Lecture 4

Question 1

Knightian uncertainty

Answer 1

No information to know the alternative outcomes associated with decisions and the probability of those outcomes.

Question 2

Steps of the entrepreneurial process

Answer 2

1) An opportunity comes up
2) New information comes up (WTP, demand, competitors)
3) Identification of the need (first mover advantage)
4) Generation of an idea (knightian uncertainty)
5) Resources

Question 3

Steps to go from idea generation to resources

Answer 3

1) Pre-formation
2) Formation
3) Lock in

Question 4

Pre-formation phase

Answer 4

• Choices can not be predicted
• Search for alternatives start from scratch
• Decision are unconstrained
• No “end from the beginning”

Question 5

Formation phase

Answer 5

• A dominant action pattern builds up
• Range of options narrows
• Decision processes are not fully predictable
• Complementarities across resources

Question 6

Lock-in phase

Answer 6

• Dominant pattern gets fixed and develops a quasi-determninistic character
• Process is fully bound to a path
• The lock in resource based in nature.

Question 7

How to deal with uncertainty in a entrepreneurial project?

Answer 7

You need a strategy! Either:

1. Signalling
2. Experiment-based strategy

Question 8

Signal strategy

Answer 8

Using signals like (in e.g. a business plan):

1. personal wealth
2. social capital
3. Complementary assets (brand)
4. Human capital
5. Alliances
6. Patents

Question 9

Experiment-based strategy

Answer 9

Resource providers POV: learn projects viability

• Assessment of intermediate results
• Decision to continue or to quit investment before committing the full capital.
• Minimal viable product

Question 10

Minimal viable product

Answer 10

A lean start up methodology -> intermediate outcome/product that aims to validate as many assumptions as possible about the viability of the final product before committing high effort & resources.