Driving forces in the entrepreneurial process

Three questions about the entrepreneurial process:

Why an opportunity?

The opportunity arises from the market segment that best matches the customer pain with the market offering. Segmentation is the process of dividing the market into smaller segments, such as geographical areas, certain selected demographics, specific gender focus or targeting certain age groups. Segmentation allows the entrepreneur to further define the target market– specific potential customers who show characteristics that match two or more customer pains, and who will benefit most by the ventures offering (value proposition).

Opportunity will thus be measured according to market demand(estimated number of potential customers) for every value proposition the venture is offering. The market structure, however, (emerging or fragmented), will indicate low or high barriers to entry. Indicating how difficult it will be to enter such a market. The size of the market, on the other hand, will act as a guide for estimating future potential growth, once the venture takes off.

Furthermore, to know whether the opportunity is feasible, capital requirements to start the venture should be calculated first; then a margin analysis can clarify potential gross margins; and a break-even analysis will determine when the first profits can be expected. The price to earnings ratio(p:e) can also be calculated to understand how much value can be extracted.

This, however, is heavily focused on a causal approach, indicating estimations and predictions to limit risk. If uncertainty is high, an effectual approach could potentially be a better logic to apply. Meaning that the founder or founding team will firstly look at who they are, what they know and who they know to establish the means available and then determine the opportunities they can develop or create.

What resources?

Resources come in many forms such as capital (financial), skill (people), access (social connections), assets (building, equipment, supplies, stock etc.). Many current entrepreneurs attempt to increase control over resources, rather than owning them. Here we will focus exclusively on the financial aspect of resources. Bootstrapping in particular has become synonymous with entrepreneurship in that the entrepreneur starts a venture with his/her own funds. Using equity to finance the initial startup phase allows the entrepreneur more control and time to focus on other needed resources. Bootstrapping ties in well with the lean approach– start small, capture customers responses, then pivot or preserve the value proposition. Accelerating this feedback loop is at the core of a lean approach. Numerous other forms of funding exist, such as investment funding, seed funding and others which will be discussed in more detail during later modules.

Who is the founder, or founding team?

The founder or founding team is a key ingredient in the entrepreneurial process. Teams are favoured by investors due to their more favourable and dynamic positioning for IDEs. They have a larger skill pool with wider network capabilities. Nevertheless, the founder or founding team have the responsibility to balance all elements in the entrepreneurial process, to create, develop and grow a sustainable venture. Meaning that the venture should achieve their economic, environmental and social goals, while not destroying the change for future generations to extract value from the same opportunity.

Therefore, taken together, the founder or founding team have the responsibility to constantly balance a tug-of-war between resource demands, the opportunity, and the dynamics of the founder/founding team. In doing this, they make use of creativity, leadership and communication which will be discussed next.

 What can be used to link the driving forces in the entrepreneurial process?

What about creativity?

Creativity links the opportunity and the founding team. If the opportunity falls short of addressing the customer pain as expected, it is the responsibility of the founder/founding team to initiate creative ways of addressing the shortfall. Design thinking is one way of doing this, which will be discussed in later modules.

Can leadership be used?

Leadership links resources with the founding team. If resources fall short in capacity to support the needs of the venture, proper leadership will be required to manage the acquisition and use of scarce resources within the firm.

How about communication?

Communication links the opportunity and resources. Therefore, it will be through proper communication via the business model that resource needs such as capabilities, funding and the resources to develop the product or service will match the opportunity. Ensuring the resources will be appropriately matched with the value proposition to deliver on the opportunity.

 Why is the business model at the centre of it all?

The business model draws all elements together. It continually provides a framework for balancing the opportunity (what do the customers need or want, and what is our offer to satisfy these needs?); the resource needs (what do we require to create value, deliver value and get feedback on our value delivery?); and the management team (what knowledge, skill and abilities are required to create and deliver value and get feedback?). The business model also encapsulates the channels to reach the customer, indicate the type of relationships to foster, show cost estimations and revenue models. The business model therefore can be seen as a blueprint for the venture, and how the business uses internal capabilities to deal with external demands. The business model design and business model development will be discussed with more detail in coming modules.

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