or demographic developments, legal changes, and so on... Which can be instrumental for identifying a new opportunity. ## Changes in the Environment Finally, startups emerge because something happens with the environment, which presents the fourth and overarching factor triggering opportunity recognition. Opportunities emerge from a complex pattern of changing conditions - changes in political, economic, societal, technological, conditions (PEST). They come into existence at a given point in time because of a juxtaposition or confluence of conditions which did not exist previously but is now present. **Sources:** * Be aware of and learn more about political, economic, social, and technological changes! * Anticipate what consequences these changes will have! * Think of potential business opportunities! ## Session Summary * Entrepreneurial opportunities are those situations in which new goods, services, raw materials, and organizing methods can be introduced, and sold at greater than their cost of production. * Creativity, knowledge, networks, and environmental changes are key triggers of opportunity identification. * Knowledge can also limit opportunity identification. * One can systematically assess knowledge, networks, and the environment, and then use creativity (techniques) to identify new entrepreneurial opportunities. ## Entrepreneurial Decision Making Entrepreneurs decide on their opportunities and how to develop them, they decide on which markets to enter, and how, they decide on how to mobilize resources for exploiting their opportunities, and in the end, they also have to decide about an exit, stopping the venture, selling it, or in the best case, taking it public at the stock market. To make these decisions, they often down in heuristics and face biases. They have to use simpler rules of decision making, and perhaps draw assumptions that are too optimistic or simplistic just because they can't know many aspects of the environment, as the right end of the picture indicates. Of course, entrepreneurs with different personalities and preferences assess the environment and their opportunities differently, and therefore, make different decisions. ## Risk VS Uncertainty ### Risk When the probability of an outcome is possible to calculate, or is knowable. ### Uncertainty When the probability of an outcome is not possible to determine, or is unknowable. Uncertainty in entrepreneurial situations implies that entrepreneurs operate with limited information, which contrasts with the decision-making scenarios of corporate managers who often have access to more comprehensive data. ## Causal VS Effectual Reasoning ### Causal Reasoning: 1. **Start with a Clear Goal:** In the causal approach, entrepreneurs start with a well-defined goal or objective and work toward achieving it. They set a specific plan and strategy to reach that goal. 2. **Predictable Outcomes:** Causal reasoning assumes that the future is largely predictable, and entrepreneurs can make decisions based on cause-and-effect relationships. They use market research, and analysis to forecast outcomes. 3. **Risk Reduction:** Causal decision-makers aim to reduce uncertainty by gathering data, conducting market research, and making informed decisions to achieve their predetermined goals. 4. **Traditional Business Planning:** This approach aligns with traditional business planning, and management methodologies. ### Effectual Reasoning: 1. **Start with What You Have:** Effectual reasoning begins with the resources and means available to the entrepreneur. Instead of setting a fixed goal, entrepreneurs focus on what they can create, and adapt to. 2. **Affordable Loss:** Effectual thinkers are willing to invest resources and take calculated risks, but they also focus on affordable losses. They avoid risking more than they can afford to lose, which helps mitigate the potential downsid es of their entrepreneurial endeavors. 3. **Leveraging the Unpredictable:** Effectual decision-makers embrace uncertainty, and understand that they can influence and shape the future to some extent. They are open to seizing unexpected opportunities and adapting their strategies based on changing circumstances. 4. **Form Partnerships:** Effectual entrepreneurs often seek collaboration and partnerships. They recognize the value of working with others who bring different skills and resources to the table. These partnerships can enhance their ability to create innovative solutions. **Advantages:** * You are not chasing investors. * You are not waiting for the perfect opportunity. * You are working on your strengths. * Good stakeholders want to shape goals – provide the means. * You are increasing the likelihood of finding or creating opportunities that fit for you. * You are forcing yourself to be creative with few resources. **Advantages:** * Each stakeholder brings new means to the venture * Each stakeholder only strives to invest what they can afford to lose * A partnership environment contains unexpected contingencies which can be leveraged. In summary, causal reasoning follows a more traditional, plan-driven approach with the assumption that the future is predictable, while effectual reasoning embraces uncertainty and takes an adaptive, resource-driven approach. The choice between these two approaches depends on the entrepreneur's comfort with uncertainty, the nature of the business or venture, and their preferred decision-making style. Some entrepreneurs may use a combination of both approaches in different aspects of their ventures. ## Design Thinking Design can be understood as any action that is aimed at changing existing situations into preferred ones. I.e. Problem solving. In principle, everyone who comes up with a solution to a problem designs. Oftentimes, those who develop new solutions do not always think about the natural behaviour of the users. The users, therefore, would want to behave differently, which might lead to a gap between the design intention and the user needs. User experience is therefore there to study the natural behaviour, wants, and needs of the users so that the design would fit them better, and be more useful. Hence, “Design Thinking”. Design thinking is a human-centered approach to innovation, that borrows techniques from designers to blend what individuals want, what technology can offer, and what's necessary for business success. ### Engineers and Designers Think Differently: Engineers tend to use what is most innovative and what works from a technological point of view. Designers, on the other hand, put user experience first, then adopt the technology that works best. Everyone can use “Design thinking”. To use it effectively, however, one must try to adopt the correct mindset. In particular, design thinking is facilitated when people are curious, tend to reframe new problems as opportunities, open to collaborations with people from different backgrounds and education, enjoy the process rather than focusing on the outcome, and have the so-called "action bias". The human-centered approach means that you try to bring together 3 different aspects: * **Desirability:** Do people at all want it? * **Feasibility:** Is this product possible to produce? * **Viability:** The product is viable such that it can be sold for a greater amount of money than it costs. ### IDEO - Shopping Cart Video: **Stages of the design process:** * Starting point: Understand important issues * Split the group, and go outside, and observe. * Find out first-hand experience: * Find the real experts, so that you can learn quicker. Interviews, no surveys. * Try to learn by yourself (learning by doing). * “One of the interesting things...” (Curiosity) * Take pictures and share them with the team. * Demonstrate, communicate, and share what everyone learned. * Work in teams to develop different prototypes. * Combine prototypes. * Present and test. ### **Principles of Team Work** * Deadline to meet (time pressure) * Experts in process, not the product. * Project leader - one who is good with groups * Eclectic (vielseitig) team members (diversity of fields) * Sharing ideas with rules: * One conversation at a time. * Encourage wild ideas. * Defer Judgement * Build on the ideas of others * Stay focused * Focused chaos * Create, visualize what you shared * Enlightened trial and error succeeds the lone planning of the genius. Fail often to succeed sooner. * It's a messy, unplanned process - time constraints help . **A model of the design thinking process** Empathise > Define > Ideate > Prototypes > Test. After testing, you might need to go back accordingly to the feedback and repeat the process. **Empathise:** Trying to understand the customers' needs by putting you as much as possible in their shoes. It is your effort to understand: * The way they do things, and why. * Their physical, and emotional needs. * How they think about the world. * What is meaningful to them. **Observe, engage, watch, and listen.** **Define:** It's about defining the problem, it's about bringing clarity and focus to the design. * Making sense of the widespread information you have gathered. * Becoming an expert on the subject. * Gaining invaluable empathy for the person you are designing for. And, the ultimate goal is a meaningful and actionable problem statement: Oftentimes entrepreneurs overestimate the extent of the problem, and believe that too many people actually face the problem, making them potential customers. But studying the context and how people behave in a certain context using a potential product, makes such wrong or overconfident assessments at least be partly avoided. **How do you study context?** Perhaps the most important method is doing interviews which helps create a close connection with the target group. Quantitive research helps find hidden needs and overall polishing of the matter. But don't interview anybody, to be effective interviews must be conducted within context, as an example, one potential problem with the conventional design of a shopping cart addresses the danger of the sharp edges for children. In such a case, one must seek the supermarkets where children do indeed get injured, interview employees and bosses there, and not in other places. Also speak with the parents of children, would they drive a distance to shop at a supermarket with children-friendly shopping carts? If so, how far? Would they even accept higher prices for products in return perhaps? and so on... **Ideate:** It's using our creativity and imagination to generate solutions for the problem. **Ideation techniques include:** * **Brainstorming** * **Conceptual Combination:** This involves merging or combining different concepts to generate new ideas or solutions. It often leads to innovative thinking by bringing together elements that may not have been traditionally associated. * **Checklist Method:** This involves using a predefined list of criteria or questions to systematically evaluate ideas, concepts, or solutions. It helps ensure that important aspects are considered, and can be a structured approach to decision-making。 * **Analogical Reasoning:** This involves drawing parallels between different situations, concepts, or problems to gain insights, or solve a current problem. It relies on the idea that similar principles may apply to dissimilar contexts. * **WIBNI:** "Wouldn't It Be Nice If," is a brainstorming technique where participants envision an ideal solution without concern for feasibility. It encourages creative thinking by focusing on what would be the most desirable outcome. * **Thinking Opposites:** This involves deliberately considering ideas or solutions that are opposite or contrary to conventional thinking. It challenges assumptions, and can lead to unconventional and innovative approaches. **Example:** Instead of focusing on how to increase revenue, thinking about ways to decrease costs as a strategy for financial improvement. It's noteworthy to mention that often ideas suddenly emerge when you stop thinking about them. The subconscious mind connects the dots. **Prototype:** Once you have discovered a solution, or even more than one, you can start prototyping. Prototyping is not about having a finished product, or even a functional one. A prototype is something that you create with the explicit understanding that it is not the finished product/service/experience but instead is intended to be a stepping stone along the way to the finished product. **Test:** Testing doesn't necessarily mean that you can simply put a prototype in front of a user and test it. The most informative results are achieved if you test in a way that will let users give you the most natural and honest feedback. "Fail cheap and fast." ## Entrepreneurial Prototyping A prototype