Week 1

Question 1

What are the 2 approaches that entrepreneurs can have?

Answer 1

1: Causation
2: Effectuation

Question 2

What is causation?

Answer 2

Causation processes take a particular effect as given and focus on selecting means to create that effect

Question 3

What is effectuation?

Answer 3

Effectuation processes take means as given and focus on selecting between possible effects that can be created with the set of means

Question 4

What ar ethe 4 principles of effectuation?

Answer 4

1. Bird-in-the-hand principle
2. Affordable loss principle
3. crazy quilt principle
4. lemonade principle

Question 5

What is the bird in the hand principle

Answer 5

o Who am i?
o Whom do I know
o What do I know?

Question 6

What is the affordabe loss principle

Answer 6

o Don’t base decisions on expected return, but risk no more than you can afford to lose

Question 7

What is the crazy quilt principle

Answer 7

o Don’t focus on competition, focus on co-create
 Access to new means (of your partner)
 Access to new goals

Question 8

What is the lemonade principle

Answer 8

o Look at surprises as new resources that you can add to your existing means, adapt.
 Surprises add to means
 Change goals

Question 9

What two phases are there with regards to opportunity?

Answer 9

• Discovery

* creation

Question 10

Opportunity discovery, what are the main assumptions regarding opportunities?

Answer 10

o Object phenomena (like mountain)
o The arise exogenously from changes in:
o Observable opportunities exist objectively and independent of individual perception or actions.
o Opportunities can only be seen by alert individuals….
o Who possess the qualities necessary to both discover & exploit them
o Discovery as quick as possible

Question 11

In opportunity discovery, when do they arise?

Answer 11

EXOGENOUSLY from changes in
	Technology
	Regulations
	Demographics
	Customer preferences
	Any other attributes of the industry – or market context

Question 12

What assumptions are made with regards to opportunity creation?

Answer 12

o Subjective
o Consequently, they do not exist independent of entrepreneur’s perceptions
o Need to be created to exist
o Arise endogenously by actions, reactions and enactment of entrepreneurs exploring ways to produce new products or services
o Based on entrepreneurs subjective believe
o Intersubjective
 Validated through social cross-validation

Question 13

Role search in Opporunity discovery:

What modes are there?

Answer 13

passiv emode

active mode

Question 14

What assumptions are made with regards to the passive mode?

Answer 14

o Discover by accident
 Unknown, until discovered, so can’t search them
o Neither a result of deliberate search nor a result of pure chance
o Alertness: The ability to notice, without search, opportunities which have been hitherto overlooked.
o One side is known:
 Either the supply side
 Or the demand side
o Opportunity discovery results from heightened alertness while the individual is in passive search mode

Question 15

What assumptions are made with regards to the active mode?

Answer 15

o Can result from analytical approach-based research
 Review the environment
 Meet customer needs
 Analyse the value chain
 Analyse new business ideas
o Their willingness and/or ability to search for opportunity
 Superior information processing ability
 Search techniques
 Scanning behaviour

Question 16

Role of prior knowledge in opportunity discovery

Answer 16

• Information asymmetry
o Idiosyncratic prior knowledge (information)
 Work experience
 Personal events
 Education …….
• Path dependency
o Prior knowledge/experience enables to discover opportunities along an established path
• Due to you being human you are limited and cannot:
o Identify complete set of opportunities
o Compare between alternatives
o Select the best one.
• Prior knowledge you need to discover opportunities
o Market
o Serve the market
o Customer problems

Question 17

The role of prior knowledge in opportunity creation:

Answer 17

• Sometimes being too closely tied to prior industries or markets may make it difficult for individuals to recognize the market creation of new industries or markets, creates a knowledge corridor
• Should get creation in creation process
o Not confine their efforts
o Repeating
• Creation theory
o Existing path
o Action is not only affected by an existing path, it can also create this path
o Seeds of opportunities do not necessarily lie in previously existing industries or markets.

Question 18

What is the creation theory about?

Answer 18

o Existing path
o Action is not only affected by an existing path, it can also create this path
o Seeds of opportunities do not necessarily lie in previously existing industries or markets.

Question 19

What is serendipity?

Answer 19

• Serendipity: pleasant surprise
o Find something different
o More favourable to your needs

Question 20

What is juxtaposition?

Answer 20

• Juxtaposition: formal operating space of serendipity
o Close together
o Comparison or contrast
o Make unexpected connections between subject matter

Question 21

What domains does serendipitous discovery require?

Answer 21

o Domain of search
o Domain of prior knowledge
o Domain of contingencies (events happen by pure chance)

Question 22

What is serendipitous discovery?

Answer 22

o Search activity leading to discovery of something the entrepreneur was not looking for
o Serendipity is not Luck:
 It is not luck, luck only is situated in the domain of contingency
 Favourable contingency, serendipity’s contingency component can also be unlucky incidents
 Does not presuppose search activity or prior knowledge of the entrepreneur

Question 23

When to use opportunity creation/discovery

Answer 23

• Discovery = risky

* Creation = uncertain

Question 24

What to do when the context is risky?

Answer 24

• Risky context:
o Collect enough information to anticipate possible outcomes, and then the probability of each possible outcome is weight
o Entrepreneur can:
 Understand the possible outcomes
 Probability of each outcome
 Understands the opportunity cost
• The value of the opportunity’s entrepreneurs forgo by exploiting one opportunity over an other
 Expected return:
• Calculate upside potential and pursue the (risk adjusted) best opportunity with the highest outcome
 Aka causation

Question 25

What to do when the context is uncertain?

Answer 25

o Techniques discussed in risky context cannot be applied effectively
 Information required does not exist
 Possibility of each outcome cannot be determined, ex ante
 Not possible to calculate opportunity costs
 Concept affordable losses can be applied
• Calculates the downside
 Aka effectuation
• Make decisions by using an iterative, and incremental process such as effectuation

Question 26

Causation puts emphasis on…?

Answer 26

Discovers opportunities under conditions of risk
• Predicting the future
• Pre-determining the commercialization goals(ends);
• Making an accurate judgement about the values of specific opportunities.

Question 27

Effectuation puts emphasis on…?

Answer 27

Creates opportunities under conditions of uncertainty
• Shapes the future
• Experimentation
• Affordable loss
• Using means at the immediate disposal of the entrepreneur to create imagined ends.

Question 28

Given a product or a service, Kotler suggests (STP, segmenting, targeting, positioning):

Answer 28

o 1. Analyse long-run opportunities in the market.
o 2. 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.
 Select, develop, and communicate the chosen positioning concept.
o 3. Design marketing strategies.
o 4. Plan marketing programs.
o 5. Organize, implement, and control marketing effort

Question 29

• Using effectuation processes to build a firm means the entrepreneur can build several different types of firms in completely disparate industries. This means:

Answer 29

o Original idea, or set of causes does not imply any one single strategic universe for the firm or effect.
o Allows to create one or more several possible effects irrespective of the generalized end goal with which you can start.

Question 30

• The anatomy of decision involves (Causation is involved):

Answer 30

o a given goal to be achieved or a decision to be made (usually well-structured and specific),
o a set of alternative means or causes (that can be generated through the decision process),
o constraints on possible means (usually imposed by the environment), and
o criteria for selecting between the means (usually maximization of expected return in terms of the predetermined goal).

Question 31

• The anatomy of decision involves (Effectuation is involved):

Answer 31

o a given set of means (that usually consists of relatively unalterable characteristics/ circumstances of the decision maker),
o a set of effects or possible operationalizations of generalized aspirations (mostly generated through the decision process),
o constraints on (and opportunities for) possible effects (usually imposed by the limited means as well as by the environment and its contingencies), and
o criteria for selecting between the effects (usually a predetermined level of affordable loss or acceptable risk related to the given means).

Question 32

bird in the hand principle at firm level:

Answer 32

o Physical resources
o Human resources
o Organizational resources

Question 33

bird in the hand principle at economy level:

Answer 33

o Demographics
o Current technology regimes
o Socio-political institutions (ex. property rights)

Question 34

• the research on decision making under uncertainty can be divided into ….?

Answer 34

o (1) the development of normative, rational decision models and
o (2) empirical investigations into bounds on that rationality in actual decision makers
o The normative development is rooted in the conceptual distinction between “risk” and “uncertainty” (knight, 1921)

Question 35

see figure in notes week 1 Table 1

Answer 35

.

Question 36

by what is rationality bounded?

Answer 36

such as physiological constraints on computational capacity and psychological limitations, such as biases and fallacies

Question 37

what are the 2 perspectives of rationality

Answer 37

o unbounded rationality
 if they believe they are dealing with relatively unpredictable phenomena, they will try to gather information through experimental and iterative learning techniques aimed at first discovering the underlying distribution of the future
o bounded rationality
 if the decision makers believe they are dealing with a measurable or relatively predictable future, they will tend to do some systematic information gathering and invest some effort on a reasonable analysis of that information, within certain bounds

Question 38

Connections with the philosophical underpinnings of causation:

4 phenomena, what are they

Answer 38

 Material cause
 Efficient cause
 Formal cause
 Final cause (sometimes called “teleology”)

Question 39

What are Intrapreneurs?

Answer 39

Employees within established, larger firms creating all sorts of new ventures whilst
remaining in salaried employment, content for the profits (and risks) of their work to go to their
employers.

Question 40

What are social or civic entrepreneurs?

Answer 40

Entrepreneurs that have social objectives and are willing to invest
their own time and risk their own capital for little or no financial return, with profits being ploughed
back to meet these objectives. What defines the entrepreneur is their willingness to act upon the idea.

Question 41

Salary-substitute firms?

Answer 41

ones that simply generate an income comparable to what they might earn as
an employees (e.g., plumbers)

Question 42

Lifestyle firms?

Answer 42

ones that allow them to pursue a particular lifestyle whilst enabling them to earn an
acceptable living (e.g., sports instructors).

Question 43

Barriers to start-up?

Answer 43

 Need for regular income
 Fear of loss of capital
 No capital
 Risk aversion
 Doubts about ability

Question 44

Triggers to start-up?

Answer 44

Push factors and pull factors,

push:
 Unemployment
 Disagreements
 ‘Misfit’
 No other option

pull:
 Independence
 Recognition
 Personal development
 Wealth

Question 45

Factors that might improve chances of success with new venture creation

Answer 45

Personal character traits: being able to live with stress and enjoy the challenges
 Good business idea
 The necessary skills to deliver your product/service idea
 A plan to launch and grow your business: the act of planning helps you prepare for
uncertainties that come with entrepreneurship
 The resources you need to launch and grow your business

Question 46

New Venture Creation Framework:

Answer 46

1. Part 1: You and Your Business Idea
2. Part 2: Market segments and the value proposition
3. Part 3: Marketing strategy (how you will deliver your value proposition to each of the
   customer segments you have identified. The tool for delivering this is called the marketing
   mix & good marketing strategy helps you develop competitive advantage against competitors)
4. Part 4: Operations plan: this ranges from legal to operating issues, including partnership
   opportunities.
5. Part 5: Risk and strategic options: it should identify the critical success factors that
   underpin the operations of the business and recognize different ways of doing things should
   circumstances change or different from those anticipated – called strategic options.
6. Part 6: Resources available and needed: resources you need to bring to business, e.g.,
   human, social, intellectual, and financial.
7. Part 7: Financial plan: shows the profit the business should generate and how it wil

Question 47

There are six generalized types of new ventures:

Answer 47

1. Copy-cat: introducing the same product into an existing market. They mostly compete on
   price. They are salary-substitute firms and comprise the majority of small firms.
2. Incremental product innovation: Altering the elements of the product (incremental
   innovation) in an existing market in some significant way that adds value to customers. This
   avoids competing head-on with established businesses.
3. Market development: Existing product in incrementally new market. Finding new customers
   not currently served by existing suppliers, for example in different geographical markets.
4. Disruptive innovation or invention: Introducing radically new products into existing
   markets will certainly confound the competition particularly if your innovation can be
   safeguarded, but it is not something that all of us are able to do.
5. Marker paradigm shift: When creating radically new markets by challenging the paradigms
   or conventions upon which an industry bases its whole marketing strategy. For example: lowcost airlines industry involved no inventions or innovations, only different ways of doing
   things that involved minimizing the costs, and therefore the prices of air travel.
6. New-to-the-world industries: radical new inventions create radically new markets.

Question 48

Generating good ideas is a numbers game: the more ideas you generate, the more are likely to see the
light of day. Even at the development stage, it has been estimated that for every eleven ideas starting
out on the process only one new product will be launched successfully, and perfecting that idea can
take time.

Answer 48

….

Question 49

What is easier, opportunity discovery or opportunity creation?

Answer 49

Spotting (discovery) opportunity is easier than creating opportunity and can be just as profitable.

Question 50

Burns definition of creating opportunities

Answer 50

‘Why are things done this way?’ Followed by the question ‘Why not do them a different way?’
 Product/market innovations: incremental to radical

Question 51

Burns definition of opportunity spotting (discovery)

Answer 51

Changes in technology, law and regulation, market and industry structures, demographics,
culture, moods, and fashion
 Product/service deficiencies
 Unmet demand

Question 52

According to burns what are the discovery skills?

Answer 52

skills of associating, questioning, observing, experimenting, and networking.
They involve being generally aware of and engaged with the world about you, but also being
questioning and willing to experiment.