April 30, 2011

Effectual Entrepreneurship

Extracts from a Mint interview with Stuart Read, professor of entrepreneurship at Switzerland's International Institute for Management and Development, and author of Effectual Entrepreneurship:
The first thing they do differently is they start with the stuff they have available. This is called starting with the means rather than the goal. An entrepreneur will, for example, set out saying he knows software and partner with someone who knows graphic design and get into making graphic skins for the iPad. But in talking to the customers, he may discover that a security service is what people really want and he will end up making this.

...The other thing they do differently is how they approach competition. In management, we teach how to look at competition using Porter’s five forces. Do you think the Freitag brothers bothered about competition? They cared more about working with partners, their bicycle messengers who would help them create a market. Looking at partnerships in the early stage is more useful than looking at competition.

...Thirdly, people love talking about the risk-taking entrepreneur. The truth is expert entrepreneurs take on very little risk...Our research shows that expert entrepreneurs look at the worst case, instead—if he’s spending six months and $20,000, he will ask himself if he will be broke and on the streets when it doesn’t work. If the answer is no, he will do it. All of a sudden, the huge uncertainty about whether five million people will buy the iPad application goes away. Expert entrepreneurs make it okay for themselves to fail. They always make investments they can recover.

The next effectual entrepreneurship trait is how they deal with surprise. If you make a plan, what do you do when a surprise comes? The expert entrepreneur uses it to create a new opportunity. The best example is the Post-it, an engineer at 3M trying to make an engineering adhesive.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. Click Here to learn about Venture Intelligence products that help entrepreneurs reach out effectively to the investing community.