Tag Archives: entrepreneurship

The three principles that entrepreneurs use to control their risk

How do entrepreneurs manage risk? A persistent and widely shared belief is that entrepreneurs are risk seekers; that they like taking risk. Ask anyone in the street or in a classroom, and they will tell you, “An entrepreneur is someone who is courageous, who likes to take risks.” But nothing could be further from the truth. Entrepreneurs don’t like risk; no study has ever shown that. What studies show is that while entrepreneurs are willing to take risks, because they recognize that it is necessary, they try to control them. To do that, they use three principles that are at the core of the entrepreneurial theory called effectuation, proposed twenty years ago by Darden professor Saras Sarasvathy.

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Stop Bothering your Employees with Entrepreneurship

It is decided, the theme of your next company convention will be “All entrepreneurs!” You’ll talk about Google, Tesla, Facebook, plus a Chinese champion for good measure. The manager of your Lab in San Francisco will come to talk about the latest local innovations. You will show a film that will explain “the six qualities of a good entrepreneur” with rock opera music. After a closing speech by the leader who, in essence, will say that it is only a matter of courage, the roadmap will be clear.

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Getting to plan B

Getting to plan B, by John Mullins and Randy Komisar, is an important book. In short, the thesis of the book is that successful startups very often had to change their initial business plan. To quote Mullins and Komisar: "If the founders of Google, Paypal or Starbucks had stuck to their original business plans, we'd likely never had heard of them." The startup process, largely driven by poorly conceived business plans based on untested assumptions, is seriously flawed. And the authors to give a few interesting examples of business plans changes that were successful. If only for this, the book is important because, despite many criticisms, business planning remains the cornerstone of entrepreneurship courses at business school, and well honed business plans are a must-have to pitch venture capital. The fact that no business plan survives the first encounter with reality seems to bother no one in industry. Importantly, the flaw does not lie in some limitations of the planners. In other words, it is not because of poor planners that business plans are useless, or even harmful. It is the very process of planning that is problematic. Behind the notion of planning lie the idea that to control the future, we need to predict it. However, recent research on entrepreneurship by Sarasvathy (see the concept of effectuation) showed that in uncertain environments, it is simply not possible to predict the future. Hence prediction is really a gamble.

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